EX-99.1 2 ex99-1.txt PRESS RELEASE Scottish Re Group Limited Announces Operating Results for the Third Quarter Ended September 30, 2006 HAMILTON, Bermuda, Nov. 9 /PRNewswire-FirstCall/ -- Scottish Re Group Limited (NYSE: SCT) today reported that the net loss available to ordinary shareholders for the three months ended September 30, 2006 was $30.5 million, or a loss of $0.54 per diluted ordinary share, as compared to net income available to ordinary shareholders of $31.9 million, or $0.66 per diluted ordinary share for the prior year period. The net loss available to ordinary shareholders for the nine months ended September 30, 2006 was $142.8 million, or a loss of $2.61 per diluted ordinary share, as compared to net income available to ordinary shareholders of $66.9 million, or $1.42 per diluted ordinary share for the prior year period. The net operating loss available to ordinary shareholders was $24.0 million, or a loss of $0.42 per diluted ordinary share for the three months ended September 30, 2006 as compared to net operating earnings of $32.6 million or $0.67 per diluted ordinary share for the prior year period. The net operating loss available to ordinary shareholders was $140.0 million, or a loss of $2.56 per diluted ordinary share for the nine months ended September 30, 2006 as compared to net operating earnings of $79.3 million or $1.68 per diluted ordinary share for the prior year period. "The Company has been in a very difficult period the past several months, but has continued to maintain its focus on the core business. Excluding the expected one-off expenses related to our current situation and the unusually high tax expense for the quarter, the third quarter results reflect an underlying core profitability that is within our expectations. It is important to note that our mortality continues to be in line with expectations," said Paul Goldean, Chief Executive Officer of Scottish Re Group Limited. Mr. Goldean further added, "We are continuing our pursuit of strategic alternatives for Scottish Re, including a possible sale of the Company or a significant equity infusion by new investors. At this time, we cannot give assurances that an agreement with any party will be reached, or the price at which a transaction may be consummated, which may be below the share price as of market close on November 9, 2006. However, we do expect the process to conclude within the next several weeks." "In view of the confidential and sensitive nature of negotiations at this time, we will not be holding our usual earnings conference call. We do not expect to make any further announcements, nor can we answer any inquiries about the process until an agreement is reached or we have otherwise terminated the process. We ask our stakeholders to review our Form 10Q and Financial Data Supplement, both of which are available on our website, for additional details regarding our third quarter financial results." Total revenues for the three months ended September 30, 2006 increased to $611.3 million from $563.7 million for the prior year period, an increase of 8%. Excluding realized gains and losses and the change in value of the embedded derivatives, total revenues for the three months ended September 30, 2006 increased to $618.3 million from $565.0 million for the prior year period, an increase of 9%. Total revenues for the nine months ended September 30, 2006 increased to $1,783.3 million from $1,622.3 million for the prior year period, an increase of 10%. Excluding realized gains and losses and the change in value of the embedded derivatives, total revenues for the nine months ended September 30, 2006 increased to $1,797.6 million from $1,636.0 million for the prior year period, an increase of 10%. Total benefits and expenses increased to $618.2 million for the three months ended September 30, 2006 from $535.9 million for the prior year period, an increase of 15%. Total benefits and expenses increased to $1,816.0 million for the nine months ended September 30, 2006 from $1,567.9 million for the prior year period, an increase of 16%. 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 nine months ended September 30, 2006 was 6.1%, as compared to an operating expense ratio of 5.0% for the year ended December 31, 2005. The increase in operating expense ratio is directly related to the additional severance, legal, actuarial and directors' costs incurred as a result of our current situation and strategic process. For the three months ended September 30, 2006, the Company had a pre-tax loss of $6.8 million before minority interest as compared to a pre-tax profit of $27.8 million for the prior year period. Income tax expense in the third quarter ended September 30, 2006 was $20.8 million compared to an income tax benefit of $6.7 million in the same period in 2005. The change in our effective tax rate in the third quarter ended September 30, 2006 compared to the same period in 2005 is primarily related to a $30.1 million valuation allowance established on deferred tax assets. Scottish Re has submitted its Form 10Q to the Securities and Exchange Commission (SEC); however, due to the Veteran's Day holiday tomorrow, the form will not be available via the SEC website until Monday, November 13, 2006. The Company's Form 10Q is immediately available on Scottish Re's website, www.scottishre.com, along with a Financial Data Supplement that provides further clarification of the third quarter financial results. 