<PAGE>
================================================================================
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 June 30, 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 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 Identification No.)
Incorporation or Organization)
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 August 9, 1999, Registrant had 18,576,440 Ordinary Shares outstanding.
================================================================================
<PAGE>
Table of Contents
PART I
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets, June 30, 1999
(Unaudited) and December 31, 1998 2
Condensed Consolidated Statements of Operations--Second
Quarter and Six Months Ended June 30, 1999 (Unaudited)
and the Periods Ended June 30, 1998 (Unaudited) 3
Condensed Consolidated Statements of Comprehensive Loss--
Second Quarter and Six Months Ended June 30, 1999
(Unaudited) and the Periods Ended June 30, 1998 (Unaudited) 4
Condensed Consolidated Statements of Shareholders' Equity
for the Six Months Ended June 30, 1999 (Unaudited) and the
Period Ended December 31, 1998 5
Condensed Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1999 (Unaudited) and the Period
Ended June 30, 1998 (Unaudited) 6
Condensed Notes to Consolidated Financial Statements
(Unaudited) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANAYLSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 16
PART II OTHER INFORMATION
ITEM 1. 16
ITEM 2 through ITEM 6 17
SIGNATURES 18
EXHIBIT INDEX 19
-1-
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1: Financial Statements.
Scottish Annuity & Life Holdings, Ltd.
Condensed Consolidated Balance Sheets
(Stated in United States Dollars)
Unaudited
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------------------------------
<S> <C> <C>
ASSETS
Fixed Maturity investments $ 239,646,439 $ 229,756,293
Cash and cash equivalents 3,469,533 18,374,725
Receivables:
Reinsurance premiums 102,663,907 -
Due from investment brokers 36,450 3,060,543
Insurance administration fees 450,823 -
Accrued interest 3,134,347 2,883,009
Deferred acquisition costs 1,774,642 -
Segregated assets 463,264 -
Other assets 167,373 271,669
Net fixed assets and leasehold improvements 552,331 -
------------------------------------------
Total Assets $ 352,359,109 $ 254,346,239
==========================================
LIABILITIES
Reserves for future policy benefits $ 104,027,579 $ -
Segregated liabilities 463,264 -
Accounts payable and accrued expenses 792,640 1,959,160
Due to related party - 326,900
------------------------------------------
Total Liabilities 105,283,483 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 31-Dec-98) 185,764 185,684
Additional paid in capital 252,454,728 252,291,320
Accumulated other comprehensive loss -
Unrealized depreciation of investments (8,880,299) (853,146)
Retained Earnings 3,315,433 436,321
------------------------------------------
Total shareholders' equity 247,075,626 252,060,179
------------------------------------------
Total liabilities and shareholders' equity $ 352,359,109 $ 254,346,239
==========================================
</TABLE>
See notes to the consolidated financial statements
-2-
<PAGE>
Scottish Annuity & Life Holdings, Ltd.
Condensed Consolidated Statements of Operations
(Stated in United States Dollars)
Unaudited
<TABLE>
<CAPTION>
Three Months Period Six Months Period
ended June 30, ended June 30, ended June 30, ended June 30,
1999 1998 * 1999 1998 *
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Interest income, net $ 4,124,756 $ 1,501 $ 7,446,008 $ 1,501
Realized losses on securites, net (518,911) - (1,482,825) -
Variable life fees 18,755 - 18,755 -
Insurance administration fees 231,741 - 457,526 -
-----------------------------------------------------------------------------------
Total revenues 3,856,341 1,501 6,439,464 1,501
EXPENSES
Claims and other policy benefits 319,666 - 319,666 -
Acquisition costs and other
insurance expenses 140,783 - 140,783 -
Salaries 666,484 - 1,158,955 -
Professional fees 158,913 12,772 369,358 12,772
Administrative expenses 356,891 9,806 615,135 9,806
Depreciation 22,795 - 27,633 -
-----------------------------------------------------------------------------------
Total expenses 1,665,532 22,578 2,631,530 22,578
-----------------------------------------------------------------------------------
Net income (loss) $ 2,190,809 $ (21,077) $ 3,807,934 $ (21,077)
===================================================================================
-----------------------------------------------------------------------------------
Net operating income (loss) $ 2,709,720 $ (21,077) $ 5,290,759 $ (21,077)
===================================================================================
EARNINGS PER SHARE
Net income (loss) $ 0.12 $ (0.01) $ 0.21 $ (0.01)
===================================================================================
Operating Earnings (loss) $ 0.15 $ (0.01) $ 0.28 $ (0.01)
===================================================================================
</TABLE>
* the period from May 12, 1998 (date of incorporation) to June 30, 1998
See notes to the consolidated financial statements
-3-
<PAGE>
Scottish Annuity & Life Holdings, Ltd.
