EX-99.1 2 ex99-1.txt PRESS RELEASE Scottish Re Group Limited Announces Operating Results for the Fourth Quarter and Year Ended December 31, 2005 Company Release - 02/16/2006 17:51 HAMILTON, Bermuda, Feb. 16 /PRNewswire-FirstCall/ -- Scottish Re Group Limited (NYSE: SCT) today reported that net income available to ordinary shareholders for the quarter ended December 31, 2005 was $58.5 million, or $1.18 per diluted ordinary share, as compared to $21.0 million, or $0.56 per diluted ordinary share for the prior year period. Net income available to ordinary shareholders for the year ended December 31, 2005 was $125.4 million or $2.64 per diluted ordinary share, as compared to $71.4 million, or $1.90 per diluted ordinary share for the prior year period. Net operating earnings available to ordinary shareholders were $50.8 million, or $1.03 per diluted ordinary share for the quarter ended December 31, 2005 as compared to $26.8 million, or $0.71 per diluted ordinary share for the prior year period. Net operating earnings available to ordinary shareholders was $130.1 million, or $2.74 per diluted ordinary share for the year ended December 31, 2005 as compared to $80.4 million, or $2.14 per diluted ordinary share for the prior year period. "Net operating earnings available to ordinary shareholders" is a non-GAAP measurement. The Company determines net operating earnings available to ordinary shareholders by adjusting net income available to ordinary shareholders 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 related to these items as well as acquisition-related due diligence costs in 2004. 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 available to ordinary shareholders enhances the understanding of its results of operations by highlighting earnings attributable to the normal, recurring operation of its reinsurance business. However, net operating earnings available to ordinary shareholders are not a substitute for net income determined in accordance with GAAP. Reconciliations to net income available to ordinary shareholders are provided in the following tables. "We are very pleased with the results for the quarter ended December 31, 2005. With this strong performance, we have met our earnings guidance for both the quarter and full year and significantly enhanced the return on equity to our shareholders. These quality earnings were driven by the excellent contribution made from our traditional reinsurance business in North America but performance from all areas of the business was solid for the period. In addition, I am particularly pleased with the successful completion of the integration of the ING business and the migration of our administration operations from Charlotte to Denver. Finally, the capital market transactions completed in December capped an excellent year for our Company and I look forward to carrying this momentum into 2006," said Scott E. Willkomm, President and Chief Executive Officer of Scottish Re Group Limited. Total revenues for the quarter increased to $675.0 million from $211.1 million for the prior year period, an increase of 220%. Excluding realized gains and losses and the change in value of the embedded derivatives, total revenues for the quarter increased to $666.0 million from $211.6 million for the prior year period, an increase of 215%. Total revenues for the year ended December 31, 2005 increased to $2.3 billion from $814.4 million for the prior year, an increase of 182%. Excluding realized gains and losses and the change in value of the embedded derivatives, total revenues for the year increased to $2.3 billion from $818.1 million for the prior year, an increase of 181%. Total benefits and expenses increased to $615.8 million for the quarter from $200.1 million, an increase of 208%. For the year ended December 31, 2005, total benefits and expenses increased to $2.2 billion from $758.9 million, an increase of 188%. The increases in revenues and expenses were principally driven by the acquisition on December 31, 2004 of the ING individual life reinsurance 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 and losses and the change in value of embedded derivatives) for the year ended December 31, 2005 was 5.0%, as compared to an operating expense ratio of 6.7% for the year ended December 31, 2004. The Company's total assets were $12.0 billion as of December 31, 2005. The core investment portfolio, comprising fixed maturity investments, preferred stock and most of the cash and cash equivalents, totaled $6.8 billion, and had an average quality rating of "AA", an effective duration of 2.9 years and a weighted average book yield of 4.9%. 