EX-99.1 2 ex99-1.txt PRESS RELEASE Company Release - 08/03/2006 23:45 _________________ Scottish Re Group Limited Announces Operating Results for the Second Quarter Ended June 30, 2006 HAMILTON, Bermuda--(BUSINESS WIRE)--Aug. 3, 2006-- Scottish Re Group Limited (NYSE:SCT) today reported that the net loss available to ordinary shareholders for the three months ended June 30, 2006 was $123.9 million, or a loss of $2.31 per diluted ordinary share, as compared to net income available to ordinary shareholders of $1.6 million, or $0.03 per diluted ordinary share for the prior year period. The net loss available to ordinary shareholders for the six months ended June 30, 2006 was $112.3 million, or a loss of $2.10 per diluted ordinary share, as compared to net income available to ordinary shareholders of $35.0 million, or $0.76 per diluted ordinary share for the prior year period. The net operating loss available to ordinary shareholders was $130.3 million, or a loss of $2.43 per diluted ordinary share for the three months ended June 30, 2006 as compared to net operating earnings of $19.7 million or $0.42 per diluted ordinary share for the prior year period. The net operating loss available to ordinary shareholders was $116.0 million, or a loss of $2.17 per diluted ordinary share for the six months ended June 30, 2006 as compared to net operating earnings of $46.6 million or $1.01 per diluted ordinary share for the prior year period. "The results for the quarter are a sharp departure from our original projections and estimates provided to our stakeholders" said Paul Goldean, Interim Chief Executive Officer. "While we are very disappointed with the results, we believe that the core fundamentals of the business are sound. In fact, our mortality experience for the quarter was in line with expectations." The net operating loss for the second quarter was primarily attributable to the following factors: i. Tax expense of $89.0 million principally related to a $112.4 million valuation allowance established on deferred tax assets. The valuation allowance resulted from revised statutory and tax projections of the Company combined with a reassessment of certain tax planning strategies; ii. An approximate $8.0 million reduction in premium accruals in North America resulting from a revision of estimates relating to prior periods; iii. A deferred acquisition cost adjustment of approximately $13.0 million due to higher than expected lapses on certain fixed annuity treaties; iv. External retrocession and reserve adjustments of approximately $21.0 million due to revisions in estimates resulting from improved data and systems which administer retrocession accounts; and v. Severance and retirement and other non-recurring operating expenses of approximately $9.0 million. "It is important, however, to keep the loss in perspective and to note that Scottish Re continues to have sufficient sources of liquidity, collateral and capital to meet the near-term needs of the business." said Dean Miller, Chief Financial Officer. "Of particular note is that all operating subsidiaries remain capitalized well in excess of their minimum required levels as prescribed by their respective Regulators. We look forward to sharing additional information at our scheduled earnings call and additionally, have posted to our web-site, www.scottishre.com, a Financial Supplement to add further clarification to our financial results for the quarter." Total revenues for the three months ended June 30, 2006 increased to $593.6 million from $502.0 million for the prior year period, an increase of 18%. Excluding realized gains and losses and the change in value of the embedded derivatives, total revenues for the three months ended June 30, 2006 increased to $597.6 million from $523.2 million for the prior year period, an increase of 14%. Total revenues for the six months ended June 30, 2006 increased to $1,171.9 million from $1,058.6 million for the prior year period, an increase of 11%. Excluding realized gains and losses and the change in value of the embedded derivatives, total revenues for the six months ended June 30, 2006 increased to $1,179.3 million from $1,071.0 million for the prior year period, an increase of 10%. Premiums earned in the three months ended June 30, 2006 were negatively impacted by revisions to previous premium accrual estimates of approximately $8 million (pre-tax) and adjustments related to retro premiums of approximately $13 million (pre-tax). The investment portfolio, which increased by $1.74 billion from the closing of the Ballantyne Re transaction in May, continued to perform well with an average yield of 5.5% compared to an average yield for the first quarter 2006 of 5.3%. Total benefits and expenses increased to $626.0 million for the three months ended June 30, 2006 from $508.8 million for the prior year period, an increase of 23%. Total benefits and expenses increased to $1,197.8 million for the six months ended June 30, 2006 from $1,032.0 million for the prior year period, an increase of 16%. Total benefits and expenses exceeded estimates due to refinements in our external retrocession reserves of approximately $7 million (pre-tax). In addition, an adjustment of approximately $13 million (pre-tax) to write-down deferred acquisition costs was made to reflect the Company's current best estimate of lapses on certain fixed annuity treaties. 