10-Q 1 d10q.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 March 31, 2001 [ ] 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 May 1, 2001, Registrant had 15,615,240 Ordinary Shares outstanding. Table of Contents PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets - March 31, 2001 (Unaudited) and December 31, 2000 1 Unaudited Consolidated Statements of Income - Three Months ended March 31, 2001 and 2000 2 Unaudited Consolidated Statements of Comprehensive Income - Three Months ended March 31, 2001 and 2000 3 Unaudited Consolidated Statements of Shareholders' Equity - Three Months ended March 31, 2001 and 2000 4 Unaudited Consolidated Statements of Cash Flows - Three Months ended March 31, 2001 and 2000 5 Notes to Unaudited Consolidated Financial Statements at March 31, 2001 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16 PART II OTHER INFORMATION ITEM 1 through ITEM 6 17 SIGNATURES 18 i PART I. FINANCIAL INFORMATION Item 1. Financial Statements Scottish Annuity & Life Holdings, Ltd. Consolidated Balance Sheets (Dollars in thousands) March 31, 2001 December 31, (unaudited) 2000 ----------------------------------------- ASSETS Fixed maturity investments, available for sale, at fair $ 601,353 $ 581,020 value (Amortized cost $599,109; 2000 - $584,493) Cash and cash equivalents 21,740 47,763 Funds withheld at interest 51,164 46,256 ----------------------------------------- Total investments 674,257 675,039 Receivables: Accrued interest 6,065 6,710 Risk fees 1,039 961 Policy loans 769 441 Reinsurance 18,445 30,595 Due from investment brokers 5,184 - Deferred acquisition costs 36,620 30,922 Present value of inforce business 10,381 10,433 Other intangible assets 7,793 7,888 Deferred tax benefit 1,728 2,192 Fixed assets 2,956 2,482 Due from related party 218 218 Other assets 1,658 868 Current income tax receivable 35 87 Segregated assets 460,719 409,660 ----------------------------------------- Total assets $1,227,867 $1,178,496 ========================================= LIABILITIES Reserves for future policy benefits $ 180,882 $ 182,391 Interest sensitive contract liabilities 332,080 320,732 Due to investment brokers - 4,462 Accounts payable and accrued expenses 3,671 18,867 Segregated liabilities 460,719 409,660 ----------------------------------------- Total liabilities 977,352 936,112 ----------------------------------------- MINORITY INTEREST 2,758 2,820 ----------------------------------------- SHAREHOLDERS' EQUITY Share capital, par value $0.01 per share: Issued and fully paid: 15,615,240 ordinary shares (2000 - 15,614,240) (Excludes 2,962,200 held in Treasury; 2000 - 2,962,200) 156 156 Additional paid in capital 223,779 223,771 Accumulated other comprehensive income (loss) - Unrealized appreciation (depreciation) on investments, 1,430 (3,822) net of tax Retained earnings 22,392 19,459 ----------------------------------------- Total shareholders' equity 247,757 239,564 ----------------------------------------- Total liabilities and shareholders' equity $1,227,867 $1,178,496 =========================================
See Accompanying Notes to Unaudited Consolidated Financial Statements Scottish Annuity & Life Holdings, Ltd. Unaudited Consolidated Statements of Income (Dollars in thousands, except per share data)
Three months ended Three months ended March 31, 2001 March 31, 2000 ---------------------------------------- REVENUES Premiums earned $ 9,520 $ 32 Fee income 699 450 Investment income, net 11,747 9,765 Realized gains (losses) 38 (128) ---------------------------------------- Total revenues 22,004 10,119 ---------------------------------------- BENEFITS & EXPENSES Claims and other policy benefits 7,334 1,615 Interest credited to interest sensitive 4,219 3,660 contract liabilities Acquisition costs and other insurance expenses 4,116 614 Operating expenses 2,631 2,140 ---------------------------------------- Total benefits & expenses 18,300 8,029 ---------------------------------------- Net income before income taxes and minority 3,704 2,090 interest Income taxes 52 59 ---------------------------------------- Net income before minority interest 3,652 2,031 Minority interest 62 - ---------------------------------------- Net income $ 3,714 $ 2,031 ======================================== Earnings per share Basic $ 0.24 $ 0.13 ======================================== Diluted $ 0.23 $ 0.13 ======================================== Dividends per share $ 0.05 $ 0.05 ======================================== Weighted average number of shares outstanding: Basic 15,614,418 16,046,740 ======================================== Diluted 16,136,716 16,047,729 ========================================