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 $2.3 billion, had an average quality rating of "A+", an effective duration of 5.1 years and a weighted average book yield of 5.6% at December 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. The market value of the funds withheld at interest amounted to $2.6 billion at December 31, 2005. As of December 31, 2005, the Company had approximately $1.0 trillion of life reinsurance in force covering 13.5 million lives with an average benefit per life of $76,000 in our North American operations. As of December 31, 2004, the Company had just over $1.0 trillion of life reinsurance in force covering 14.2 million lives with an average benefit per life of $71,000 in our North American operations. The Company's book value per ordinary share was $21.48 at December 31, 2005 as compared to $21.60 per share at December 31, 2004. Fully diluted book value per share was $21.17 at December 31, 2005 as compared to $19.43 at December 31, 2004. The Company's return on average shareholders' equity for the year - measured by dividing net operating earnings available to ordinary shareholders by average shareholders' equity excluding the effect of other comprehensive income and the change in value of embedded derivatives - was 12.98% compared to 10.90% in 2004. On December 21, 2005, the Company closed its second securitization of excess reserves arising from Regulation XXX offering $455.0 million of 30-year maturity securities through Orkney Re II plc, an Irish special purpose vehicle. Consistent with the first securitization, the securities have recourse only to Orkney Re II and not to any other Scottish Re entity. Also in December, the Company completed two transactions that together provided approximately $2.0 billion in collateral to fund Regulation XXX reserve requirements that were assumed in connection with the acquisition of ING Re's individual life reinsurance business. The first transaction is a 20 year collateral finance facility with HSBC Bank USA that provides approximately $1.0 billion of Regulation XXX support and an enhancement to the facility that was originally completed in 2004. The second transaction is a long-term reinsurance facility with a third party, Bermuda-domiciled reinsurer that provides up to $1.0 billion of Regulation XXX collateral support. On December 23, 2005, the Company completed a public offering of 7,660,000 shares (which includes the over allotment option of 1,410,000 shares) priced at $24.00 per share which yielded net proceeds of $174.1 million. In addition, the Company entered into forward equity sale agreements with Bear, Stearns & Co. Inc. and Lehman Brothers Inc. who agree to pay the Company $75.0 million in the third quarter of 2006 and an additional $75.0 million in the fourth quarter of 2006, subject to the Company's right to receive a portion of such payment prior to the settlement dates. In exchange, on each of such dates the Company has the option to deliver to Bear, Stearns & Co. Inc. and Lehman Brothers Inc. a variable number of ordinary shares based on the average market price of the ordinary shares, subject to a floor price of $22.80 and a cap price of $28.80. Dean E. Miller, Chief Financial Officer, noted "Within just twelve months of purchase, the Company has successfully and fully integrated the ING business and secured permanent funding for more than 40% of Regulation XXX reserve requirements associated with the block of business. These accomplishments clearly illustrate the Company's operational and financial effectiveness when large blocks of business are acquired." The Company's earnings conference call will be held at 11:00 a.m. (EST) on Friday, February 17, 2006. The dial-in number is (877) 502 2902 or (706) 679 5950 and the reservation number is 4083288. A replay of the call will be available beginning at 1:00 pm on Friday, February 17, 2006 and running through Friday, March 3, 2006. The dial-in number for the replay is (800) 642 1687 or (706) 645 9291 and the PIN code is 4083288. 