-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TRrAe/QXOFYUz1WFeRl0fGyKb9hvbqIfW8h7/Yqq9pyXhrfFBcpid5oooPs4epm1 bRnu9qQLeLgI7vv/FxnAnQ== /in/edgar/work/0000930661-00-002781/0000930661-00-002781.txt : 20001109 0000930661-00-002781.hdr.sgml : 20001109 ACCESSION NUMBER: 0000930661-00-002781 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001108 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCOTTISH ANNUITY & LIFE HOLDINGS LTD CENTRAL INDEX KEY: 0001064122 STANDARD INDUSTRIAL CLASSIFICATION: [6311 ] IRS NUMBER: 000000000 STATE OF INCORPORATION: E9 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-29788 FILM NUMBER: 755698 BUSINESS ADDRESS: STREET 1: GRAND PAVILION COMMERCIAL CENTRE STREET 2: 802 WEST BAY RD GEORGE TOWN GRAND CAYMAN CITY: GRAND CAYMAN CAYMAN STATE: E9 ZIP: 00000 BUSINESS PHONE: 3459492800 MAIL ADDRESS: STREET 1: GRAND PAVILION COMMERCIAL CENTRE STREET 2: 802 WEST BAY RD GEORGE TOWN CITY: GRAND CAYMAN CAYMAN STATE: E9 ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: SCOTTISH LIFE HOLDINGS LTD DATE OF NAME CHANGE: 19980615 10-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __________________ FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2000 [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition period from ____ to ______ Commission File Number 0-29788 SCOTTISH ANNUITY & LIFE HOLDINGS, LTD. (Exact Name of Registrant as Specified in Its Charter) Cayman Islands Not Applicable (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) P.O. Box 10657 APO Grand Pavilion Commercial Centre 802 West Bay Road George Town, Grand Cayman Cayman Islands, British West Indies Not Applicable (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (345) 949-2800 Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of November 1, 2000, Registrant had 15,628,240 Ordinary Shares outstanding. Table of Contents PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets - September 30, 2000 (Unaudited) and December 31, 1999 1 Unaudited Consolidated Statements of Income - Three and Nine Months ended September 30, 2000 and 1999 2 Unaudited Consolidated Statements of Comprehensive Income (Loss) - Three and Nine Months ended September 30, 2000 and 1999 3 Unaudited Consolidated Statements of Shareholders' Equity - Nine Months ended September 30, 2000 and 1999 4 Unaudited Consolidated Statements of Cash Flows - Nine Months ended September 30, 2000 and 1999 5 Notes to Unaudited Consolidated Financial Statements at September 30, 2000 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 19 PART II OTHER INFORMATION ITEM 1 through ITEM 6 20 SIGNATURES 21
PART I. FINANCIAL INFORMATION Item 1. Financial Statements Scottish Annuity & Life Holdings, Ltd. Consolidated Balance Sheets (Expressed in United States Dollars)
September 30, December 31, 2000 1999 (unaudited) ------------------------------------ ASSETS Fixed maturity investments, available for sale, at fair value (Amortized cost $545,976,486; 1999 - $562,491,476) $ 534,673,726 $546,806,744 Cash and cash equivalents 105,103,195 29,000,653 Funds withheld at interest 39,130,671 - ------------------------------------ Total investments 678,907,592 575,807,397 Receivables: Accrued interest 5,597,593 5,554,355 Risk fees 720,379 861,552 Policy loans 457,344 536,420 Reinsurance - 298,295 Due from investment brokers - 109,891 Deferred acquisition costs 19,672,742 1,919,528 Present value of inforce business 10,449,600 10,619,599 Other intangible assets 7,836,812 200,000 Deferred tax benefit 2,820,024 2,218,077 Fixed assets 2,375,629 1,026,820 Other assets 689,240 740,116 Due from related party 180,505 - Current income tax receivable 100,934 196,905 Segregated assets 405,584,564 256,545,532 ------------------------------------ Total assets $1,135,392,958 $856,634,487 ==================================== LIABILITIES Reserves for future policy benefits $ 480,064,958 $365,478,762 Due to investment brokers 11,859,588 - Accounts payable and accrued expenses 8,099,854 4,347,648 Reinsurance payables 753,871 - Due to related party - 11,601,464 Segregated liabilities 405,584,564 256,545,532 ------------------------------------ Total liabilities 906,362,835 637,973,406 ------------------------------------ MINORITY INTEREST 2,651,231 - ------------------------------------ SHAREHOLDERS' EQUITY Share capital, par value $0.01 per share: Issued and fully paid: 15,671,940 ordinary shares (1999 - 16,046,740 ) (Excludes 2,904,500 held in Treasury; 1999 - 2,529,700 ) 156,719 160,467 Additional paid in capital 224,318,364 227,534,287 Accumulated other comprehensive loss - Unrealized depreciation on investments (11,302,760) (15,684,732) Retained earnings 13,206,569 6,651,059 ------------------------------------ Total shareholders' equity 226,378,892 218,661,081 ------------------------------------ Total liabilities and shareholders' equity $1,135,392,958 $856,634,487 ====================================
See Accompanying Notes to Unaudited Consolidated Financial Statements 1 Scottish Annuity & Life Holdings, Ltd. Unaudited Consolidated Statements of Income (Expressed in United States Dollars)
