-----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, Q3pap0+Wz0MaA+NCDB7zHQdpOwGOBIVC5NvcHi/dAP/J1GOexzighiXEFP7cJYEn yWvPYN600+FY4HBnfniABQ== 0000930661-99-001148.txt : 19990517 0000930661-99-001148.hdr.sgml : 19990517 ACCESSION NUMBER: 0000930661-99-001148 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SCOTTISH ANNUITY & LIFE HOLDINGS LTD CENTRAL INDEX KEY: 0001064122 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [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: 99621310 BUSINESS ADDRESS: STREET 1: UGLAND HOUSE SOUTH CHURCH STREET STREET 2: GEORGE TOWN GRAND CAYMAN CAYMAN ISLANDS CITY: BRITISH WEST INDIES STATE: E9 ZIP: 00000 BUSINESS PHONE: 3459492800 MAIL ADDRESS: STREET 1: UGLAND HOUSE SOUTH CHURCH STREET STREET 2: GEORGE TOWN GRAND CAYMAN CAYMAN ISLANDS CITY: BRITISH WEST INDIES STATE: E9 ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: SCOTTISH LIFE HOLDINGS LTD DATE OF NAME CHANGE: 19980615 10-Q 1 FORM 10-Q ================================================================================ 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, 1999 [_] 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 ANcNUITY & LIFE HOLDINGS, LTD. (Exact Name of Registrant as Specified in Its Charter) Cayman Islands Not Applicable (State or Other Jurisdiction (I.R.S. Employer Identification No.) of Incorporation or Organization) P.O. Box 10657 APO Not Applicable Grand Pavilion Commercial Center 802 West Bay Road Grand Cayman The Cayman Islands, B.W.I. (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 12, 1999, Registrant had 18,576,440 Ordinary Shares outstanding. ================================================================================ Table of Contents PART I ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets, March 31, 1999 (Unaudited) and December 31, 1998 (Note 1) 2 Consolidated Statement of Income for the Three Months Ending March 31, 1999 (Unaudited) 3 Consolidated Statement of Comprehensive Loss for the Three Months Ending March 31, 1999 (Unaudited) 3 Consolidated Statement of Shareholders' Equity for the Three Months Ending March 31, 1999 (Unaudited) 4 Consolidated Statement of Cash Flows for the Three Months Ending March 31, 1999 (Unaudited) 5 Condensed Notes to Consolidated Financial Statements (Unaudited) 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 12 PART II OTHER INFORMATION ITEM 1. through ITEM 6. 12 SIGNATURES 13 EXHIBIT INDEX 14 -1- PART I FINANCIAL INFORMATION Item 1. Financial Statements. SCOTTISH ANNUITY & LIFE HOLDINGS, LTD. Consolidated Balance Sheets (Stated in United States Dollars)
March 31, 1999 December 31, 1998 (Unaudited) (Note 1) ASSETS Investments Fixed Maturities $ 243,441,668 $ 229,756,293 Short-term investments 12,985,024 14,511,683 ------------- ------------- Total Investments 256,426,692 244,267,976 Cash 2,270,671 3,863,042 Receivables Due from Brokers - 3,060,543 Due from related parties 219,082 - Accrued interest receivable 2,451,926 2,883,009 Net fixed assets and leasehold improvements 367,732 - Other assets 226,076 271,669 ------------- ------------- Total Assets $ 261,962,179 $ 254,346,239 ============= ============= LIABILITIES Accounts payable and accrued expenses $ 918,552 $ 1,959,160 Due to Brokers 9,951,437 - Due to related parties - 326,900 ------------- ------------- Total Liabilities 10,869,989 2,286,060 ------------- ------------- SHAREHOLDERS' EQUITY Share capital, par value $0.01 per share Issued and fully paid: 18,576,440 ordinary shares (18,568,440 ordinary shares in 1998) 185,764 185,684 Additional paid in capital 252,429,366 252,291,320 Accumulated other comprehensive loss - Unrealized depreciation of investments (3,576,386) (853,146) Retained Earnings 2,053,446 436,321 ------------- ------------- Total shareholders' equity 251,092,190 252,060,179 ------------- ------------- Total liabilities and shareholders' equity $ 261,962,179 $ 254,346,239 ============= =============
See accompanying notes. -2- SCOTTISH ANNUITY & LIFE HOLDINGS, LTD. Consolidated Statement of Income (Stated in United States Dollars) For the Three Months Ending March 31, 1999 (Unaudited)
REVENUES Interest income, net $ 3,321,252 Realized losses on securities, net (963,914) Insurance administration fees 225,785 ----------- Total revenues 2,583,123 ----------- EXPENSES Salaries and benefits 492,471 Professional fees 210,445 Administrative expenses 263,082 ----------- Total expenses 965,998 ----------- Net income $ 1,617,125 =========== BASIC AND DILUTED EARNINGS PER ORDINARY SHARE $ 0.09 ===========
See accompanying notes SCOTTISH ANNUITY & LIFE HOLDINGS, LTD. Consolidated Statement of Comprehensive Loss (Stated in United States Dollars) For the Three Months Ending March 31, 1999 (Unaudited)
Net Income $ 1,617,125 Other comprehensive loss Unrealized depreciation on investments: Unrealized holding depreciation arising during the period (3,687,154) Add: reclassification adjustment for losses included in net income 963,914 ----------- Unrealized depreciation on investments (2,723,240) ----------- Comprehensive loss $(1,106,115) ===========
See accompanying notes -3- SCOTTISH ANNUITY & LIFE HOLDINGS, LTD. Consolidated Statement of Shareholders' Equity (Stated in United States Dollars) For the Three Months Ending March 31, 1999 (Unaudited)