See Accompanying Notes to Unaudited Consolidated Financial Statements Scottish Annuity & Life Holdings, Ltd. Unaudited Consolidated Statements of Comprehensive Income (Dollars in thousands)
Three months ended Three months ended March 31, 2001 March 31, 2000 ------------------------------------------------------------------------------------------------ Net income $3,714 $2,031 ------------------------------------------- Other comprehensive income (loss), net of tax Unrealized appreciation (depreciation) on investments: 5,230 (303) Add: reclassification adjustment for investment losses included in net income, net of tax 22 128 ------------------------------------------- Unrealized appreciation (depreciation) on investments 5,252 (175) ------------------------------------------- Comprehensive income $8,966 $1,856 ===========================================
See Accompanying Notes to Unaudited Consolidated Financial Statements Scottish Annuity & Life Holdings, Ltd. Unaudited Consolidated Statements of Shareholders' Equity (Dollars in thousands)
Three months ended Three months ended March 31, 2001 March 31, 2000 ------------------------------------------------------------------------------------------------------------------- SHARE CAPITAL: Beginning of period $ 156 $ 160 Shares issued - - ------------------------------------------------- 156 160 ------------------------------------------------- ADDITIONAL PAID IN CAPITAL: Beginning of period 223,771 227,535 Issuance of equity on exercise of options 8 - Issuance of equity options - 9 ------------------------------------------------- 223,779 227,544 ------------------------------------------------- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): Beginning of period (3,822) (15,685) Unrealized appreciation (depreciation) on investments 5,252 (175) ------------------------------------------------- 1,430 (15,860) ------------------------------------------------- RETAINED EARNINGS: Beginning of period 19,459 6,651 Net income 3,714 2,031 Dividends paid (781) (802) ------------------------------------------------- 22,392 7,880 ------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY $247,757 $219,724 =================================================
See Accompanying Notes to Unaudited Consolidated Financial Statements Scottish Annuity & Life Holdings, Ltd. Unaudited Consolidated Statements of Cash Flows (Dollars in thousands)
Three months ended Three months ended March 31, 2001 March 31, 2000 ------------------------------------------ OPERATING ACTIVITIES Net income $ 3,714 $ 2,031 Items not affecting cash: Net realized (gains) losses on securities (38) 128 Amortization of investments (330) (43) Non cash salaries and professional fees - 9 Minority interest (62) - Depreciation 151 63 Amortization of deferred acquisition costs 3,126 71 Amortization of present value of inforce business 52 - Amortization of other intangible assets 95 - Interest credited to interest sensitive contract liabilities 4,219 3,660 Changes in assets and liabilities: Accrued interest 645 805 Risk fees (78) 266 Reinsurance 12,150 (8,126) Deferred acquisition costs (8,824) (1,060) Deferred tax benefit - 60 Other assets (790) 79 Current income tax receivable 52 96 Reserve for future policy benefits (1,509) (3,169) Accounts payable and accrued expenses (15,196) (205) ------------------------------------------ Net cash used in operating activities (2,623) (5,335) ------------------------------------------ INVESTING ACTIVITIES Purchase of investments (65,655) (30,519) Proceeds on sales of investments 32,313 30,993 Proceeds on maturity of investments 19,096 18,675 Due to / from investment broker (9,646) 41 Funds withheld at interest (4,908) - Purchase of present value of inforce business - (103) Purchase of intangible assets - (50) Due to related party on purchase of subsidiary - (11,562) Proceeds from sale of fixed assets 8 - Purchase of fixed assets (635) (599) ------------------------------------------ Net cash (used in) provided by investing activities (29,427) 6,876 ------------------------------------------ FINANCING ACTIVITIES Deposits to interest sensitive contract liabilities 13,806 8,076 Withdrawals from interest sensitive contract liabilities (6,678) (6,373) Policy loans (328) 34 Net proceeds from issue of company stock 8 - Dividends paid (781) (802) ------------------------------------------ Net cash provided by financing activities 6,027 935 ------------------------------------------ NET CHANGE IN CASH AND CASH EQUIVALENTS (26,023) 2,476 Cash and cash equivalents, beginning of period 47,763 29,000 ------------------------------------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 21,740 $ 31,476 ==========================================