Condensed Consolidated Statements of Comprehensive Loss
(Stated in United States Dollars)
Unaudited
<TABLE>
<CAPTION>
Three Months Period Six Months Period
ended June 30, ended June 30, ended June 30, ended June 30,
1999 1998 * 1999 1998 *
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income $ 2,190,809 $ (21,077) $ 3,807,934 $ (21,077)
-----------------------------------------------------------------------------------
Other comprehensive income (loss)
Unrealized depreciation on
investments: - -
Unrealized holding depreciation
arising during the period (5,822,824) - (9,509,978) -
Add: reclassification adjustment
for losses included in net income 518,911 - 1,482,825 -
-----------------------------------------------------------------------------------
Unrealized depreciation on
investments (5,303,913) - (8,027,153) -
===================================================================================
Comprehensive loss $ (3,113,104) $ (21,077) $ (4,219,219) $ (21,077)
===================================================================================
</TABLE>
* the period from May 12, 1998 (date of incorporation) to June 30, 1998
See notes to the consolidated financial statements
-4-
<PAGE>
Scottish Annuity & Life Holdings, Ltd.
Condensed Consolidated Statements of Shareholders' Equity
(Stated in United States Dollars)
Unaudited
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------------------------------------
<S> <C> <C>
SHARE CAPITAL:
Beginning of period $ 185,684 $ -
Issuance of founder shares - 15,000
Repurchase of shares and issuance of warrants - (11,000)
Sales to direct investors 80 14,184
Initial public offering - 167,500
--------------------------------------
185,764 185,684
--------------------------------------
ADDITIONAL PAID IN CAPITAL:
Beginning of period 252,291,320 -
Issuance of founder shares - 485,000
Issuance of Class A warrants - 100,000
Issuance of Class B warrants - 302,000
Repurchase of shares and issuance of warrants - 11,000
Sales to direct investors 87,920 19,985,816
Initial public offering - 231,407,504
Issuance of equity options 75,488 -
--------------------------------------
252,454,728 252,291,320
--------------------------------------
ACCUMULATED OTHER COMPREHENSIVE LOSS:
Beginning of period (853,146) -
Unrealized depreciation on investments (8,027,153) (853,146)
--------------------------------------
(8,880,299) (853,146)
--------------------------------------
RETAINED EARNINGS:
Beginning of period 436,321 -
Net income 3,807,934 436,321
Dividends paid (928,822) -
--------------------------------------
3,315,433 436,321
--------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 247,075,626 $ 252,060,179
======================================
</TABLE>
See notes to the consolidated financial statements
-5-
<PAGE>
Scottish Annuity & Life Holdings, Ltd.