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 six months ended June 30, 2006 was 6.0%, as compared to an operating expense ratio of 5.0% for the year ended December 31, 2005. Operating expenses for the quarter were negatively impacted by severance and retirement expenses of approximately $5.0 million, expenses related to the International segment expansion and various professional fees that on a combined basis amounted to an additional $3.0 million. For the three months ended June 30, 2006, the Company had a pre-tax loss of $32.4 million before Minority Interest and recorded an initial tax benefit of $23.4 million on those losses. In addition, the Company recorded a $112.4 million valuation allowance resulting in a total tax charge of $89.0 million for the period. The Company's book value per share was $17.73 at June 30, 2006 as compared to $21.48 per share at December 31, 2005. Fully converted book value per share was $19.27 at June 30, 2006 as compared to $21.17 at December 31, 2005. The Company's earnings conference call will be held at 8:30 am (EDT) on Friday, August 4, 2006. The dial-in number is 877-502-2902 or 706-679-5950 and the conference ID is 2906522. A replay of the call will be available beginning at 12:30 pm on Friday, August 4, 2006 and running through Friday, August 18, 2006. The dial-in number for the replay is 800-642-1687 or 706-645-9291 and the conference ID is 2906522. An on-demand replay of the conference call will be available at the Company's Web site, www.scottishre.com. About Scottish Re Scottish Re Group Limited is a global life reinsurance specialist. Scottish Re has operating businesses in Bermuda, Grand Cayman, Guernsey, Ireland, Singapore, the United Kingdom and the United States. Its flagship operating subsidiaries include Scottish Annuity & Life Insurance Company (Cayman) Ltd. and Scottish Re (U.S.), Inc.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, 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. (Tables to follow) Scottish Re Group Limited Financial Highlights (Stated in Thousands of United States Dollars, Except Share Data) (Unaudited) Three months ended Six months ended June 30 June 30 ----------------------- ----------------------- 2006 2005 2006 2005 ----------- ----------- ----------- ----------- Total revenue $593,626 $502,046 $1,171,947 $1,058,609 Net operating earnings (loss) available to ordinary shareholders* (130,313) 19,715 (116,038) 46,645 Net income (loss) (121,590) 1,591 (107,741) 35,011 Net income (loss) available to ordinary shareholders (123,927) 1,591 (112,344) 35,011 Net operating earnings (loss) per ordinary share Basic $(2.43) $0.45 $(2.17) $1.12 Diluted $(2.43) $0.42 $(2.17) $1.01 Earnings (loss) per ordinary share Basic $(2.31) $0.04 $(2.10) $0.84 Diluted $(2.31) $0.03 $(2.10) $0.76 Dividends declared per ordinary share $0.00 $0.05 $0.05 $0.10 Weighted average ordinary shares Outstanding Basic 53,720,242 43,462,385 53,578,152 41,726,320 Diluted 53,720,242 47,136,889 53,578,152 46,179,275 *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, and taxes related to these items as well as dividends on the perpetual preferred shares and imputed dividend on prepaid variable share forward contract. June 30, December, 2006 2005 ----------------------------------------------- Book value per ordinary share $17.73 $21.48 Basic book value per ordinary share - excluding other comprehensive income and value of embedded derivatives $19.45 $ 21.89 Fully diluted book value per ordinary share - excluding other comprehensive income and value of embedded derivatives $19.27 $21.17 Scottish Re Group Limited Consolidated Balance Sheets (Stated in Thousands of United States Dollars, Except Share Data) June 30, December 31, 2006 2005 ------------ -------------- (Unaudited) Assets Fixed maturity investments $8,126,980 $5,292,595 Preferred stock 128,137 133,804 Cash and cash equivalents 1,563,341 1,420,205 Other investments 64,701 54,619 Funds withheld at interest 2,175,141 2,597,416 ------------ -------------- Total investments 12,058,300 9,498,639 Accrued interest receivable 71,411 44,012 Reinsurance balances and risk fees receivable 306,454 325,372 Deferred acquisition costs 643,211 594,583 Amounts recoverable from reinsurers 532,000 551,288 Present value of in-force business 52,924 54,743 Goodwill 34,125 34,125 Other assets 124,349 87,198 Deferred tax benefit 