See Accompanying Notes to Unaudited Consolidated Financial Statements Scottish Annuity & Life Holdings, Ltd. Notes to Unaudited Consolidated Financial Statements March 31, 2001 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, 2000. We have reclassified some figures from our 2000 financial statements to conform to our 2001 presentation. These reclassifications had no effect on net income or shareholders' equity as previously reported. All amounts are reported in thousands of United States dollars (except per share amounts). 2. Deferred acquisition costs The change in deferred acquisition costs ("DAC") is as follows:
Three months ended Three months ended March 31, 2001 March 31, 2000 ------------------------------------------------ Balance January 1 $30,922 $1,920 Expenses deferred 8,824 1,059 Amortization expense (3,126) (71) ------------------------------------------------ Balance March 31 $36,620 $2,908 ================================================
Scottish Annuity & Life Holdings, Ltd. Notes to Unaudited Consolidated Financial Statements March 31, 2001 3. 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 ended ended March 31, 2001 March 31, 2000 -------------------------------------- Numerator: Net income $ 3,714 $ 2,031 -------------------------------------- Denominator: Denominator for basic earnings per share - 15,614,418 16,046,740 Weighted average number of shares Effect of dilutive securities - Stock Options 522,298 989 -------------------------------------- Denominator for dilutive earnings per share 16,136,716 16,047,729 -------------------------------------- Basic earnings per share $ 0.24 $ 0.13 ====================================== Diluted earnings per share $ 0.23 $ 0.13 ======================================
4. Comprehensive income We report comprehensive income in accordance with SFAS 130, which requires unrealized gains and losses on the Company's available for sale investments to be included in other comprehensive income in the statement of Shareholders' equity. The table below shows the gross and net of tax components of other comprehensive income.
Three months ended March 31, 2001 Before Tax Tax Net of Tax Unrealized gains on available for sale investments arising during the period $5,757 $(527) $5,230 Less-: reclassification adjustment for gains realized in net income (40) 62 22 ----------------------------------------------------- Other comprehensive income $5,717 $(465) $5,252 =====================================================
Three months ended March 31, 2000 Before Tax Tax Net of Tax Unrealized (losses) on available for sale investments arising during the period $(303) $ - $(303) Less-: reclassification adjustment for losses realized in net income 128 - 128 ----------------------------------------------------- Other comprehensive income $(175) $ - $(175) ====================================================
Scottish Annuity & Life Holdings, Ltd. Notes to Unaudited Consolidated Financial Statements March 31, 2001 5. Segment Reporting Income from insurance operations is split into two segments: Life Reinsurance and Wealth Management. The segment reporting for the lines of business is as follows:
Three months ended Three months ended March 31, 2001 March 31, 2000 ------------------------------------------ REVENUES Life Reinsurance $19,347 $ 7,023 Wealth Management 612 451 Other (1) 2,045 2,645 ------------------------------------------ Total $22,004 $10,119 ========================================== NET INCOME BEFORE INCOME TAXES AND MINORITY INTEREST Life Reinsurance $ 1,923 $ (84) Wealth Management 209 160 Other (2) 1,572 2,014 ------------------------------------------ Total $ 3,704 $ 2,090 ==========================================
March 31, 2001 December 31, 2000 ------------------------------------------ ASSETS BY SEGMENT Life Reinsurance $ 638,049 $ 636,382 Wealth Management 483,608 431,670 Other 106,210 110,444 ------------------------------------------ Total $1,227,867 $1,178,496 ==========================================