Accumulated Additional other Class A Class B Share paid-in comprehensive Retained Shares warrants warrants capital capital loss earnings Total ------------------------------------------------------------------------------------------------------ Beginning balance 18,568,440 2,850,000 200,000 $ 185,684 $252,291,320 $ (853,146) $ 436,321 $ 252,060,179 Issuance of shares 8,000 80 87,920 88,000 Issuance of equity options 50,126 50,126 Unrealized depreciation on investments (2,723,240) (2,723,240) Net income 1,617,125 1,617,125 ------------------------------------------------------------------------------------------------------ Ending balance 18,576,440 2,850,000 200,000 $ 185,764 $252,429,366 $(3,576,386) $2,053,446 $ 251,092,190 ======================================================================================================
See accompanying notes -4- SCOTTISH ANNUITY & LIFE HOLDINGS, LTD. Consolidated Statement of Cash Flows (Stated in United States Dollars) For the Three Months Ending March 31, 1999 (Unaudited)
OPERATING ACTIVITIES Net income $ 1,617,125 Adjustments to reconcile net income to net cash provided by operating activities: Realized losses on securities, net 963,914 Non cash salaries and benefits 88,000 Non cash professional fees 50,126 Depreciation 4,838 Changes in assets and liabilities: Receivables 3,491,626 Fixed assets and leasehold improvements (372,570) Other assets 45,593 Accounts payable and accrued expenses 8,910,829 Due to/from related parties (545,982) --------------------- Net cash provided by operating activities 14,253,499 --------------------- INVESTING ACTIVITIES Purchase of securities (448,554,653) Proceeds on sales of securities 432,708,783 --------------------- Net cash used in investing activities (15,845,870) --------------------- Net change in cash (1,592,371) Cash at the beginning of the period 3,863,042 --------------------- CASH AT THE END OF THE PERIOD $ 2,270,671 ===================== Supplemental information - non-cash transactions Issuance of shares $ 88,000 Issuance of equity options 50,126 --------------------- $ 138,126 =====================
See accompanying notes -5- Scottish Annuity & Life Holdings, Ltd. Condensed Notes to Consolidated Financial Statements (Unaudited) For the Three Months Ending March 31, 1999 1. Basis of presentation Accounting Principles - The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information ("GAAP") 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 generally accepted accounting principles 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. Operating results for the three month period ending March 31, 1999 are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. The comparative consolidated balance sheet as of December 31, 1998 has been derived from the audited consolidated financial statements for the period ended December 31, 1998, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Registrant Company and Subsidiaries' annual report on Form 10-K for the period ended December 31, 1998. Consolidation - We consolidate our results and have eliminated all significant intercompany transactions. Estimates, risks and uncertainties - The preparation of GAAP financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our most significant assumptions will be for assumed reinsurance liabilities, which will be provided by the ceding companies. It is typical for these ceding companies to periodically review and revise these estimates. We also will review and revise these estimates as appropriate. Any adjustments made to these estimates will be reflected in the period the estimates are revised. 2. Earnings per ordinary share We calculate earnings per ordinary share in accordance with Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share" ("EPS"). Basic EPS excludes 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. -6- Scottish Annuity & Life Holdings, Ltd. Condensed Notes to Consolidated Financial Statements (Unaudited) For the Three Months Ending March 31, 1999 (continued) Our warrants and options were not deemed to be dilutive as of March 31, 1999 because the strike price of $15 was greater than our market value. Three Months Ended March 31, 1999 ------------------ Net income $ 1,617,125 Weighted average number of shares outstanding 18,573,507 ------------------ Basic and diluted earnings per ordinary share $ 0.09 ================== Actual shares outstanding at March 31, 1999 18,576,440 ================== 3. Fixed maturities The amortized cost, gross unrealized appreciation and depreciation, and estimated fair values of our fixed maturity investments are as follows:
March 31, 1999 -------------------------------------------------------------------------- Gross Amortized unrealized Unrealized Estimated fair cost appreciation depreciation value -------------------------------------------------------------------------- U.S. treasury securities and obligations of U.S. government agencies $ 49,711,833 $ 943 $(1,802,256) $ 47,910,520 U.S. corporate securities 109,594,104 171,715 (1,357,345) 108,408,474 Mortgage and asset backed securities 87,712,117 15,263 (604,706) 87,122,674 -------------------------------------------------------------------------- Total fixed maturities $247,018,054 $ 187,921 $(3,764,307) $243,441,668 ==========================================================================