5,901 55,453 Segregated assets 776,048 760,707 ------------ -------------- Total assets $14,604,723 $12,006,120 ============ ============== Liabilities Reserves for future policy benefits $4,101,799 $3,477,222 Interest sensitive contract liabilities 4,089,373 3,907,573 Collateral finance facilities 3,725,161 1,985,681 Loans payable 64,856 - Accounts payable and other liabilities 71,528 83,130 Reinsurance balances payable 187,438 114,078 Current income tax payable 3,487 9,155 Long term debt 244,500 244,500 Segregated liabilities 776,048 760,707 ------------ -------------- Total liabilities 13,264,190 10,582,046 ------------ -------------- Minority interest 9,284 9,305 Mezzanine equity 143,359 143,057 Shareholders' equity Ordinary shares, par value $0.01 per share: Issued: 53,745,156 shares (2005 - 53,391,939) 537 534 Preferred shares, par value $0.01 per share: Issued: 5,000,000 shares (2005 - 5,000,000) 125,000 125,000 Additional paid- in capital 903,422 893,767 Prepaid variable share forward contract 110,031 - Accumulated other comprehensive income (95,799) (9,991) Retained earnings 144,699 262,402 ------------ -------------- Total shareholders' equity 1,187,890 1,271,712 ------------ -------------- Total liabilities, minority interest, mezzanine equity and shareholders' equity $14,604,723 $12,006,120 ============ ============== Scottish Re Group Limited Consolidated Statements of Income (Loss) (Stated in Thousands of United States Dollars) (Unaudited) Three months ended Six months ended June 30 June 30 -------------------- --------------------- 2006 2005 2006 2005 ---------- --------- ---------- ---------- Revenues Premiums earned $444,942 $436,893 $893,963 $900,573 Investment income, net 147,977 83,554 276,999 164,033 Fee income 4,639 2,785 8,372 6,409 Realized gains (losses) (11,298) 934 (24,899) 4,229 Change in value of embedded derivatives, net 7,366 (22,120) 17,512 (16,635) ---------- --------- ---------- ---------- Total revenues 593,626 502,046 1,171,947 1,058,609 ---------- --------- ---------- ---------- Benefits and expenses Claims and other policy benefits 372,101 311,493 746,564 674,766 Interest credited to interest sensitive contract liabilities 55,399 31,723 98,100 62,365 Acquisition costs and other insurance expenses, net 104,872 122,494 192,403 214,136 Operating expenses 39,365 26,500 70,457 51,069 Collateral finance facilities expense 47,236 11,821 78,323 19,241 Interest expense 7,066 4,813 11,959 10,407 ---------- --------- ---------- ---------- Total benefits and expenses 626,039 508,844 1,197,806 1,031,984 ---------- --------- ---------- ---------- Income (loss) before income taxes and minority interest (32,413) (6,798) (25,859) 26,625 Income tax benefit (expense) (89,043) 8,187 (81,586) 8,555 ---------- --------- ---------- ---------- Income (loss) before minority interest (121,456) 1,389 (107,445) 35,180 Minority interest (134) 202 (296) (169) ---------- --------- ---------- ---------- Net income (loss) (121,590) 1,591 (107,741) 35,011 Dividends declared on non- cumulative preferred shares (2,265) - (4,531) - Imputed dividend on prepaid variable share forward contract (72) - (72) - ---------- --------- ---------- ---------- Net income (loss) available to ordinary shareholders $(123,927) $1,591 $(112,344) $35,011 ========== ========= ========== ========== Scottish Re Group Limited Supplemental Information - Net Operating Earnings (Loss) (Stated in Thousands of United States Dollars, Except Share Data) (Unaudited) Three months ended Six months ended June 30 June 30 ----------------------- ----------------------- 2006 2005 2006 2005 ----------- ----------- ----------- ----------- Net operating earnings (loss) available to ordinary shareholders ---------------------- Net income (loss) available to ordinary shareholders $(123,927) $1,591 $(112,344) $35,011 Realized losses (gains) 11,298 (934) 24,899 (4,229) Change in value of embedded derivatives, net (7,366) 22,120 (17,512) 16,635 Taxes on realized gains (losses) and change in value of embedded derivatives (10,318) (3,062) (11,081) (772) ----------- ----------- ----------- ----------- Net operating earnings (loss) available to ordinary shareholders $(130,313) $19,715 $(116,038) $46,645 =========== =========== =========== =========== Net operating earnings (loss) per share available to ordinary shareholders Basic $(2.43) $0.45 $(2.17) $1.12 Diluted $(2.43) $0.42 $(2.17) $1.01 =========== =========== =========== =========== Weighted average number of ordinary shares outstanding Basic 53,720,242 43,462,385 53,578,152 41,726,320 Diluted 53,720,242 47,136,889 53,578,152 46,179,275 "Net operating earnings (loss) available to ordinary shareholders" is a non-GAAP measurement. The Company determines net operating earnings (loss) available to ordinary shareholders by adjusting net income (loss) 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. 