(1) Includes investment income on unallocated capital and realized gains and losses. (2) Includes corporate expenses. 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", "our", or "the Company") is a Cayman Islands holding company that was incorporated in May 1998 and completed its initial public offering ("IPO") on November 30, 1998. Through our wholly owned subsidiaries, we provide life reinsurance to life insurance companies and issue variable insurance policies to high net worth individuals. We have two wholly-owned direct subsidiaries: Scottish Annuity & Life Insurance Company (Cayman) Ltd. ("SALIC"), a Cayman Islands insurance company formed by the Company in 1998; and The Scottish Annuity Company (Cayman) Ltd. ("SAC"), a Cayman Islands insurance company that was incorporated in 1994 and acquired by the Company in 1999. Scottish Re (U.S.), Inc. ("Scottish Re") is a Delaware insurance company that was acquired by SALIC in 1999. Scottish Re provides life reinsurance to life insurance companies. Scottish Re is licensed to do business in the United States by 15 states and admitted as a reinsurer in an additional 30 states. Scottish Re (Dublin) Limited ("Dublin") was incorporated in Dublin, Ireland in 2000 to provide reinsurance for our group companies. Dublin commenced writing business in January 2001. We have a 50.01% holding in Scottish Crown Group (Bermuda) Ltd. ("Scottish Crown"). As of December 31, 2000, Scottish Crown owned two Bermuda-licensed insurance companies that are engaged in the issuance of variable insurance policies to high net worth individuals. In February 2001, Scottish Holdings (U.S.), Inc., a wholly owned subsidiary of SALIC, acquired 100% of one of the Bermuda-licensed insurance companies. All amounts are reported in thousands of United States dollars (except per share amounts). Earnings per share
Three months ended Three months ended March 31, 2001 March 31, 2000 Net income $ 3,714 $ 2,031 =========== =========== Basic EPS $ 0.24 $ 0.13 =========== =========== Diluted EPS $ 0.23 $ 0.13 =========== =========== Weighted average number of shares outstanding: Basic 15,614,418 16,046,740 ----------- ----------- Diluted 16,136,716 16,047,729 ----------- ===========
Our Net income for the first quarter of $3.7 million was an 83% increase over the same quarter in 2000. This increase is primarily due to increased income from our Life Reinsurance and Wealth Management operations, an improved return on our investment portfolio and a reduction in realized losses on investments. Earnings per share increased 77% on a diluted basis from $0.13 to $0.23. The increase in earnings per share was entirely due to increased earnings. The effect of our repurchase of shares in the latter part of 2000 was offset by the dilutive effect of stock options in the first quarter of 2001. Revenues Revenues have increased 117% to $22.0 million in the first three months of 2001 compared to $10.1 million in the same period of 2000 due primarily to the growth in our Life Reinsurance operations and an increase in investment income based on the increase in invested assets and the improvement in the yield on such assets. Revenue is made up as follows:
Three months ended Three months ended March 31, 2001 March 31, 2000 Premiums earned $ 9,520 $ 32 Fee income 699 450 Investment income, net 11,747 9,765 Realized gains (losses) 38 (128) ------------------------------------------ Total Revenues $22,004 $10,119 ==========================================
Premiums earned Premiums earned during the first quarter of 2001 are in respect of 23 reinsurance clients and premiums from a block of Accident & Health business previously written by Scottish Re before we acquired the company and which is now in run-off. Premiums earned in the first quarter of 2000 are in relation to the Accident & Health business in existence when we acquired Scottish Re. As of March 31, 2001 we reinsure approximately $15.8 billion of life coverage on 393,000 lives. The average benefit coverage per life is $40 thousand and the maximum corporate retention on any one life is $1 million. We anticipate a steady flow of premiums in future quarters from these treaties. Fee income Fee income includes fees earned from our Wealth Management products offered to high net worth individuals by SALIC and SAC in the Cayman Islands and Scottish Crown in Bermuda. These fees increased from $450 thousand to $619 thousand in the first quarter due primarily to increases in variable account balances on which we earn fees and in the number of clients. Scottish Re also earns fees on certain financial reinsurance treaties issued to U.S. insurance company clients. Fees earned are as follows:
Three months ended Three months ended March 31, 2001 March 31, 2000 Life Reinsurance $ 80 $ - Wealth Management 619 450 ------------------------------------------ Total $699 $450 ==========================================