Three Months Three Months Nine Months Nine Months ended ended ended ended September 30, September 30, September 30, September 30, 2000 1999 2000 1999 ---------------------------------------------------------------------------------- REVENUES Premiums earned $ 6,277,219 $ - $ 9,891,259 $ - Fee income 553,147 267,999 1,547,465 744,279 Investment income, net 11,965,074 7,145,693 33,061,922 14,591,701 Realized losses (115,080) (1,014,444) (259,705) (2,497,268) ---------------------------------------------------------------------------------- Total revenues 18,680,360 6,399,248 44,240,941 12,838,712 ---------------------------------------------------------------------------------- BENEFITS & EXPENSES Claims and other policy benefits 3,412,361 869,181 8,165,062 1,188,846 Interest credited to interest sensitive contract liabilities 4,746,915 1,791,484 12,625,690 1,791,484 Acquisition costs and other insurance expenses 3,269,345 668,498 7,490,291 1,890,499 Operating expenses 2,811,417 804,984 7,478,592 1,894,848 ---------------------------------------------------------------------------------- Total benefits & expenses 14,240,038 4,134,147 35,759,635 6,765,677 ---------------------------------------------------------------------------------- Net income before income taxes and minority interest 4,440,322 2,265,101 8,481,306 6,073,035 Income taxes 38,000 - (332,000) - ---------------------------------------------------------------------------------- Net income before minority interest 4,402,322 2,265,101 8,813,306 6,073,035 Minority interest (124,745) - (124,745) - ---------------------------------------------------------------------------------- Net income $ 4,527,067 $ 2,265,101 $ 8,938,051 $ 6,073,035 ================================================================================== Earnings per share Basic $ 0.29 $ 0.12 $ 0.56 $ 0.33 ================================================================================== Diluted $ 0.28 $ 0.12 $ 0.56 $ 0.33 ================================================================================== Dividends per share $ 0.05 $ 0.05 $ 0.15 $ 0.10 ================================================================================== Weighted average number of shares outstanding: Basic 15,742,145 18,315,351 15,924,307 18,487,487 ================================================================================== Diluted 15,913,452 18,315,351 15,987,319 18,487,487 ==================================================================================
See Accompanying Notes to Unaudited Consolidated Financial Statements 2 Scottish Annuity & Life Holdings, Ltd. Unaudited Consolidated Statements of Comprehensive Income (Loss) (Expressed in United States Dollars)
Three Months Three Months Nine Months Nine Months ended ended ended ended September 30, September 30, September 30, September 30, 2000 1999 2000 1999 - --------------------------------------------------------------------------------------------------------------------------- Net income $ 4,527,067 $ 2,265,101 $ 8,938,051 $ 6,073,035 Other comprehensive income (loss), net of taxes Unrealized appreciation (depreciation) on investments: Unrealized holding appreciation (depreciation) arising during the period 5,029,731 (2,344,704) 4,122,267 (11,854,680) Add: reclassification adjustment 115,080 1,014,444 259,705 2,497,268 for losses included in net income ----------------------------------------------------------------------------- Unrealized appreciation (depreciation) on 5,144,811 (1,330,260) 4,381,972 (9,357,412) investments ----------------------------------------------------------------------------- Comprehensive income (loss) $ 9,671,878 $ 934,841 $13,320,023 $ (3,284,377) =============================================================================
See Accompanying Notes to Unaudited Consolidated Financial Statements 3 Scottish Annuity & Life Holdings, Ltd. Unaudited Consolidated Statements of Shareholders' Equity (Expressed in United States Dollars)
Nine Months ended Nine Months ended September 30, 2000 September 30, 1999 - --------------------------------------------------------------------------------------------------- SHARE CAPITAL: Beginning of period $ 160,467 $ 185,684 Repurchase of shares (3,748) (14,878) Sales to direct investors - 80 ------------------------------------- 156,719 170,886 ------------------------------------- ADDITIONAL PAID IN CAPITAL: Beginning of period 227,534,287 252,291,320 Repurchase of shares (3,236,727) (14,863,492) Sales to direct investors - 87,920 Issuance of equity options 20,804 102,236 ------------------------------------- 224,318,364 237,617,984 ------------------------------------- ACCUMULATED OTHER COMPREHENSIVE LOSS: Beginning of period (15,684,732) (853,146) Unrealized appreciation (depreciation) on investments 4,381,972 (9,357,412) ------------------------------------- (11,302,760) (10,210,558) ------------------------------------- RETAINED EARNINGS: Beginning of period 6,651,059 436,321 Net income 8,938,051 6,073,035 Dividends paid (2,382,541) (1,857,644) ------------------------------------- 13,206,569 4,651,712 ------------------------------------- TOTAL SHAREHOLDERS' EQUITY $226,378,892 $232,230,024 =====================================
