EX-99.1 2 ex99-1.txt PRESS RELEASE Scottish Re Group Limited Announces Operating Results for the Second Quarter Ended June 30, 2007 HAMILTON, Bermuda--(BUSINESS WIRE)-- After a five day extension resulting from last week's Form 12b-25 filing, Scottish Re Group Limited (NYSE:SCT) today reported that net income available to ordinary shareholders for the three months ended June 30, 2007 was $99.5 million, or $0.63 per diluted ordinary share, as compared to a net loss available to ordinary shareholders of $123.9 million, or $2.31 per diluted ordinary share, for the prior year period. Net income available to ordinary shareholders for the six months ended June 30, 2007 was $64.7 million, or $0.58 per diluted ordinary share, as compared to a net loss available to ordinary shareholders of $112.3 million, or $2.10 per diluted ordinary share for the prior year period. Net operating earnings available to ordinary shareholders for the three months ended June 30, 2007 was $98.2 million, or $0.62 per diluted ordinary share, as compared to a net operating loss of $130.3 million, or $2.43 per diluted ordinary share, for the prior year period. Net operating earnings available to ordinary shareholders for the six months ended June 30, 2007 was $62.3 million, or $0.56 per diluted ordinary share, as compared to a net operating loss of $116.0 million, or $2.17 per diluted ordinary share, for the prior year period. Included in net income available to ordinary shareholders and net operating earnings for the three months ended June 30, 2007 is a significant one-time tax benefit. This benefit resulted from the interaction between the release of a previously recorded valuation allowance following the redomestication of Orkney Re, Inc. and Section 382 of the Internal Revenue Code restrictions on the future deduction of net operating losses incurred prior to the change-in-control. Excluding the one-time tax benefit, we reported a pre-tax operating loss of $52.9 million for the three months ended June 30, 2007 as compared to a pre-tax operating loss of $28.5 million for the prior year period. The pre-tax operating loss increased over the prior year period primarily due to expenses incurred in the current quarter related to the change-in-control. As in the first quarter of 2007, we continue to report pre-tax operating losses due to the impact our underlying GAAP valuation models have on profit emergence in our North America traditional life reinsurance business, the impact of our current financial strength ratings on the level of new business production and collateral financing costs, and the costs of penetrating certain international markets. Despite the second quarter pre-tax operating loss, we made significant progress on several fronts. New business production of $5.8 billion in our North America segment was higher than planned and, despite our financial strength ratings, we won a number of new treaties and incurred no treaty recaptures. Mortality experience in our North America segment was favorable to plan for the second consecutive quarter. We also exited our Middle Eastern business through a retrocession arrangement with Arab Insurance Group because that business did not meet our strategic objectives. Additionally, we initiated the first phase of our restructuring program. We incurred $20.3 million of restructuring expenses during the current quarter and expect to incur an additional $6.0 million of restructuring expenses in the second half of 2007. Paul Goldean, Chief Executive Officer of Scottish Re Group Limited, commented, "Following the completion of the equity investment transaction with affiliates of MassMutual Capital Partners and Cerberus Capital Management on May 7, 2007, we have taken the first steps towards re-establishing our position as a leading global life reinsurance company. We initiated a series of process improvement initiatives across the Company focused on strengthening our financial, risk management and operational controls." "Our new Board of Directors was elected and met earlier this month. During this meeting, I resigned from the Board of Directors and George Zippel, our incoming Chief Executive Officer effective tomorrow, was elected to the Board. As planned, a number of key executives have left the organization. We are actively recruiting their replacements and expect to make further organizational changes in the coming quarter." Mr. Goldean concluded, "We have also undertaken a detailed review of our non-prime investment exposure which includes $2.1 billion of subprime residential Asset Backed Securities and an additional $1.0 billion of Alt-A Residential Mortgage Backed