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 website, 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; 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); changes in expectations regarding future realization of gross deferred tax assets; uncertainties about our ability to raise equity capital or other sources of liquidity; 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. Dean E. Miller Scottish Re Group Limited Tel. # (441) 298-4395 dean.miller@scottishre.com Scottish Re Group Limited Financial Highlights (Stated in Thousands of United States Dollars, Except Share Data) (Unaudited) Three months ended Nine months ended September 30 September 30 2006 2005 2006 2005 Total revenue $611,346 $563,740 $1,783,293 $1,622,349 Net operating earnings (loss) available to ordinary shareholders* (23,953) 32,636 (139,984) 79,281 Net income (loss) (27,415) 34,410 (135,156) 69,421 Net income (loss) available to ordinary shareholders (30,490) 31,918 (142,834) 66,929 Net operating earnings (loss) per ordinary share Basic $(0.42) $0.72 $(2.56) $1.84 Diluted $(0.42) $0.67 $(2.56) $1.68 Earnings (loss) per ordinary share Basic $(0.54) $0.70 $(2.61) $1.56 Diluted $(0.54) $0.66 $(2.61) $1.42 Dividends declared per ordinary share $ - $0.05 $0.10 $0.15 Weighted average ordinary shares outstanding Basic 56,933,566 45,517,832 54,708,914 43,004,046 Diluted 56,933,566 48,543,262 54,708,914 47,080,247 * 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. September 30, December 31, 2006 2005 Book value per ordinary share $19.13 $21.48 Basic book value per ordinary share - excluding other comprehensive income and value of embedded derivatives $19.27 $21.89 Fully diluted book value per ordinary share - excluding other comprehensive income and value of embedded derivatives $18.94 $21.17 Scottish Re Group Limited Consolidated Balance Sheets (Stated in Thousands of United States Dollars, Except Share Data) September 30, December 31, 2006 2005 (Unaudited) Assets Fixed maturity investments $7,526,756 $5,292,595 Preferred stock 129,977 133,804 Cash and cash equivalents 1,356,092 1,420,205 Other investments 65,130 54,619 Funds withheld at interest 2,076,097 2,597,416 Total investments 11,154,052 9,498,639 Accrued interest receivable 59,767 44,012 Reinsurance balances and risk fees receivable 423,759 325,372 Deferred acquisition costs 620,412 594,583 Amounts recoverable from reinsurers 570,834 551,288 Present value of in-force business 51,471 54,743 Goodwill 34,125 34,125 Other assets 172,072 87,198 Deferred tax benefit - 55,453 Segregated assets 739,410 760,707 Total assets $13,825,902 $12,006,120 Liabilities Reserves for future policy benefits $3,663,489 $3,477,222 Interest sensitive contract liabilities 3,582,687 3,907,573 Collateral finance facilities 3,745,918 1,985,681 Accounts payable and other liabilities 101,862 83,130 Reinsurance balances payable 260,101 114,078 Current income tax payable 4,451 9,155 Deferred tax liability 47,106 - Long term debt 244,500 244,500 Segregated liabilities 739,410 760,707 Total liabilities 12,389,524 10,582,046 Minority interest 9,329 9,305 Mezzanine equity 143,512 143,057 Shareholders' equity Ordinary shares, par value $0.01 per share: Issued 60,554,104 shares (2005 - 53,391,939) 606 534 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 1,049,790 893,767 Accumulated other comprehensive income (6,068) (9,991) Retained earnings 114,209 262,402 Total shareholders' equity 1,283,537 1,271,712 Total liabilities, minority interest, mezzanine equity and shareholders' equity $13,825,902 $12,006,120 Scottish Re Group Limited Consolidated Statements of Income (Loss) (Stated in Thousands of United States Dollars) (Unaudited) Three months ended Nine months ended September 30 September 30 2006 2005 2006 2005 Revenues Premiums earned $453,521 $470,094 $1,347,484 $1,370,667 Investment income, net 162,408 92,132 439,407 256,165 Fee income 2,380 2,801 10,752 9,210 Realized gains (losses) (1,072) 1,344 (25,971) 5,573 Change in value of embedded derivatives, net (5,891) (2,631) 11,621 (19,266) Total revenues 611,346 563,740 1,783,293 1,622,349 Benefits and expenses Claims and other policy benefits 377,713 356,127 1,124,277 1,030,893 Interest credited to interest sensitive contract liabilities 42,423 36,724 140,523 99,089 Acquisition costs and other insurance expenses, net 86,241 91,214 278,644 305,350 Operating expenses 39,447 32,909 109,904 83,978 Collateral finance facilities expense 67,323 13,230 