See Accompanying Notes to Unaudited Consolidated Financial Statements 4 Scottish Annuity & Life Holdings, Ltd. Unaudited Consolidated Statements of Cash Flows (Expressed in United States Dollars)
Nine Months Nine Months ended ended September 30, September 30, 2000 1999 ---------------------------------- OPERATING ACTIVITIES Net income $ 8,938,051 $ 6,073,035 Adjustments to reconcile net income to net cash provided by operating activities: Net realized losses on securities 259,705 2,497,268 Non cash salaries and professional fees 20,804 102,236 Minority interest (124,745) - Depreciation 295,925 54,679 Amortization of deferred acquisition costs 3,917,792 74,197 Amortization of PVIF 50,400 - Amortization of other intangible assets 207,452 - Net change in policy benefit reserves 16,012,138 3,179,907 Changes in assets and liabilities: Reinsurance receivables and payables 1,052,166 (13,690,867) Risk fees 141,173 - Policy loans 79,076 - Accrued interest (43,238) 2,040,236 Deferred acquisition costs (8,883,859) (2,161,620) Present value of inforce business 119,599 - Other assets 50,876 189,397 Deferred tax benefit (601,947) - Current income tax receivable 95,971 - Accounts payable and accrued expenses 3,722,199 5,004,802 Due to related party (195,000) (326,900) ----------------------------------- Net cash provided by operating activities 25,114,538 3,036,370 ----------------------------------- INVESTING ACTIVITIES Purchase of securities (157,658,202) (588,858,254) Proceeds on sales of securities 173,913,487 313,877,931 Due to / from investment broker 11,969,479 - Acquisition of majority interest in subsidiary net of cash acquired 258,078 - Due to related party re purchase of subsidiary (11,562,162) - Purchase of intangible assets (5,321,166) - Purchase of fixed assets (1,644,734) (875,990) ----------------------------------- Net cash provided by (used in) investing activities 9,954,780 (275,856,313) ----------------------------------- FINANCING ACTIVITIES Deposits to insurance accounts 144,098,017 302,579,171 Withdrawals from insurance accounts (45,523,959) (22,543,881) Purchase of deferred acquisition costs (12,787,147) (75,036) Funds withheld at interest (39,130,671) - Net proceeds from sale of company stock - 88,000 Net cost of repurchase of company stock (3,240,475) (14,878,370) Dividends paid (2,382,541) (1,857,644) ----------------------------------- Net cash provided by financing activities 41,033,224 263,312,240 ----------------------------------- NET CHANGE IN CASH AND CASH EQUIVALENTS 76,102,542 (9,507,703) Cash and cash equivalents, beginning of period 29,000,653 69,610,299 ----------------------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 105,103,195 $ 60,102,596 ===================================
See Accompanying Notes to Unaudited Consolidated Financial Statements 5 Scottish Annuity & Life Holdings, Ltd. Notes to Unaudited Consolidated Financial Statements September 30, 2000 1. Basis of presentation Accounting Principles - The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") for and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results for the period are not necessarily indicative of the results to be expected for the entire year. For further information, refer to the consolidated financial statements and footnotes included in our annual report on Form 10-K for the period ended December 31, 1999. We have reclassified some figures from our 1999 financial statements to conform to our 2000 presentation. These reclassifications had no effect on net income or shareholders' equity as previously reported. 2. Minority interest In June 2000, we acquired a majority holding in Scottish Crown Group (Bermuda) Ltd. No amount of the resulting minority interest is held in preferred shares and therefore, we have no dividend requirements in relation to this minority interest. 3. Deferred acquisition costs The change in deferred acquisition costs ("DAC") is as follows: Nine Months Nine Months ended September ended September 30, 2000 30, 1999 ----------------------------------------- Balance January 1 $ 1,919,528 $ - Purchased DAC (1) 12,787,147 75,036 Expenses deferred 8,883,859 2,161,620 Amortization expense (3,917,792) (74,197) -------------------------------------- Balance September 30 $19,672,742 $ 2,162,459 ====================================== (1) Includes ceding commissions, broker commissions and excise taxes. 6 Scottish Annuity & Life Holdings, Ltd. Notes to Unaudited Consolidated Financial Statements September 30, 2000 4. Earnings per ordinary share Basic earnings per share ("EPS") exclude the dilutive effect of options and warrants. Diluted EPS includes the dilutive effect of these securities using the treasury stock method. The weighted average number of shares is calculated by weighting how long the shares have been outstanding over the accounting period.