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. Scottish Re has operating companies in Bermuda, Charlotte, North Carolina, Dublin, Ireland, Grand Cayman, Windsor, England and a representative office in Singapore. Its flagship 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, which is rated A- (excellent) by A.M. Best. Scottish Re Capital Markets, Inc., a member of Scottish Re Group Limited, is a registered broker dealer that specializes in securitization of life insurance assets and liabilities. Additional information about Scottish Re Group Limited 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 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 Share Data) (Unaudited) Three months Three months ended ended Year ended Year ended December 31, December 31, December 31, December 31, 2005 2004 2005 2004 Total revenues $674,980 $211,113 $2,297,329 $814,387 Net operating earnings available to ordinary shareholders* 50,777 26,817 130,058 80,360 Net income 60,776 21,046 130,197 71,391 Net income available to ordinary shareholders 58,510 21,046 125,439 71,391 Net operating earnings per ordinary share Basic $1.10 $0.75 $2.97 $2.25 Diluted $1.03 $0.71 $2.74 $2.14 Earnings per ordinary share Basic $1.26 $0.58 $2.86 $2.00 Diluted $1.18 $0.56 $2.64 $1.90 Dividends per ordinary share $0.05 $0.05 $0.20 $0.20 Weighted average ordinary shares Outstanding Basic 46,312,567 35,981,436 43,838,261 35,732,522 Diluted 49,450,464 37,847,645 47,531,116 37,508,292 *Excludes the effects of 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, taxes related to these items as well as acquisition-related due diligence costs in 2004, and dividends on the perpetual preferred shares. December 31, December 31, 2005 2004 Basic book value per ordinary share $21.48 $21.60 Basic book value per ordinary share - excluding other comprehensive income and value of embedded derivatives $21.89 $20.92 Fully diluted book value per ordinary share - excluding other comprehensive income and value of embedded derivatives $21.17 $19.43 Scottish Re Group Limited Consolidated Balance Sheets (Stated in Thousands of United States Dollars, Except Share Data) December 31, December 31, 2005 2004 (Unaudited) Assets Fixed maturity investments $5,292,595 $3,392,463 Preferred stock 133,804 125,204 Cash and cash equivalents 1,420,205 794,639 Other investments 54,619 16,250 Funds withheld at interest 2,292,659 2,056,280 Total investments 9,193,882 6,384,836 Accrued interest receivable 44,012 32,092 Reinsurance balances and risk fees receivable 630,129 495,517 Deferred acquisition costs 594,583 417,306 Amounts recoverable from reinsurers 551,288 680,956 Present value of in-force business 54,743 62,164 Goodwill 34,125 34,125 Other assets 87,198 38,926 Current income tax receivable - 7,712 Deferred tax benefit 55,453 15,030 Segregated assets 760,707 783,573 Total assets $12,006,120 $8,952,237 Liabilities Reserves for future policy benefits $3,477,222 $3,301,715 Interest sensitive contract liabilities 3,907,573 3,181,447 Collateral finance facilities 1,985,681 200,000 Accounts payable and other liabilities 83,130 68,311 Reinsurance balances payable 114,078 116,589 Current income tax payable 9,155 - 7.00% Convertible junior subordinated notes - 41,282 Long term debt 244,500 244,500 Segregated liabilities 760,707 783,573 Total liabilities 10,582,046 7,937,417 Minority interest 9,305 9,697 Mezzanine equity 143,057 142,449 Shareholders' equity Ordinary shares, par value $0.01 per share: Issued 53,391,939 shares (2004 - 39,931,145) 534 399 Preferred shares, par value $0.01: Issued: 5,000,000 shares 125,000 - Additional paid- in capital 893,767 684,719 Accumulated other comprehensive income (9,991) 31,604 Retained earnings 262,402 145,952 Total shareholders' equity 1,271,712 862,674 Total liabilities, minority interest, mezzanine equity and shareholders' equity $12,006,120 $8,952,237 Scottish Re Group Limited Consolidated Statements of Income (Stated in Thousands of United States Dollars) (Unaudited) Three months Three months ended ended Year ended Year ended December 31, December 31 December 31, December 31, 2005 2004 2005 2004, Revenues Premiums earned, net $563,262 $152,089 $1,933,930 $589,445 Investment income, net 99,672 56,699 355,837 217,138 Fee income 3,106 2,860 12,316 11,547 Realized gains (losses) (1,834) (4,640) 3,738 (8,304) Change in value of embedded derivatives, net 10,774 4,105 (8,492) 4,561 Total revenues 674,980 211,113 2,297,329 814,387 Benefits and expenses Claims and other policy benefits 411,613 103,109 1,442,505 425,965 Interest credited to interest sensitive contract liabilities 33,879 29,182 132,968 106,525 Acquisition costs and other insurance expenses, net 118,424 40,292 423,775 151,405 Operating expenses 31,595 17,689 115,573 54,658 Due diligence costs - 4,643 - 4,643 Collateral finance facilities expense 15,675 1,339 48,146 2,724 Interest expense 4,641 3,891 20,738 13,016 Total benefits and expenses 615,827 200,145 2,183,705 758,936 Income from continuing operations before income taxes and minority interest 59,153 10,968 113,624 55,451 Income tax benefit 1,202 10,462 16,434 16,679 Income from continuing operations before minority interest 60,355 21,430 130,058 72,130 Minority interest 421 (176) 139 (531) Income from continuing operations 60,776 21,254 130,197 71,599 Loss from discontinued operations - (208) - (208) Net income 60,776 21,046 130,197 71,391 Dividends declared on non-cumulative perpetual preferred shares (2,266) - (4,758) - Net income available to ordinary shareholders $58,510 $21,046 $125,439 $71,391 Scottish Re Group Limited Supplemental Information - Net Operating Earnings (Stated in Thousands of United States Dollars, Except Per Share Amounts) (Unaudited) Three months Three months ended ended Year ended Year ended December 31, December 31, December 31, December 31, 2005 2004 2005 2004 Net operating earnings available to ordinary shareholders Net income available to ordinary shareholders $58,510 $21,046 $125,439 $71,391 Realized losses (gains) 1,834 4,640 (3,738) 8,304 Change in value of embedded derivatives, net (10,774) (4,105) 8,492 (4,561) Taxes on realized gains/losses and change in value of embedded derivatives 1,207 1,172 (135) 1,162 Due diligence costs (net of taxation of $579) - 4,064 - 4,064 Net operating earnings available to ordinary shareholders $50,777 $26,817 $130,058 $80,360 Net operating earnings per share available to ordinary shareholders Basic $1.10 $0.75 $2.97 $2.25 Diluted $1.03 $0.71 $2.74 $2.14 Weighted average number of ordinary shares outstanding Basic 46,312,567 35,981,436 43,838,261 35,732,522 Diluted 49,450,464 37,847,645 47,531,116 37,508,292 Scottish Re Group Limited Supplemental Information - Segment Operating Results (Stated in Thousands of United States Dollars) (Unaudited) Life Reinsurance North America Three months ended Year ended December 31 December 31 2005 2004 2005 2004 Premiums earned, net $541,679 $113,631 $1,814,875 $466,927 Investment income, net 94,562 54,373 341,539 206,009 Fee income 2,316 7,867 2,071 9,233 Realized gains (losses) (2,368) (6,826) 1,121 (7,974) Change in value of embedded derivatives, net 10,774 4,105 (8,492) 4,561 Total revenues 646,963 167,354 2,158,276 677,390 Claims and other policy benefits 397,777 78,172 1,365,599 344,319 Interest credited to interest sensitive contract liabilities 33,879 29,182 132,968 106,525 Acquisition costs and other insurance expenses, net 114,026 31,477 400,992 131,658 Operating expenses 13,975 4,865 48,849 18,408 Collateral finance facilities expense 14,630 1,339 43,113 2,724 Interest expense 2,396 1,714 10,823 4,605 Total benefits and expenses 576,683 146,749 2,002,344 608,239 Income before income taxes and minority interest $70,280 $20,605 $155,932 $69,151 Pre-tax operating earnings Pre-tax income $70,280 $20,605 $155,932 $69,151 Realized losses (gains) 2,368 6,826 (1,121) 7,974 Change in value of embedded derivatives, net (10,774) (4,105) 8,492 (4,561) Pre-tax operating earnings $61,874 $23,326 $163,303 $72,564 Scottish Re