The contractual maturities of the fixed maturities are as follows. Actual maturities may differ as a result of calls and prepayments. Amortized Estimated fair cost value ---------------------------------- Due in one year or less $ 10,792,461 $ 10,789,209 Due in one year through five years 85,411,035 84,274,121 Due in five years through ten years 40,216,045 39,492,025 Due after ten years 22,886,396 21,763,639 -------------------------------- 159,305,937 156,318,994 Mortgage and asset backed securities 87,712,117 87,122,674 --------------------------------- $247,018,054 $243,441,668 ================================= Proceeds from sales of securities during the three months ended March 31, 1999 were $432,708,783. Gross gains of $146,961 and gross losses of $1,110,875 were realized on those sales. -7- Scottish Annuity & Life Holdings, Ltd. Condensed Notes to Consolidated Financial Statements (Unaudited) For the Three Months Ending March 31, 1999 (continued) 4. Taxation There is presently no taxation imposed on income or capital gains by the Government of the Cayman Islands. If any taxation were to be enacted, we and Scottish Annuity & Life Insurance Company (Cayman) Ltd. ("Scottish Insurance"), our wholly owned subsidiary, have been granted exemptions therefrom until 2018. We operate in a manner such that we will owe no United States tax other than premium excise taxes and withholding taxes on certain investment income. 5. Statutory requirements and dividend restrictions Under The Insurance Law of the Cayman Islands (1998 Revision), Scottish Insurance must maintain a minimum net capital worth of $240,000. Our ability to pay dividends depends on the ability of Scottish Insurance to pay dividends to us. While we are not subject to any significant legal prohibitions on the payment of the dividends, Scottish Insurance will be subject to Cayman Islands regulatory constraints, which affect its ability to pay dividends. Scottish Insurance is prohibited from declaring or paying a dividend if such payment would reduce its net capital worth below $240,000. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. General Scottish Annuity & Life Holdings is an insurance holding company. Our principal asset is Scottish Annuity & Life Insurance Company (Cayman) Ltd. ("Scottish Insurance"). We were formed on May 12, 1998, and Scottish Insurance was formed on June 8, 1998, under the laws of the Cayman Islands. We commenced our insurance operations on November 30, 1998, immediately following our initial public offering. -8- Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Results of operations The following table summarizes our operating earnings for the period from January 1, 1999 to March 31, 1999. Operating earnings, which excludes realized investment gains (losses) is a common measure used in the insurance industry. Revenues Interest income, net $3,321,252 Insurance administration fee 225,785 ---------- Total revenues 3,547,037 ---------- Expenses Salaries and benefits 492,471 Professional fees 210,445 Administrative expenses 263,082 ---------- Total expenses 965,998 ---------- Operating earnings $2,581,039 ========== Basic and diluted operating earnings $0.14 per ordinary share ========== Overview Our operating earnings of $2,581,039 or $0.14 per share were driven by revenues from our investment portfolio and insurance administration fees. Investments Our investment portfolio is managed by three professional investment managers, Pacific Investment Management Company, Prudential Investment Corporation and Gen Re - New England Asset Management, Inc. Our investment guidelines are designed to diversify the portfolio to maximize investment income while minimizing risk. At March 31, 1999, the portfolio had an average quality rating of AA, an average duration of 4.73 years and an average book yield of 5.80%. The average yield has improved from year-end 1998 because the proceeds of our initial public offerring were fully deployed during the first quarter of 1999. At year-end our investment managers were still in the process of deploying the proceeds from the stock offering. A realized loss of $963,914 and net unrealized depreciation of $2,723,240 was recognized on investments during the period. The realized loss occurred as one of our investment managers reallocated the portfolio to take advantage of increasing interest rates. The unrealized depreciation was the result of interest rates increasing from year-end. -9- Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Insurance operations Our business consists of two lines of business, variable life insurance and life and annuity reinsurance. Our first quarter 1999 results only reflected revenues from the insurance administration portion of our variable life business. The insurance administration business consists of a variety of insurance administration, accounting and other services provided to Scottish Annuity Company (Cayman) Ltd. Outlook During the first quarter we continued to review a number of variable life and reinsurance transactions. On May 4, 1999, we announced that we entered into a definitive binder to reinsure a block of disability income payment obligations issued by a major U.S. insurance company. The transaction will involve the transfer of approximately $120 million of reserves to us. The transaction is subject to the normal due diligence and will be effective June 1, 1999 and will close on or before June 30, 1999. Our variable life insurance product offers a unique feature, independent investment management, which we believe will differentiate us in the market. Our reinsurance focus is on the annuity business although we will consider life reinsurance. Capital Resources and Liquidity At March 31, 1999, total capitalization was $251,092,190. We currently have no material commitments for capital expenditures and do not anticipate incurring material indebtedness other than letters of credit, which may be required in the ordinary course of our reinsurance business. At our April 28, 1999 Board of Directors meeting, a stockholder dividend of $0.05 per ordinary share was declared on the shares outstanding as of the record date of June 7, 1999 to be paid on June 23, 1999. 