Three Months Three Months Nine Months Nine Months ended September ended September ended September ended September 30, 2000 30, 1999 30, 2000 30, 1999 ---------------------------------------------------------------------------- Numerator: Net income $ 4,527,067 $ 2,265,101 $ 8,938,051 $ 6,073,035 ---------------------------------------------------------------------------- Denominator: Denominator for basic earnings per share - Weighted average number of shares 15,742,145 18,315,351 15,924,307 18,487,487 Effect of dilutive securities - Stock Options 171,307 - 63,012 - ---------------------------------------------------------------------------- Denominator for dilutive earnings per share 15,913,452 18,315,351 15,987,319 18,487,487 ---------------------------------------------------------------------------- Basic earnings per share $ 0.29 $ 0.12 $ 0.56 $ 0.33 ============================================================================ Diluted earnings per share $ 0.28 $ 0.12 $ 0.56 $ 0.33 ============================================================================
7 Scottish Annuity & Life Holdings, Ltd. Notes to Unaudited Consolidated Financial Statements September 30, 2000 5. Segment Reporting Income from insurance operations is split into three segments: U.S. reinsurance, Non U.S. reinsurance and Wealth management (previously named traditional reinsurance, non-traditional reinsurance and variable products). The segment reporting for the lines of business is as follows:
Three Months Three Months Nine Months Nine Months ended ended ended ended September 30, September 30, September 30, September 30, 2000 1999 2000 1999 --------------------------------------------------------------------------------- REVENUES U.S. reinsurance $ 5,098,960 $ - $10,256,841 $ - Non U.S. reinsurance 10,323,064 3,659,163 24,968,241 4,305,695 Wealth management 555,397 267,999 1,555,005 744,279 Other (1) 2,702,939 2,472,086 7,460,854 7,788,738 ----------------------------------------------------------------------------------- Total $18,680,360 $6,399,248 $44,240,941 $12,838,712 =================================================================================== NET INCOME BEFORE INCOME TAXES AND MINORITY INTEREST U.S. reinsurance $ 212,994 $ - $ 120,078 $ - Non U.S. reinsurance 2,265,364 8,006 2,721,384 (1,323,073) Wealth management 17,609 179,451 405,294 535,846 Other (2) 1,944,355 2,077,644 5,234,550 6,860,262 ----------------------------------------------------------------------------------- Total $ 4,440,322 $2,265,101 $ 8,481,306 $ 6,073,035 ===================================================================================
September 30, December 31, 2000 1999 ------------------------------------ ASSETS BY SEGMENT U.S. reinsurance $ 126,627,102 $111,387,649 Non U.S. reinsurance 463,959,826 316,724,151 Wealth management 425,890,585 257,664,994 Other 118,915,445 170,857,693 ----------------------------------- Total $1,135,392,958 $856,634,487 ==================================== (1) Includes investment income on unallocated capital and realized gains and losses. (2) Includes corporate expenses. 8 Scottish Annuity & Life Holdings, Ltd. Notes to Unaudited Consolidated Financial Statements September 30, 2000 6. Stock Option Plans The Company has two stock option plans (the "1998 Plan" and the "1999 Plan") which allow us to grant non-statutory options, subject to certain restrictions, to certain eligible employees, non-employee directors, advisors and consultants. The minimum exercise price of the options will be equal to the fair market value, as defined in the plans, of our ordinary shares at the date of grant. The term of the options shall not be more than ten years from the date of grant. Unless otherwise provided in the option agreement, the options shall become exercisable in three equal annual installments, commencing on the first anniversary of the grant date. Option activity under the 1998 Plan is as follows:
Weighted Options average exercise available for Number of price of options grant options outstanding ---------------------------------------------------------- Balance May 12, 1998 (1) - - - Authorized 1,600,000 - - Granted (1,070,000) 1,070,000 $15.0000 Exercised - - - Cancelled - - - -------------------------------------------------------- Balance December 31, 1998 530,000 1,070,000 15.0000 Authorized - - - Granted (545,600) 545,600 15.0000 Exercised - - - Cancelled 233,333 (233,333) 15.0000 -------------------------------------------------------- Balance December 31, 1999 217,733 1,382,267 15.0000 Authorized - - - Granted (2) (556,000) 556,000 8.0555 Exercised - - - Cancelled (3) 538,333 (538,333) 15.0000 -------------------------------------------------------- Balance September 30, 2000 200,066 1,399,934 $12.2419 ========================================================
(1) Date of incorporation. (2) Includes options granted to new employees and Directors annual grant. (3) Options cancelled upon the resignation of employees. 9 Scottish Annuity & Life Holdings, Ltd. Notes to Unaudited Consolidated Financial Statements September 30, 2000 Option activity under the 1999 Plan is as follows:
Weighted Options average exercise available for Number of price of options grant options outstanding ----------------------------------------------------------- Balance December 31, 1998 - - - Authorized 750,000 - - Granted (325,000) 325,000 $8.0625 Exercised - - - Cancelled - - - ----------------------------------------------------------- Balance December 31, 1999 425,000 325,000 8.0625 Authorized - - - Granted (1) (114,500) 114,500 8.3881 Exercised - - - Cancelled (2) 162,500 (162,500) 8.0421 ----------------------------------------------------------- Balance September 30, 2000 473,000 277,000 $8.2090 ===========================================================
(1) Options granted to new employees. (2) Options cancelled upon the resignation of employees. In addition to the Company's stock option plans, 750,000 options were authorized to be issued to new employees of Scottish Re (U.S.), Inc., our U.S. operations, by the Board of Directors at an exercise price to be determined on the date of the grant. The term of the options are seven years from the date of grant. The options are exercisable in three equal annual installments, commencing on the first anniversary of the grant date. Options have been granted to new employees of our U.S. operations, pursuant to a resolution of the Board of Directors, at an exercise price equal to the fair market value of our ordinary shares at the date of the grant. The options that have been granted are reflected in the chart below.