Group Limited Supplemental Information - Segment Operating Results (continued) (Stated in Thousands of United States Dollars) (Unaudited) Life Reinsurance International Three months ended Year ended December 31 December 31 2005 2004 2005 2004 Premiums earned, net $21,583 $38,458 $119,055 $122,518 Investment income, net 3,812 2,195 11,488 10,023 Realized gains 760 1,958 1,263 1,685 Total revenues 26,155 42,611 131,806 134,226 Claims and other policy benefits 13,836 24,937 76,906 81,646 Acquisition costs and other insurance expenses, net 3,889 8,390 20,722 17,634 Operating expenses 5,414 5,692 25,276 18,798 Total benefits and expenses 23,139 39,019 122,904 118,078 Income before income taxes $3,016 $3,592 $8,902 $16,148 Pre-tax operating earnings Pre-tax income $3,016 $3,592 $8,902 $16,148 Realized gains (760) (1,958) (1,263) (1,685) Pre-tax operating earnings $2,256 $1,634 $7,639 $14,463 Scottish Re Group Limited Supplemental Information - Segment Operating Results (continued) (Stated in Thousands of United States Dollars) (Unaudited) Corporate & Other Three months ended Year ended December 31 December 31 2005 2004 2005 2004 Investment income, net $1,298 $131 $2,810 $1,106 Fee income 790 789 3,083 3,680 Realized gains (losses) (226) 228 1,354 (2,015) Total revenues 1,862 1,148 7,247 2,771 Acquisition costs and other insurance expenses, net 509 425 2,061 2,113 Operating expenses 12,206 7,132 41,448 17,452 Due diligence costs - 4,643 - 4,643 Collateral finance facilities 1,045 - 5,033 - expense Interest expense 2,245 2,177 9,915 8,411 Total benefits and expenses 16,005 14,377 58,457 32,619 Loss before income taxes $(14,143) $(13,229) $(51,210) $(29,848) Pre-tax operating loss Pre-tax loss $(14,143) $(13,229) $(51,210) $(29,848) Realised losses (gains) 226 (228) (1,354) 2,015 Due diligence costs - 4,643 - 4,643 Pre-tax operating loss $(13,917) $(8,814) $(52,564) $(23,190) Scottish Re Group Limited Supplemental Information - Book Value Per Ordinary Share and Fully Diluted Book Value Per Ordinary Share (Stated in Thousands of United States Dollars, Except Share Amounts) (Unaudited) Fully diluted book value per ordinary share is a non-GAAP measure, based on total shareholders' equity plus the assumed proceeds from the exercise of outstanding options, warrants, and other convertible securities, divided by the sum of shares, options and warrants outstanding, and the number of shares required upon the conversion of convertible securities. The Company believes that fully diluted book value per ordinary share more accurately reflects the book value that is attributable to an ordinary share. December 31, December 31, 2005 2004 Shareholders' equity - end of period $1,271,712 $862,674 Other comprehensive income 9,991 (31,604) Fair value of embedded derivative, net 11,810 5,162 Preferred shares (125,000) - Net proceeds from assumed: Conversion of options 48,374 37,085 Conversion of warrants 39,750 39,782 Conversion of mezzanine equity 143,750 143,750 Conversion of 7% convertible notes - 41,282 Numerator for diluted book value per share calculation $1,400,387 $1,098,131 Ordinary shares outstanding-end of period 53,391,939 39,931,145 Potential shares issued from assumed: Exercise of options and restricted stock units 3,390,936 2,491,236 Conversion of warrants 2,650,000 5,856,431 Conversion of mezzanine equity 6,099,025 6,099,025 Conversion of 4.5% senior convertible notes 612,780 - Conversion of 7% convertible notes - 2,130,709 Denominator for diluted book value per share calculation 66,144,680 56,508,546 Basic book value per ordinary share $21.48 $21.60 Basic book value per ordinary share - excluding other comprehensive income and value of embedded derivatives $21.89 $20.92 Fully diluted book value per ordinary share - excluding other comprehensive income and the value of embedded derivatives $21.17 $19.43 Dean E. Miller EVP & Chief Financial Officer Scottish Re Group Limited (441) 298-4395 dean.miller@scottishre.com SOURCE Scottish Re Group Limited -0- 02/16/2006 /CONTACT: Dean E. Miller, EVP & Chief Financial Officer, Scottish Re Group Limited, +1-441-298-4395, dean.miller@scottishre.com / /Web site: http://www.scottishre.com / (SCT)