Securities. We are working actively with our third party investment managers to further evaluate and proactively manage our subprime and Alt-A exposures. Additional disclosure of our subprime and Alt-A exposures have been made available in our Form 10-Q for the three months ended June 30, 2007." Other Financial Highlights Total revenues for the three months ended June 30, 2007 increased 3% to $612.7 million from $593.6 million for the prior year period. Excluding realized gains and losses and the change in value of embedded derivatives, total revenues for the three months ended June 30, 2007 increased 2% to $611.4 million from $597.6 million for the prior year period. Total revenues for the six months ended June 30, 2007 increased 4% to $1,218.4 million from $1,171.9 million for the prior year period. Excluding realized gains and losses and the change in value of embedded derivatives, total revenues for the six months ended June 30, 2007 increased 3% to $1,215.9 million from $1,179.3 million for the prior year period. Total benefits and expenses increased 6% to $664.3 million for the three months ended June 30, 2007 from $626.0 million for the prior year period. Total benefits and expenses increased 8% to $1,290.1 million for the six months ended June 30, 2007 from $1,197.8 million for the prior year period. Operating expenses increased 52% to $59.8 million for the three months ended June 30, 2007 from $39.4 million for the prior year period. Operating expenses increased 34% to $94.4 million for the six months ended June 30, 2007 from $70.5 million for the prior year period. The Company's operating expense ratio (the ratio of operating expenses to total revenues excluding realized gains and losses and the change in value of embedded derivatives) for the six months ended June 30, 2007 was 8%, as compared to an operating expense ratio of 6% for the prior year period. Income tax benefit for the three months ended June 30, 2007 was $154.3 million compared to income tax expense of $89.0 million for the prior year period. Income tax benefit for the six months ended June 30, 2007 was $140.9 million compared to income tax expense of $81.6 million for the prior year period. In the second quarter of 2007, our valuation allowance decreased by approximately $203.6 million to $74.0 million. A majority of the valuation release is attributable to the expected utilization of net operating loss carryforwards at the U.S. Consolidated Tax Life Group to offset significant current year taxable income generated from the redomestication of Orkney Re, Inc. from South Carolina to Delaware, which occurred in May 2007. The net operating loss carryforwards were previously written off via a valuation allowance, thus the utilization of these results in an offsetting valuation allowance release. We look forward to sharing additional information at our scheduled earnings call and additionally, have posted to our Website, www.scottishre.com a Financial Data Supplement to add further clarification to our financial results for the quarter. The Company's earnings conference call will be held at 8:30 am (EDT) on Wednesday, August 15, 2007. The dial-in number is 800-657-1263 (U.S.) or 973-633-8200 (International) and the passcode is 8947744. The conference call will also be broadcast live via audio Webcast, which will be available on the home page of the Company's Website at www.scottishre.com. Following the earnings conference call, a replay of the call will be available for two weeks beginning at 11:00 am (EDT) on Wednesday, August 15 2007, and ending at 12:00 am (EDT) on Wednesday, August 29, 2007. The dial-in number for the call replay is 877-519-4471 (U.S.) or 973-341-3080 (International) and the passcode is 8947744. An audio Webcast of the call will be archived and available for the same period on the Company's Website at 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., Scottish Re (U.S.), Inc. and Scottish Re Limited. Additional information about Scottish Re Group Limited can be obtained from its Website at www.scottishre.com. Certain statements included herein are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results to differ materially from the forward-looking statements. Management of the Company cautions that these forward-looking statements are not guarantees of our future performance and are subject to risks and uncertainties that could cause actual results to differ materially from the results expressed or implied by the forward-looking statements. -- uncertainties relating to the ratings accorded to us and our insurance subsidiaries; -- uncertainties in our ability to raise equity capital