Weighted Options average exercise available for Number of price of options grant options outstanding --------------------------------------------------------------- Balance December 31, 1998 - - - Authorized 750,000 - - Granted (573,000) 573,000 $8.0898 Exercised - - - Cancelled - - - --------------------------------------------------------------- Balance December 31, 1999 177,000 573,000 8.0898 Authorized - - - Granted (1) (235,000) 235,000 8.4066 Exercised - - - Cancelled (2) 75,000 (75,000) 8.0625 --------------------------------------------------------------- Balance September 30, 2000 17,000 733,000 $8.1941 ===============================================================
(1) Options granted to new employees. (2) Options cancelled upon the resignation of employees. 10 Scottish Annuity & Life Holdings, Ltd. Notes to Unaudited Consolidated Financial Statements September 30, 2000 Summarizing the information above, the Company has authorized a total of 3,100,000 options. Of those authorized, 2,409,934 have been granted, leaving 690,066 available for grant. The average exercise price of all options granted is $10.5472.
Weighted Options average exercise available for Number of price of options grant options outstanding --------------------------------------------------------- Balance May 12, 1998 (1) - - - Authorized 1,600,000 - - Granted (1,070,000) 1,070,000 $15.0000 Exercised - - - Cancelled - - - -------------------------------------------------------- Balance December 31, 1998 530,000 1,070,000 15.0000 Authorized 1,500,000 - - Granted (1,443,600) 1,443,600 10.6953 Exercised - - - Cancelled 233,333 (233,333) 15.0000 -------------------------------------------------------- Balance December 31, 1999 819,733 2,280,267 12.2748 Authorized - - - Granted (2) (905,500) 905,500 8.1887 Exercised - - - Cancelled (3) 775,833 (775,833) 12.8720 -------------------------------------------------------- Balance September 30, 2000 690,066 2,409,934 $10.5472 ========================================================
(1) Date of incorporation. (2) Includes options granted to new employees and Directors annual grant. (3) Options cancelled upon the resignation of employees. 11 Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General Scottish Annuity & Life Holdings, Ltd. ("Scottish Holdings", "we", "us", "our", or "the Company") completed its initial public offering ("IPO") on November 30, 1998. Our principal assets include the direct or indirect ownership of Scottish Annuity & Life Insurance Company (Cayman) Ltd. ("Scottish Insurance"), Scottish Holdings, Inc., Scottish Holdings (Barbados) Limited, Scottish Re (U.S.), Inc. ("Scottish Re") (formerly Harbourton Reassurance, Inc.), The Scottish Annuity Company (Cayman) Ltd. ("Scottish Annuity"), and a 50.01% share of Scottish Crown Group (Bermuda) Limited ("Scottish Crown"). Scottish Insurance was formed in 1998 principally to provide reinsurance of life and annuity products and to issue customized variable life insurance products to high net worth individuals and families. Scottish Annuity provides customized variable annuity products to high net worth individuals and families. Scottish Re, a Delaware insurance company, which is licensed in 14 states and admitted as a reinsurer in an additional 19 states, provides us with a U.S. based platform to provide reinsurance products. Scottish Crown was formed to provide customized variable life and annuity insurance products to high net worth individuals and families. Earnings per share
Three months Three months Nine months Nine months ended ended ended ended September 30, September 30, September 30, September 30, 2000 1999 2000 1999 Net income $4,527,067 $2,265,101 $8,938,051 $6,073,035 ========== ========== ========== ========== Basic EPS $ 0.29 $ 0.12 $ 0.56 $ 0.33 ========== ========== ========== ========== Diluted EPS $ 0.28 $ 0.12 $ 0.56 $ 0.33 ========== ========== ========== ==========
Our Net income for the third quarter of $4.5 million or $0.29 per share was a 142% increase over the same quarter in 1999 on a per share basis. Net income for the nine months of $8.9 million or $0.56 per share was a 70% increase over the same period in 1999 on a per share basis. These increases are primarily due to increased income from our reinsurance and wealth management operations, our investment portfolio, reductions in realized losses on securities and our repurchase of ordinary shares during the year. Excluding the effect of realized losses on securities our earnings would be as follows:
Three months Three months Nine months Nine months ended ended ended ended September 30, September 30, September 30, September 30, 2000 1999 2000 1999 Net income $4,642,147 $3,279,545 $9,197,756 $8,570,303 ========== ========== ========== ========== Basic & Diluted EPS $ 0.29 $ 0.18 $ 0.58 $ 0.46 ========== ========== ========== ==========
12 Revenues Revenues have increased significantly in the year to date due to growth in our Non U.S. reinsurance operations, our acquisition of Scottish Re which is writing reinsurance treaties for domestic insurance companies, new reinsurance treaties written by our Cayman operation and a large increase in investment income due to the increase in our investment portfolio as a result of these new reinsurance agreements. Revenue is made up as follows:
Three months Three months Nine months Nine months ended ended ended ended September 30, September 30, September 30, September 30, 2000 1999 2000 1999 Premiums earned $ 6,277,219 $ - $ 9,891,259 $ - Fee income 553,147 267,999 1,547,465 744,279 Investment income, net 11,965,074 7,145,693 33,061,922 14,591,701 Realized losses (115,080) (1,014,444) (259,705) (2,497,268) ---------------------------------------------------------------------------- Total Revenues $18,680,360 $ 6,399,248 $44,240,941 $12,838,712 ============================================================================
Premiums earned Premiums earned are a result of new reinsurance treaties written by Scottish Re, premiums from a block of Accident & Health business previously written by Scottish Re before we acquired the company and reinsurance treaties written by our international company Scottish Insurance. As of September 30, 2000 we reinsure approximately $3 billion of life coverage on 100,000 lives. The average benefit coverage per life is $30,000 and the maximum retention on any one life is $1 million. The split of premium income from these segments is as follows:
Three months Three months Nine months Nine months ended ended ended ended September 30, September 30, September 30, September 30, 2000 1999 2000 1999 U.S. reinsurance $3,272,584 $ - $4,747,076 $ - Non U.S. reinsurance 3,004,635 - 5,144,183 - -------------------------------------------------------------------- Total $6,277,219 $ - $9,891,259 $ - ====================================================================
We anticipate a steady flow of premiums in future quarters from these new treaties. During the third quarter we continued to review a number of reinsurance transactions. We expect to write some of these during the fourth quarter. 13 Fee income Fee income includes fees earned from our Wealth Management products offered to high net worth individuals by Scottish Annuity and Scottish Insurance in the Cayman Islands. These fees increased from $.3 million to $.6 million in the quarter and from $.7 million to $ 1.5 million in the nine months due primarily to increases in variable account balances and the purchase of Scottish Annuity, resulting in 100% of the fee income reverting to us this year. Investment income Net investment income increased from $7.1 million to $12.0 million in the three months and from $14.6 million to $33.1 million in the nine months compared to the same periods last year as a result of an increase in total investments plus an increase in our average book yield. The split of investment income by segment is as follows:
Three months Three months Nine months Nine months ended ended ended ended September 30, September 30, September 30, September 30, 2000 1999 2000 1999 U.S. reinsurance $ 1,826,376 $ - $ 5,509,765 $ - Non U.S. reinsurance 7,318,429 3,659,163 19,824,058 4,305,695 Wealth management 2,250 - 7,540 - Other 2,818,019 3,486,530 7,720,559 10,286,006 ------------------------------------------------------------------------- Total $11,965,074 $7,145,693 $33,061,922 $14,591,701 =========================================================================
Capital has been contributed to our U.S. operations as required and is utilized to support the reinsurance agreements in place, more capital will be contributed as required. The funds remaining in our Cayman companies are being utilized to support our Non U.S. reinsurance agreements and capital that is not yet allocated is invested to provide investment income at competitive rates. Such investment income is shown as other in the above table. Realized losses Net realized losses on securities in 1999 were primarily due to portfolio restructuring. The losses this year are as a result of sales of securities to meet cash flow demands. 14 Benefits & Expenses
Three months Three months Nine months Nine months ended ended ended ended September 30, September 30, September 30, September 30, 2000 1999 2000 1999 Claims and other policy benefits $ 3,412,361 $ 869,181 $ 8,165,062 $1,188,846 Interest credited to interest sensitive contract liabilities 4,746,915 1,791,484 12,625,690 1,791,484 Acquisition costs and other insurance expenses 3,269,345 668,498 7,490,291 1,890,499 Operating expenses 2,811,417 804,984 7,478,592 1,894,848 ------------------------------------------------------------------ Total benefits & expenses $ 14,240,038 $4,134,147 $35,759,635 $6,765,677 ==================================================================
Claims and other policy benefits Claims and other policy benefits increased from $.9 million in the third quarter to $3.4 million and from $1.2 million to $8.2 million in the first nine months of 2000 as a result of the new reinsurance treaties together with active management of existing treaties. The split of these expenses between segments is as follows:
Three months Three months Nine months Nine months ended ended ended ended September 30, September 30, September 30, September 30, 2000 1999 2000 1999 U.S. reinsurance $ 1,743,500 $ - $ 2,623,817 $ - Non U.S. reinsurance 1,668,861 869,181 5,541,245 1,188,846 ------------------------------------------------------------------ Total $ 3,412,361 $ 869,181 $ 8,165,062 $ 1,188,846 ==================================================================