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. Year 2000 Risk Many existing computer programs use only two digits to identify a year in the date field. These programs, if not corrected, could fail or create erroneous results by or at the year 2000. This "Year 2000" Issue is believed to affect virtually all companies and organizations, including us. Because most of our computer hardware and software is less than three years old, we believe that our exposure with respect to our own computer systems to Year 2000-related problems is not significant. In addition, we recently upgraded our principal accounting software from a DOS-based version which was not Year 2000 compliant to a Windows NT version which is certified Year 2000 compliant by the software vendor. -10- Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) We rely significantly on a number of third party service providers, such as PIMCO, General Re and Prudential Investment, each of whom confirmed to us, or is in the process of confirming, that they are Year 2000 compliant. We also intend to require that any new service providers be or become Year 2000 compliant in a timely manner. There can be no assurance, however, that our operations will not experience disruptions due to the failure of third parties, including reinsurance counter parties, to become fully Year 2000 compliant in a timely manner or that a failure will not otherwise have an adverse effect on our business, results of operations or financial condition. In the event our plans with respect to Year 2000 readiness fail to protect our operations from disruptions or its business, results of operations or financial condition from adverse effect, we have no contingency plan other than the replacement of existing third party service providers which are not Year 2000 compliant with comparable third party service providers who are Year 2000 compliant. We may also have an exposure to Year 2000 issues from reinsurance business we write in the future. Since we have not written any reinsurance business we do not know what these exposures are or whether they will be material. Changes in Accounting Standards The Financial Accounting Standards Board's Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued in June 1998 and requires adoption no later than fiscal quarters or fiscal years beginning after June 15, 1999. The new standard establishes accounting and reporting standards for derivative instruments. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction, or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security, or a foreign-currency-denominated forecasted transaction. We have not yet completed our evaluation of the effect this standard will have on us. 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; the declaration and payment of dividends and Year 2000 issues. Potential investors -11- Scottish Annuity & Life Holdings, Ltd. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) 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 "Risks 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. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Qualitative Disclosure of Market Risk Our qualitative disclosure about market risk is incorporated herein by reference to "Item 7A: Quantitative and Qualitative Disclosures About Market Risk" of our Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1998. Quantitative Disclosure of Interest Rate Risk Our quantitative disclosure about interest rate risk is incorporated herein by reference to "Item 7A: Quantitative and Qualitative Disclosures About Market Risk" of our Annual Report on Form 10-K for the Fiscal Year Ended December 31, 1998. 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. Scottish Holdings did not submit any matter to a vote of securities holders during the first quarter of 1999. Item 5. Other Information. Not applicable. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits. 27.1 Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K have been filed during the quarter for which this report is filed. -12- 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 13, 1999 By: /s/ Michael C. French --------------------- Michael C. French Chief Executive Officer and President Date: May 13, 1999 By: /s/ Peter W. Presperin ----------------------- Peter W. Presperin Senior Vice President-Chief Financial Officer and Secretary (Principal Financial Officer and Principal Accounting Officer) -13- EXHIBIT INDEX Exhibit Number Description of Document ------ ----------------------- 27.1 Financial Data Schedule -14- EX-27.1 2 FINANCIAL DATA SCHEDULE
7 3-MOS DEC-31-1998 JAN-01-1999 MAR-31-1999 243,441,668 0 0 0 0 0 256,426,692 2,270,671 0 0 261,962,179 0 0 0 0 0 0 0 185,764 250,960,426 261,962,179 0 3,321,252 (963,914) 225,785 0 0 0 1,617,125 0 1,617,125 0 0 0 1,617,125 0.09 0.09 0 0 0 0 0 0 0
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