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 (loss) 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 (loss) available to ordinary shareholders is not a substitute for net income (loss) determined in accordance with GAAP. Reconciliations to net income (loss) available to ordinary shareholders are provided in the following tables. Scottish Re Group Limited Supplemental Information - Segment Operating Results (Stated in Thousands of United States Dollars) (Unaudited) Life Reinsurance North America Three months ended Six months ended June 30 June 30 ------------------- -------------------- 2006 2005 2006 2005 --------- --------- --------- ---------- Premiums earned, net $407,549 $408,877 $836,467 $845,972 Investment income, net 136,763 80,956 260,704 158,487 Fee income 3,879 2,007 6,896 4,907 Realized gains (losses) (5,479) 2,208 (19,398) 3,650 Change in value of embedded derivatives, net 7,366 (22,120) 17,512 (16,635) --------- --------- ---------- --------- Total revenues 550,078 471,928 1,102,181 996,381 --------- --------- ---------- --------- Claims and other policy benefits 338,626 293,599 685,906 637,787 Interest credited to interest sensitive contract liabilities 55,399 31,723 98,100 62,365 Acquisition costs and other insurance expenses, net 97,280 117,927 181,688 206,205 Operating expenses 14,538 10,221 29,130 21,894 Collateral finance facilities expense 45,891 10,448 76,434 16,633 Interest expense 3,038 2,657 5,600 5,365 --------- --------- ---------- --------- Total benefits and expenses 554,772 466,575 1,076,858 950,249 --------- --------- ---------- --------- Income (loss) before income taxes and minority interest $(4,694) $5,353 $25,323 $46,132 ========= ========= ========== ========= Pre tax operating earnings (loss) --------------------------------- Pre-tax income (loss) $(4,694) $5,353 $25,323 $46,132 Realized losses (gains) 5,479 (2,208) 19,398 (3,650) Change in value of embedded derivatives, net (7,366) 22,120 (17,512) 16,635 --------- --------- ---------- --------- Pre-tax operating earnings (loss) $(6,581) $25,265 $27,209 $59,117 ========= ========= ========== ========= Scottish Re Group Limited Supplemental Information - Segment Operating Results (continued) (Stated in Thousands of United States Dollars) (Unaudited) Life Reinsurance International Three months ended Six months ended June 30 June 30 ------------------ ------------------ 2006 2005 2006 2005 --------- -------- --------- -------- Premiums earned, net $37,393 $28,016 $57,496 $54,601 Investment income, net 8,971 2,352 11,960 4,942 Realized gains (losses) (6,908) 88 (8,046) 585 --------- -------- --------- -------- Total revenues 39,456 30,456 61,410 60,128 --------- -------- --------- -------- Claims and other policy benefits 33,475 17,894 60,658 36,979 Acquisition costs and other insurance expenses, net 6,185 4,053 9,002 6,898 Operating expenses 7,874 7,285 13,651 13,134 --------- -------- --------- -------- Total benefits and expenses 47,534 29,232 83,311 57,011 --------- -------- --------- -------- Income (loss) before income taxes $(8,078) $1,224 $(21,901) $3,117 ========= ======== ========= ======== Pre-tax operating earnings (loss) --------------------------------- Pre-tax income (loss) $(8,078) $1,224 $(21,901) $3,117 Realized losses (gains) 6,908 (88) 8,046 (585) --------- -------- --------- -------- Pre-tax operating earnings (loss) $(1,170) $1,136 $(13,855) $2,532 ========= ======== ========= ======== Scottish Re Group Limited Supplemental Information - Segment Operating Results (continued) (Stated in Thousands of United States Dollars) (Unaudited) Corporate & Other Three months ended Six months ended June 30 June 30 ------------------- ------------------- 2006 2005 2006 2005 --------- --------- --------- --------- Investment income, net $2,243 $246 $4,335 $604 Fee income 760 778 1,476 1,502 Realized gains (losses) 1,089 (1,362) 2,545 (6) --------- --------- --------- --------- Total revenues 4,092 (338) 8,356 2,100 --------- --------- --------- --------- Acquisition costs and other insurance expenses, net 1,407 514 1,713 1,033 Operating expenses 16,953 8,994 27,676 16,041 Collateral finance facilities expense 1,345 1,373 1,889 2,608 Interest expense 4,028 2,156 6,359 5,042 --------- --------- --------- --------- Total benefits and expenses 23,733 13,037 37,637 24,724 --------- --------- --------- --------- Loss before income taxes $(19,641) $(13,375) $(29,281) $(22,624) ========= ========= ========= ========= Pre-tax operating loss ---------------------- Pre-tax loss $(19,641) $(13,375) $(29,281) $(22,624) Realized losses (gains) (1,089) 1,362 (2,545) 6 --------- --------- --------- --------- Pre-tax operating loss $(20,730) (12,013) $(31,826) $(22,618) ========= ========= ========= ========= Source: Scottish Re Group Limited Contact: Scottish Re Group Limited Dean E. Miller, 441-298-4395 dean.miller@scottishre.com