145,646 32,471 Interest expense 5,005 5,690 16,964 16,097 Total benefits and expenses 618,152 535,894 1,815,958 1,567,878 Income (loss) before income taxes and minority interest (6,806) 27,846 (32,665) 54,471 Income tax benefit (expense) (20,841) 6,677 (102,427) 15,232 Income (loss) before minority interest (27,647) 34,523 (135,092) 69,703 Minority interest 232 (113 (64) (282) Net income (loss) (27,415) 34,410 (135,156) 69,421 Dividends declared on non-cumulative preferred shares (2,266) (2,492) (6,797) (2,492) Imputed dividend on prepaid variable share forward contract (809) - (881) - Net income (loss) available to ordinary shareholders $(30,490) $31,918 $(142,834) $66,929 Scottish Re Group Limited Supplemental Information - Net Operating Earnings (Loss) (Stated in Thousands of United States Dollars, Except Share Data) (Unaudited) Three months ended Nine months ended September 30 September 30 2006 2005 2006 2005 Net operating earnings (loss) available to ordinary shareholders Net income (loss) available to ordinary shareholders $(30,490) $31,918 $(142,834) $66,929 Realized losses (gains) 1,072 (1,344) 25,971 (5,573) Change in value of embedded derivatives, net 5,891 2,631 (11,621) 19,266 Taxes on realized gains (losses) and change in value of embedded derivatives (426) (569) (11,500) (1,341) Net operating earnings (loss) available to ordinary shareholders $(23,953) $32,636 $(139,984) $79,281 Net operating earnings (loss) per share available to ordinary shareholders Basic $(0.42) $0.72 $(2.56) $1.84 Diluted $(0.42) $0.67 $(2.56) $1.68 Weighted average number of ordinary shares outstanding Basic 56,933,566 45,517,832 54,708,914 43,004,046 Diluted 56,933,566 48,543,262 54,708,914 47,080,247 "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 Nine months ended September 30 September 30 2006 2005 2006 2005 Premiums earned, net $421,707 $427,224 $1,258,174 $1,273,196 Investment income, net 151,872 88,490 412,576 246,977 Fee income 1,620 2,010 8,516 6,917 Realized gains (losses) 173 (160) (19,225) 3,490 Change in value of embedded derivatives, net (5,891) (2,631) 11,621 (19,266) Total revenues 569,481 514,933 1,671,662 1,511,314 Claims and other policy benefits 360,968 330,035 1,046,874 967,822 Interest credited to interest sensitive contract liabilities 42,423 36,724 140,523 99,089 Acquisition costs and other insurance expenses, net 74,082 80,762 255,770 286,967 Operating expenses 14,569 12,981 43,699 34,875 Collateral finance facilities expense 63,866 11,850 140,300 28,483 Interest expense 2,986 3,062 8,586 8,427 Total benefits and expenses 558,894 475,414 1,635,752 1,425,663 Income before income taxes and minority interest $10,587 $39,519 $35,910 $85,651 Pre tax operating earnings Pre-tax income $10,587 $39,519 $35,910 $85,651 Realized losses (gains) (173) 160 19,225 (3,490) Change in value of embedded derivatives, net 5,891 2,631 (11,621) 19,266 Pre-tax operating earnings $16,305 $42,310 $43,514 $101,427 Scottish Re Group Limited Supplemental Information - Segment Operating Results (continued) (Stated in Thousands of United States Dollars) (Unaudited) Life Reinsurance International Three months ended Nine months ended September 30 September 30 2006 2005 2006 2005 Premiums earned, net $31,814 $42,870 $89,310 $97,471 Investment income, net 8,528 2,734 20,488 7,676 Realized gains (losses) (2,832) (82) (10,878) 503 Total revenues 37,510 45,522 98,920 105,650 Claims and other policy benefits 16,745 26,092 77,403 63,071 Acquisition costs and other insurance expenses, net 9,396 9,933 18,398 16,831 Operating expenses 7,678 6,728 21,329 19,862 Total benefits and expenses 33,819 42,753 117,130 99,764 Income (loss) before income taxes $3,691 $2,769 $(18,210) $5,886 Pre-tax operating earnings (loss) Pre-tax income (loss) $3,691 $2,769 $(18,210) $5,886 Realized losses (gains) 2,832 82 10,878 (503) Pre-tax operating earnings (loss) $6,523 $2,851 $(7,332) $5,383 Scottish Re Group Limited Supplemental Information - Segment Operating Results (continued) (Stated in Thousands of United States Dollars) (Unaudited) Corporate & Other Three months ended Nine months ended September 30 September 30 2006 2005 2006 2005 Investment income, net $2,008 $908 $6,343 $1,512 Fee income 760 791 2,236 2,293 Realized gains 1,587 1,586 4,132 1,580 Total revenues 4,355 3,285 12,711 5,385 Acquisition costs and other insurance expenses, net 2,763 519 4,476 1,552 Operating expenses 17,200 13,200 44,876 29,241 Collateral finance facilities expense 3,457 1,380 5,346 3,988 Interest expense 2,019 2,628 8,378 7,670 Total benefits and expenses 25,439 17,727 63,076 42,451 Loss before income taxes $(21,084) $(14,442) $(50,365) $(37,066) Pre-tax operating loss Pre-tax loss $(21,084) $(14,442) $(50,365) $(37,066) Realized gains (1,587) (1,586) (4,132) (1,580) Pre-tax operating loss $(22,671) (16,028) $(54,497) $(38,646) SOURCE Scottish Re Group Limited Contact: Dean E. Miller, Scottish Re Group Limited, 441-298-4395, dean.miller@scottishre.com