At March 31, 2001 we have 83 annuity clients with total assets of $377.9 million and 22 variable life clients with total assets of $82.8 million and a total face amount of $480.4 million. At March 31, 2000 we had 80 annuity clients with total assets of $262.5 million and 4 variable life clients with total assets of $7.6 million and a total face amount of $41.2 million. The change in the segregated assets is as follows:
Three months ended Three months ended March 31, 2001 March 31, 2000 ------------------------------------------- Balance January 1 $409,660 $256,546 Deposits 62,199 8,955 Withdrawals (1,300) (5,596) Investment performance (1) (9,840) 10,231 ------------------------------------------- Balance March 31 $460,719 $270,136 ===========================================
(1) Investment performance for the period is determined using actual asset valuations where available and estimates where actual data is not available. Investment income Net investment income increased from $9.8 million to $11.7 million as a result of an increase in total investments and an increase in our average book yield. The split of investment income by segment is as follows:
Three months ended Three months ended March 31, 2001 March 31, 2000 Life Reinsurance $ 9,704 $6,991 Wealth Management 2 2 Other 2,041 2,772 ------------------------------------------ Total $11,747 $9,765 ==========================================
Capital has been contributed to SALIC and Scottish Re and is utilized to support the reinsurance agreements in place; more capital will be contributed as required. 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. Benefits & Expenses
Three months ended Three months ended March 31, 2001 March 31, 2000 Claims and other policy benefits $ 7,334 $1,615 Interest credited to interest sensitive contract 4,219 3,660 liabilities Acquisition costs and other insurance expenses 4,116 614 Operating expenses 2,631 2,140 ------------------------------------------ Total benefits & expenses $18,300 $8,029 ==========================================
Claims and other policy benefits Claims and other policy benefits increased from $1.6 million to $7.3 million in the first quarter as a result of new reinsurance clients. We are recording claims and policy benefit expenses in respect of 24 reinsurance clients and the run-off of a small amount of Accident & Health business in the first three months of 2001. In the first three months of 2000 we had benefit expenses in relation to one reinsurance client and the Accident & Health business. Interest credited to interest sensitive contract liabilities Interest credited to interest sensitive contract liabilities increased from $3.7 million to $4.2 million for the first three months as a result of new reinsurance treaties written by SALIC offset by a reduction in interest credited to annuities in Scottish Re. Interest is calculated based on the liabilities recorded on the balance sheet at the rate of interest required by the reinsurance agreement. Acquisition costs and other insurance expenses Acquisition costs and other insurance expenses increased from $614 thousand to $4.1 million in the first quarter as a result of the new reinsurance treaties. The components of these expenses are as follows:
Three months ended Three months ended March 31, 2001 March 31, 2000 Commissions, excise taxes and other insurance expenses $ 9,762 $ 1,602 Deferred expenses (8,824) (1,059) Amortization - PVIF 52 - Amortization - DAC 3,126 71 ------------------------------------------- Total $ 4,116 $ 614 ===========================================
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. The split of these expenses between segments is as follows:
Three months ended Three months ended March 31, 2001 March 31, 2000 Life Reinsurance $3,950 $519 Wealth Management 166 95 ------------------------------------------ Total $4,116 $614 ==========================================
Operating expenses Operating expenses increased from $2.1 million to $2.6 million for the quarter as a result of increased reinsurance activity and increased personnel costs. The split of these expenses between segments is as follows:
Three months ended Three months ended March 31, 2001 March 31, 2000 Life Reinsurance $1,920 $1,313 Wealth Management 238 197 Other 473 630 ------------------------------------------ Total $2,631 $2,140 ==========================================