15 Interest credited to interest sensitive contract liabilities Interest credited to interest sensitive contract liabilities increased from $1.8 million to $4.7 million for the three months and from $1.8 million to $12.6 million for the nine months as a result of new reinsurance treaties. Interest is calculated based on the liabilities recorded on the balance sheet at the rate of interest specified in the reinsurance agreement. The split of these expenses between segments is as follows:
Three months Three months Nine months Nine months ended ended ended ended September 30, September 30, September 30, September 30, 2000 1999 2000 1999 U.S. reinsurance $ 785,631 $ - $ 2,467,011 $ - Non U.S. reinsurance 3,961,284 1,791,484 10,158,679 1,791,484 ------------------------------------------------------------------ Total $ 4,746,915 $ 1,791,484 $ 12,625,690 $ 1,791,484 ==================================================================
Acquisition costs and other insurance expenses Acquisition costs and other insurance expenses increased from $.7 million to $3.3 million in the third quarter and from $1.9 million to $7.5 million in the first nine months as a result of the new reinsurance treaties. The components of these expenses are as follows:
Three months Three months Nine months Nine months ended ended ended ended September 30, September 30, September 30, September 30, 2000 1999 2000 1999 Commissions & excise taxes $ 3,993,805 $ (48,252) $ 6,128,137 $ 1,363,316 Insurance expenses 2,421,373 1,104,567 6,277,821 2,614,606 Deferred expenses (5,604,227) (438,000) (8,883,859) (2,161,620) Amortization - PVIF 16,800 - 50,400 - Amortization - DAC 2,441,594 50,183 3,917,792 74,197 ---------------------------------------------------------------------------- Total $ 3,269,345 $ 668,498 $ 7,490,291 $ 1,890,499 ============================================================================
Commissions & excise taxes vary with premiums earned. Insurance expenses include direct and indirect expenses of those departments involved in the marketing, underwriting and issuing of reinsurance agreements. Of these total expenses a portion is deferred and amortized over the life of the reinsurance treaty or in relation to the estimated gross profit in respect of our interest sensitive contracts. 16 The split of these expenses between segments is as follows:
Three months Three months Nine months Nine months ended ended ended ended September 30, September 30, September 30, September 30, 2000 1999 2000 1999 U.S. reinsurance $ 1,320,893 $ - $ 2,380,422 $ - Non U.S. reinsurance 1,808,303 668,498 4,729,542 1,890,499 Wealth Management 140,149 - 380,327 - ------------------------------------------------------------------------ Total $ 3,269,345 $ 668,498 $ 7,490,291 $ 1,890,499 ========================================================================
Operating expenses Operating expenses increased from $.8 million to $2.8 million for the quarter and from $1.9 million to $7.5 million for the nine months as a result of increased reinsurance activity and the implementation of our U.S. reinsurance operations through Scottish Re. Included in the nine month figure is $.9 million of non-recurring employee expenses, which relate to four employees including severance, recruiting and relocation expenses, all of which occurred in the first two quarters of the year. The split of these expenses between segments is as follows:
Three months Three months Nine months Nine months ended ended ended ended September 30, September 30, September 30, September 30, 2000 1999 2000 1999 U.S. reinsurance $ 1,035,942 $ - $ 2,665,513 $ - Non U.S. reinsurance 619,252 321,994 1,817,391 757,939 Wealth management 397,639 88,548 769,384 208,433 Other 758,584 394,442 2,226,304 928,476 ------------------------------------------------------------ Total $ 2,811,417 $ 804,984 $ 7,478,592 $ 1,894,848 ============================================================
17 Income taxes The income tax benefit arises from a deferred tax credit offset by current tax on our U.S. operations, which became profitable for the first time this quarter. Minority interest In June 2000, Scottish Insurance entered into a joint venture with Crown Capital Investors, LLC, a Delaware limited liability company ("Crown"), to form Scottish Crown. Scottish Insurance paid $5.25 million for its share of Scottish Crown. Scottish Crown will provide customized variable life and annuity insurance products to high net worth individuals and families. Scottish Crown owns two Bermuda licensed insurance companies, and has a 10-year exclusive distribution agreement with Crown World Services Ltd., a Bermuda company. The Minority interests share of the results of this operation is shown separately on the Income Statement and Balance Sheet. Investments Two professional investment managers, General Re - New England Asset Management, Inc. and Prudential Investment Corporation, manage our investment portfolio. Our investment guidelines are designed to diversify the portfolio to maximize investment income while minimizing risk. At September 30, 2000, the portfolio had an average quality rating of AA, an average duration of 2.59 years and an average book yield of 7.07%. This compares with an average quality rating of AA, an average duration of 2.98 years and an average book yield of 6.79% respectively at December 31, 1999. A realized loss of $.1 million and net