Condensed Consolidated Statements of Cash Flows
(Stated in United States Dollars)
Unaudited
<TABLE>
<CAPTION>
Six Months Period
ended June 30, ended June 30,
1999 1998 *
--------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 3,807,934 $ (21,077)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Net realized losses on securities 1,482,825 -
Non cash salaries and professional fees 163,488 -
Depreciation 27,633 -
Amortization of deferred acquisition costs 24,014 -
Net change in policy benefit reserves (1,313,283) -
Changes in assets and liabilities:
Reinsurance premiums receivable (102,663,907) -
Other receivables 2,321,932 -
Deferred acquisition costs (1,798,656) (968,907)
Other assets 104,296 (9,309)
Fixed assets & leasehold improvements (579,964) -
Reserves for future benefit payments 105,340,862 -
Accounts payable and accrued expenses (1,166,520) 829,976
Due to related party (326,900) -
--------------------------------------
Net cash provided by (used in) operating activities 5,423,754 (169,317)
--------------------------------------
INVESTING ACTIVITIES
Purchase of securities (470,629,087) -
Proceeds on sales of securities 451,228,963 -
--------------------------------------
Net cash used in investing activities (19,400,124) -
--------------------------------------
FINANCING ACTIVITIES
Dividends paid (928,822) -
Issuance of share capital - 500,000
Issuance of Class A warrants - 100,000
Issuance of Class B warrants - 302,000
--------------------------------------
Net cash (used in) provided by financing activities (928,822) 902,000
--------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (14,905,192) 732,683
Cash and cash equivalents, beginning of period 18,374,725 -
--------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,469,533 $ 732,683
======================================
</TABLE>
* the period from May 12, 1998 (date of incorporation) to June 30, 1998
See notes to the consolidated financial statements
-6-
<PAGE>
Scottish Annuity & Life Holdings, Ltd.
Condensed Notes to Consolidated Financial Statements (Unaudited)
June 30, 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. The results for the period are not
necessarily indicative of the results to be expected for the entire year.
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.
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.
We have reclassified some figures from our 1998 financial statements to conform
with our 1999 presentation. These reclassifications had no effect on net income
or shareholders' equity as previously reported.
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 are for
assumed reinsurance liabilities, which are 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.
-7-
<PAGE>
Scottish Annuity & Life Holdings, Ltd.
Condensed Notes to Consolidated Financial Statements (Unaudited)
June 30, 1999 (continued)
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.
Our warrants and options were not deemed to be dilutive as of June 30, 1999
because the strike price of $15 was greater than our market value.
<TABLE>
<CAPTION>
Three Months Period Six Months Period
ended June 30, ended June 30, ended June 30, ended June 30,
1999 1998 * 1999 1998 *
------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 2,190,809 $ (21,077) $ 3,807,934 $ (21,077)
Weighted average number
of shares outstanding 18,576,440 1,500,000 18,574,981 1,500,000
------------------------------------------------------------------------------
Basic and diluted earnings
per ordinary share $ 0.12 $ (0.01) $ 0.21 $ (0.01)
==============================================================================
-------------------
Actual shares outstanding at June 30, 1999 18,576,440
===================
</TABLE>
* the period from May 12, 1998 (date of incorporation) to June 30, 1998
-8-
<PAGE>
Scottish Annuity & Life Holdings, Ltd.
Condensed Notes to Consolidated Financial Statements (Unaudited)
June 30, 1999 (continued)
3. Fixed maturities
The amortized cost, gross unrealized appreciation and depreciation, and
estimated fair values of our fixed maturity investments are as follows:
<TABLE>
<CAPTION>
June 30, 1999
-------------------------------------------------------------------------------------
Gross unrealized Gross unrealized Estimated Fair
Amortized Cost appreciation depreciation value
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. treasury securities and
obligations of U.S. government
agencies $ 45,363,526 $ - $ (2,652,442) $ 42,711,084
U.S. corporate securities 108,496,101 47,104 (3,649,622) 104,893,583
U.S. mortgage and asset backed
securities 94,667,111 94,503 (2,719,842) 92,041,772
-------------------------------------------------------------------------------------
$ 248,526,738 $ 141,607 $ (9,021,906) $ 239,646,439
=====================================================================================
<CAPTION>
December 31, 1998
-------------------------------------------------------------------------------------
Gross unrealized Gross unrealized Estimated Fair
Amortized Cost appreciation depreciation value
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. treasury securities and
obligations of U.S. government
agencies $ 97,674,991 $ 885 $ (633,455) $ 97,042,421
U.S. corporate securities 94,795,887 106,205 (256,060) 94,646,032
U.S. mortgage and asset backed
securities 38,138,561 20,102 (90,823) 38,067,840
-------------------------------------------------------------------------------------
$ 230,609,439 $ 127,192 $ (980,338) $ 229,756,293
=====================================================================================
</TABLE>
-9-
<PAGE>
Scottish Annuity & Life Holdings, Ltd.