Increased business activity in 2001 has resulted in an increase in corporate overhead costs being allocated to lines of business. Income taxes The income tax expense decreased in the first three months of 2001 to $52 thousand from $59 thousand in the first three months of 2000. The 2001 calculation includes the earnings of Scottish Re and Dublin less a release of capital loss carryforwards by Scottish Re. The tax expense in 2000 is related to the earnings of Scottish Re. Minority interest Minority interest income represents the minority's share of the loss recorded by Scottish Crown in the first quarter 2001. Investments General Re - New England Asset Management, Inc. manages our investment portfolio. Our investment guidelines are designed to diversify the portfolio and maximize investment income while limiting risk in an asset-liability management, enterprise context. At March 31, 2001, the portfolio had an average quality rating of "AA-", an average effective duration of 2.77 years and an average book yield of 6.94%. This compares with an average quality rating of "AA-", an average duration of 2.62 years and an average book yield of 7.24% respectively at December 31, 2000. The decline in average book yield was due to a decline in LIBOR and other floating-rate indices with which the yield of a portion of our assets floats. These assets are approximately matched by floating-rate liabilities, on which the cost of funds declined by a similar amount. The average book yield on the fixed-rate portion of the portfolio increased from 7.12% to 7.18%. A realized gain of $40 thousand was recognized on investments during the first quarter of 2001 as compared to a realized loss of $128 thousand in the first quarter of 2000. At March 31, 2001 the portfolio had unrealized gains of $1.4 million net of tax as compared to unrealized losses of $3.8 million net of tax at December 31, 2000, these amounts are shown on the balance sheet as part of Shareholders' equity entitled Accumulated other comprehensive income. Subsequent event Effective as of April 30, 2001, one of our clients exercised its right to recapture a block of business ceded to us in 1999. The recapture will reduce our investment portfolio, interest sensitive contract liabilities, net investment income and interest credited to interest sensitive contract liabilities, but will not materially affect net income. Nevertheless, we expect that other reinsurance transactions will offset the effects of the recapture. Liquidity and Capital Resources Cash flow Cash flow from operations for the quarter was a negative $2.6 million compared to a negative $5.3 million in the first quarter of 2000. Although premiums written and renewal premiums received in the first quarter of the year are typically lower than in later quarters, causing reduced cash inflows, the payment of claims and general operating expenses continue on a more level basis throughout the year. We also had significant cash outflows in the first quarter of 2000 related to the start up of Scottish Re. Scottish Re had no cash inflows in the first quarter of 2000 and minimal cash inflows in the first quarter 2001, but should begin to produce significant cash inflows in second quarter 2001. Our cash flow from operations may be positive or negative in any specific quarter depending on the amount of new life reinsurance business written in the quarter and the level of ceding commissions paid in connection with writing that business offset by the level of renewal premiums earned in the quarter. Capital and Collateral At March 31, 2001, total capitalization was $247.8 million. We currently have no material commitments for capital expenditures. During the first quarter of 2001, we paid dividends totaling $0.05 per share or $781 thousand. We have in place a credit facility with a U.S. bank that provides up to $70 million that we can use for a combination of borrowings and outstanding letters of credit. Under the agreement, we may borrow at a predetermined interest rate of 40 basis points over LIBOR. The agreement expires in July 2001, but is renewable with the agreement of both parties. We have letters of credit outstanding at March 31, 2001 in the amount of $26.9 million in support of our reinsurance business. The agreement requires that we pledge assets as collateral with a market value not less than 111% of the sum of outstanding borrowing and letters of credit. 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, 2000. Please refer to "Item 7A: Quantitative and Qualitative Disclosures About Market Risk" in our Annual Report on Form 10-K. 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 No reports on Form 8-K were filed during the three-month period ended March 31, 2001. 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: May 14, 2001 By: /s/ Michael C. French Michael C. French Chief Executive Officer Date: May 14, 2001 By: /s/ Scott E. Willkomm Scott E. Willkomm President & Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)