unrealized appreciation of $5.1 million were recognized on investments during the third quarter. A realized loss of $.3 million and net unrealized appreciation of $4.4 million were recognized on investments during the first nine months. Capital Resources and Liquidity At September 30, 2000, total capitalization was $226 million. We have no material commitments for capital expenditures and do not anticipate incurring material indebtedness other than letters of credit or lines of credit, which may be required in the ordinary course of our reinsurance business. During the first nine months of 2000, we paid dividends totaling $0.15 per share or $2.4 million. In the nine months ended September 30, 2000 we repurchased 374,800 shares for $3.2 million (average price of $8.66 per share), and through November 1, 2000 we have repurchased an additional 43,700 shares, resulting in an aggregate repurchase in the year to date of 418,500 shares for $3.7 million (average price of $8.74 per share) under a program authorized by the Board on April 6, 2000 to repurchase up to $20 million of outstanding shares. We successfully renewed our letter of credit and line of credit facility for one year expiring in July 2001. We have access to a combined $70 million through available lines and letters of credit, of which approximately $19.3 million is currently being utilized under a letter of credit in support of our Non U.S. reinsurance business. Cash flow Cash flow from operations for the nine months was $25.2 million. We expect that our cash and investments, together with cash generated from our businesses, will provide sufficient sources of liquidity and capital to meet our needs for the next several years. 18 Forward Looking Statements Some of the statements contained in this report are not historical facts and are forward-looking 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. When used, the words "may", "will", "expect", "anticipate", "continue", "estimate", "project", "plan", "intend" and similar expressions identify forward-looking statements. These forward-looking statements involve risks and uncertainties including, but not limited to, the following: our ability to execute the business plan; changes in the general economic conditions including the performance of the financial markets and interest rates; changes in insurance regulations or taxes; changes in rating agency policy; the loss of key executives; trends in the insurance and reinsurance industries; government regulations; trends that may affect our financial condition or results of operations; and the declaration and payment of dividends. Potential investors are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. Actual results may differ materially from those included within the forward-looking statements as a result of various factors. Factors that could cause or contribute to such differences include, but are not limited to, those described under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" and under the heading "Risk Factors of Investing in our Ordinary Shares" set forth in our Annual Report on Form 10-K filed with the Securities and Exchange Commission. We assume no obligation to update any forward-looking statement to reflect actual results or changes in or additions to the factors affecting such forward-looking statements. Risk Factors of Investing in Our Ordinary Shares Investing in our Ordinary Shares involves a high degree of risk. Prior to investing in the Ordinary Shares, potential investors should consider carefully the risk factors set forth in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, in addition to the other information set forth in this Form 10-Q. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes since December 31, 1999. Please refer to "Item 7A: Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K. 19 PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is not currently involved in any litigation or arbitration. Item 2. Changes in Securities and Use of Proceeds Not applicable. Item 3. Default Upon Senior Securities Not applicable. Item 4. Submission of Matters to a Vote of Securities Holders Not applicable. Item 5. Other Information Not applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. The following Exhibits are filed as part of this 10-Q: 27.1 Financial Data Schedule (b) Reports on Form 8-K . No reports on Form 8-K were filed during the three month period ended September 30, 2000. 20 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SCOTTISH ANNUITY & LIFE HOLDINGS, LTD. Date: November 8, 2000 By: /s/ Michael C. French Michael C. French Chief Executive Officer Date: November 8, 2000 By: /s/ Scott E. Willkomm Scott E. Willkomm President (Principal Financial Officer and Principal Accounting Officer) 21 EXHIBIT INDEX EXHIBIT SEQUENTIAL NUMBER PAGE NO. DESCRIPTION OF DOCUMENT - -------- ----------------------- 27.1 Financial Data Schedule 22 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
7 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 534,673,726 0 0 0 0 0 534,673,726 105,103,195 0 19,672,742 1,135,392,958 480,064,958 0 0 0 0 0 0 156,719 226,222,173 1,135,392,958 9,891,259 33,061,922 (259,705) 1,547,465 8,165,062 3,917,792 3,572,499 8,481,306 (332,000) 8,938,051 0 0 0 8,938,051 0.56 0.56 0 0 0 0 0 0 0
-----END PRIVACY-ENHANCED MESSAGE-----