or other sources of funding to support ongoing capital and liquidity needs; -- uncertainties relating to future actions that may be taken by creditors, regulators and ceding insurers relating to our ratings and financial condition; -- the risk that our risk analysis and underwriting may be inadequate; -- changes in expectations regarding future realization of gross deferred tax assets; -- exposure to mortality experience which differs from our assumptions; -- risks related to recent negative developments in the residential mortgage market, especially in the subprime sector, and our exposure to such market; -- risks arising from our investment strategy, including risks related to the market value of our investments, fluctuations in interest rates and our need for liquidity; -- uncertainties arising from control of our invested assets by third parties; -- developments in global financial markets that could affect our investment portfolio and fee and other income; -- changes in the rate of policyholder withdrawals or recapture of reinsurance treaties whether caused by ratings pressures or general market conditions; -- the impact of adjustments to previous financial estimates arising from our process improvement program under which, among other things, enhance the automation of our reporting, valuation, and administrative tools (cedant and retrocession accounting); -- the risk that our retrocessionaires may not honor their obligations to us; -- terrorist attacks on the United States and the impact of such attacks on the economy in general and on our business in particular; -- political and economic risks in developing countries; -- the impact of acquisitions, including our ability to successfully integrate acquired businesses, the competing demands for our capital and the risk of undisclosed liabilities; -- the risk that an ownership change will result in a limitation on our ability to fully utilize tax net operating losses; -- loss of the services of any of our key employees; -- losses due to foreign currency exchange rate fluctuations; -- uncertainties relating to government and regulatory policies (such as subjecting us to insurance regulation or taxation in additional jurisdictions); -- risks relating to recent class action litigations; -- the competitive environment in which we operate and associated pricing pressures; and -- changes in accounting principles. 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 ended Six months ended June 30 June 30 2007 2006 2007 2006 ------------ ------------ ------------ ------------ Total revenue $ 612,653 $ 593,626 $ 1,218,397 $ 1,171,947 Net operating earnings (loss) available to ordinary shareholders(a) 98,232 (130,313) 62,318 (116,024) Net income (loss) 102,690 (121,590) 69,478 (107,741) Net income (loss) available to ordinary shareholders 99,543 (123,927) 64,650 (112,344) Net operating earnings (loss) per ordinary share Basic $ 1.44 $ (2.43) $ 0.94 $ (2.17) Diluted $ 0.62 $ (2.43) $ 0.56 $ (2.17) Income (loss) per ordinary share Basic $ 1.46 $ (2.31) $ 0.98 $ (2.10) Diluted $ 0.63 $ (2.31) $ 0.58 $ (2.10) Dividends declared per ordinary share $ - $ - $ - $ 0.05 Weighted average ordinary shares outstanding Basic 68,195,614 53,720,242 66,204,855 53,578,152 Diluted 158,854,955 53,720,242 111,784,966 53,578,152 (a) 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 31, 2007 2006 ---------- ------------ Book value per ordinary share $ 15.21 $ 15.39 Basic book value per ordinary share - excluding other comprehensive income and value of embedded derivatives $ 16.36 $ 15.50 Fully diluted book value per ordinary share - excluding other comprehensive income and value of embedded derivatives $ 7.83 $ 15.78 Scottish Re Group Limited Consolidated Balance Sheets (Stated in Thousands of United States Dollars, Except Share Data) June 30, December 31, 2007 2006 (Unaudited) (Audited) ------------ ------------ Assets Fixed maturity investments $ 7,977,603 $ 8,065,524 Preferred stock 104,771 116,933 Cash and cash equivalents 1,110,585 622,756 Other investments 65,685 65,448 Funds withheld at interest 1,747,573 1,942,079 ------------ ------------ Total investments 11,006,217 10,812,740 Accrued interest receivable 58,749 57,538 Reinsurance balances and risk fees receivable 472,594 481,908 Deferred acquisition costs 627,114 618,737 Amounts recoverable from reinsurers 552,822 554,589 Present value of in-force business 47,282 48,779 Other assets 124,770 178,311 Deferred tax asset 7,283 - Segregated assets 725,716 683,470 ------------ ------------ Total assets $13,622,547 $13,436,072 ============ ============ Liabilities Reserves for future policy benefits $ 4,018,420 $ 3,919,901 Interest sensitive contract liabilities 2,905,150 3,399,410 Collateral finance facilities 3,800,603 3,757,435 Accounts payable and other liabilities 160,612 69,949 Reinsurance balances payable 147,830 97,615 Current income tax payable 6,476 48 Deferred tax liability - 169,977 Long term debt 129,500 129,500 Segregated liabilities 725,716 683,470 ------------ ------------ Total liabilities 11,894,307 12,227,305 ------------ ------------ Minority interest 7,388 7,910 Mezzanine equity Convertible cumulative participating preferred shares (liquidation preference $606.5 million) 556,049 - Hybrid capital units - 143,656 ------------ ------------ Total mezzanine equity 556,049 143,656 ------------ ------------ Shareholders' equity Ordinary shares, par value $0.01 per share: Issued and outstanding 68,383,370 shares (2006 - 60,554,104) 684 606 Non-cumulative perpetual preferred shares, par value $0.01 per share: Issued: 5,000,000 shares (2006 - 5,000,000) 125,000 125,000 Additional paid-in capital 1,204,629 1,050,860 Accumulated other comprehensive income (loss) (78,272) 340 Retained deficit (87,238) (119,614) ------------ ------------ Total shareholders' equity 1,164,803 1,057,192 ------------ ------------ Total liabilities, minority interest, mezzanine equity and shareholders' equity $13,622,547 $13,436,072 ============ ============ 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 2007 2006 2007 2006 --------- ---------- ----------- ----------- Revenues Premiums earned, net $446,296 $ 444,942 $ 904,510 $ 893,963 Investment income, net 160,879 147,977 302,476 276,999 Fee and other income 4,234 4,639 8,864 8,372 Net realized losses (2,055) (11,298) (6,344) (24,899) Change in value of embedded derivatives, net 3,299 7,366 8,891 17,512 --------- ---------- ----------- ----------- Total revenues 612,653 593,626 1,218,397 1,171,947 --------- ---------- ----------- ----------- Benefits and expenses Claims and other policy benefits 388,248 372,101 771,831 746,564 Interest credited to interest sensitive contract liabilities 36,420 55,399 71,722 98,100 Acquisition costs and other insurance expenses, net 96,501 104,872 191,608 192,403 Operating expenses 59,802 39,365 94,382 70,457 Collateral finance facilities expense 75,285 47,236 148,980 78,323 Interest expense 8,034 7,066 11,610 11,959 --------- ---------- ----------- ----------- Total benefits and expenses 664,290 626,039 1,290,133 1,197,806 --------- ---------- ----------- ----------- Loss before income taxes and minority interest (51,637) (32,413) (71,736) (25,859) Income tax benefit (expense) 154,321 (89,043) 140,940 (81,586) --------- ---------- ----------- ----------- Income (loss) before minority interest 102,684 (121,456) 69,204 (107,445) Minority interest 6 (134) 274 (296) --------- ---------- ----------- ----------- Net income (loss) 102,690 (121,590) 69,478 (107,741) Dividends declared on non-cumulative perpetual preferred shares (2,265) (2,265) (4,531) (4,531) Imputed dividend on prepaid variable share forward contract - (72) - (72) Amount allocated to convertible cumulative participating preferred shareholders (882) - (297) - --------- ---------- ----------- ----------- Net income (loss) available to ordinary shareholders $ 99,543 $(123,927) $ 64,650 $ (112,344) ========= ========== =========== =========== Pre tax operating loss Pre-tax loss $(51,637) $ (32,413) $ (71,736) $ (25,859) Net realized losses 2,055 11,298 6,344 24,899 Change in value of embedded derivatives, net (3,299) (7,366) (8,891) (17,512) --------- ---------- ----------- ----------- Pre-tax operating loss $(52,881) $ (28,481) $ (74,283) $ (18,472) ========= ========== =========== =========== Scottish Re Group Limited Supplemental Information - Net Operating Earnings (Loss) (Stated in Thousands of United States Dollars, Except Share Data) (Unaudited) "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 earnings (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 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 loss determined in accordance with GAAP. Reconciliations to net earnings (loss) available to ordinary shareholders are provided in the following tables. Three months ended Six months ended June 30 June 30 2007 2006 2007 2006 ------------- ------------ ------------- ------------ Net operating earnings (loss) available to ordinary shareholders Net income (loss) available to ordinary shares $ 99,543 $ (123,927) $ 64,650 $ (112,344) Net realized losses 2,055 11,298 6,344 24,899 Change in value of embedded derivatives, net (3,299) (7,366) (8,891) (17,512) Taxes on realized losses and change in value of embedded derivatives (67) (10,318) 215 (11,067) ------------- ------------ ------------- ------------ Net operating earnings (loss) available to ordinary shareholders $ 98,232 $ (130,313) $ 62,318 $ (116,024) ============= ============ ============= ============ Net operating earnings (loss) per share available to ordinary shareholders Basic $ 1.44 $ (2.43) $ 0.94 $ (2.17) Diluted $ 0.62 $ (2.43) $ 0.56 $ (2.17) Weighted average number of ordinary shares outstanding Basic 68,195,614 53,720,242 66,204,855 53,578,152 Diluted 158,854,955 53,720,242 111,784,966 53,578,152 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 2007 2006 2007 2006 --------- --------- ----------- ----------- Revenues Premiums earned, net $430,282 $407,549 $ 853,653 $ 836,467 Investment income, net 153,449 136,763 291,368 260,704 Fee and other income 2,711 3,879 6,627 6,896 Net realized losses (2,593) (5,479) (4,998) (19,398) Change in value of embedded derivatives, net 3,299 7,366 8,891 17,512 --------- --------- ----------- ----------- Total revenues 587,148 550,078 1,155,541 1,102,181 --------- --------- ----------- ----------- Benefits and expenses Claims and other policy benefits 375,634 338,626 733,568 685,906 Interest credited to interest sensitive contract liabilities 36,420 55,399 71,722 98,100 Acquisition costs and other insurance expenses, net 89,657 97,280 176,880 181,688 Operating expenses 13,161 14,538 25,419 29,130 Collateral finance facilities expense 69,085 45,891 137,941 76,434 Interest expense 3,233 3,038 6,288 5,600 --------- --------- ----------- ----------- Total benefits and expenses 587,190 554,772 1,151,818 1,076,858 --------- --------- ----------- ----------- Income (loss) before income taxes and minority interest $ (42) $ (4,694) $ 3,723 $ 25,323 ========= ========= =========== =========== Pre tax operating earnings (loss) Pre-tax income (loss) $ (42) $ (4,694) $ 3,723 $ 25,323 Net realized losses 2,593 5,479 4,998 19,398 Change in value of embedded derivatives, net (3,299) (7,366) (8,891) (17,512) --------- --------- ----------- ----------- Pre-tax operating earnings (loss) $ (748) $ (6,581) $ (170) $ 27,209 ========= ========= =========== =========== 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 2007 2006 2007 2006 --------- --------- --------- --------- Revenues Premiums earned, net $ 16,014 $ 37,393 $ 50,857 $ 57,496 Investment income, net 3,037 8,971 6,080 11,960 Fee and other income 753 - 753 - Net realized losses (10) (6,908) (635) (8,046) --------- --------- --------- --------- Total revenues 19,794 39,456 57,055 61,410 --------- --------- --------- --------- Benefits and expenses Claims and other policy benefits 12,614 33,475 38,263 60,658 Acquisition costs and other insurance expenses, net 5,237 6,185 11,158 9,002 Operating expenses 11,455 7,874 21,267 13,651 --------- --------- --------- --------- Total benefits and expenses 29,306 47,534 70,688 83,311 --------- --------- --------- --------- Loss before income taxes $ (9,512) $ (8,078) $(13,633) $(21,901) ========= ========= ========= ========= Pre-tax operating loss Pre-tax loss $ (9,512) $ (8,078) $(13,633) $(21,901) Net realized losses 10 6,908 635 8,046 --------- --------- --------- --------- Pre-tax operating loss $ (9,502) $ (1,170) $(12,998) $(13,855) ========= ========= ========= ========= 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 2007 2006 2007 2006 --------- --------- --------- --------- Revenues Investment income, net $ 4,393 $ 2,243 $ 5,028 $ 4,335 Fee and other income 770 760 1,484 1,476 Net realized gains (losses) 548 1,089 (711) 2,545 --------- --------- --------- --------- Total revenues 5,711 4,092 5,801 8,356 --------- --------- --------- --------- Benefits and expenses Acquisition costs and other insurance expenses, net 1,607 1,407 3,570 1,713 Operating expenses 35,186 16,953 47,696 27,676 Collateral finance facilities expense 6,200 1,345 11,039 1,889 Interest expense 4,801 4,028 5,322 6,359 --------- --------- --------- --------- Total benefits and expenses 47,794 23,733 67,627 37,637 --------- --------- --------- --------- Loss before income taxes $(42,083) $(19,641) $(61,826) $(29,281) ========= ========= ========= ========= Pre-tax operating loss Pre-tax loss $(42,083) $(19,641) $(61,826) $(29,281) Net realized loses (gains) (548) (1,089) 711 (2,545) --------- --------- --------- --------- Pre-tax operating loss $(42,631) $(20,730) $(61,115) $(31,826) ========= ========= ========= ========= Source: Scottish Re Group Limited Contact: Scottish Re Group Limited Investor Relations: Paul Goldean, 441-298-4378 Investors@scottishre.com or Scottish Re Media: Rayissa Palmer, 704-752-3422 Info@scottishre.com