Condensed Notes to Consolidated Financial Statements (Unaudited)
June 30, 1999 (continued)
3. Fixed maturities (continued)
The contractual maturities of the fixed maturities are as follows. Actual
maturities may differ as a result of calls and prepayments.
<TABLE>
<CAPTION>
June 30, 1999
------------------------------------
Amortized Estimated fair
cost value
------------------------------------
<S> <C> <C>
Due in one year or less $ 12,766,199 $ 12,757,370
Due in one year through five years 68,287,062 66,187,350
Due in five years through ten years 46,071,723 44,040,142
Due after ten years 26,734,644 24,619,805
------------------------------------
153,859,628 147,604,667
Mortgage and asset backed securities 94,667,111 92,041,772
------------------------------------
$ 248,526,739 $ 239,646,439
====================================
<CAPTION>
December 31, 1998
------------------------------------
Amortized Estimated fair
cost value
------------------------------------
<S> <C> <C>
Due in one year or less $ 56,736,454 $ 56,737,338
Due in one year through five years 74,431,349 73,728,443
Due in five years through ten years 32,165,658 31,636,454
Due after ten years 29,137,417 29,586,218
------------------------------------
192,470,878 191,688,453
Mortgage and asset backed securities 38,138,561 38,067,840
------------------------------------
$ 230,609,439 $ 229,756,293
====================================
</TABLE>
Proceeds from sales of securities during the six months ended June 30, 1999 were
$451,228,963. Gross gains of $232,226 and gross losses of $1,715,051 were
realized on those sales.
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
-10-
<PAGE>
Scottish Annuity & Life Holdings, Ltd.
Condensed Notes to Consolidated Financial Statements (Unaudited)
June 30, 1999 (continued)
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.
-11-
<PAGE>
Scottish Annuity & Life Holdings, Ltd.
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
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.
Results of operations
The following table summarizes our operating earnings for the second
quarter and year-to-date. Operating earnings, which excludes realized
investment gains (losses) is a common measure used in the insurance industry.
<TABLE>
<CAPTION>
Three Months Period Six Months Period
ended June 30, ended June 30, ended June 30, ended June 30,
1999 1998 * 1999 1998 *
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Interest income, net $ 4,124,756 $ 1,501 $ 7,446,008 $ 1,501
Variable life fees 18,755 - 18,755 -
Insurance administration fee 231,741 - 457,526 -
----------------------------------------------------------------------------------
Total revenues 4,375,252 1,501 7,922,289 1,501
----------------------------------------------------------------------------------
EXPENSES
Claims and policy benefits 319,666 - 319,666 -
Acquisition costs and other
insurance expenses 140,783 - 140,783 -
Salaries and benefits 666,484 - 1,158,955 -
Professional fees 158,913 12,772 369,358 12,772
Administrative expenses 379,686 9,806 642,768 9,806
----------------------------------------------------------------------------------
Total expenses 1,665,532 22,578 2,631,530 22,578
==================================================================================
Operating earnings (loss) $ 2,709,720 $ (21,077) $ 5,290,759 $ (21,077)
==================================================================================
Operating Earnings (loss) per
ordinary share $ 0.15 $ (0.01) $ 0.28 $ (0.01)
==================================================================================
</TABLE>
* the period from May 12, 1998 (date of incorporation) to June 30, 1998
-12-
<PAGE>
Scottish Annuity & Life Holdings, Ltd.
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
Overview
Our operating earnings of $2,709,720 or $0.15 per share were driven by
revenues from our investment portfolio and insurance administration fees.
Comparisons to the prior period are not meaningful because we did not begin
operations until November of 1998 in conjunction with our IPO.
Investments
Our investment portfolio is now managed by two professional investment
managers, Gen Re - New England Asset Management, Inc and Prudential Investment
Corporation. During the second quarter we realigned our investment portfolio.
This change was taken to increase the net yield of our portfolio. Our
investment guidelines are designed to diversify the portfolio to maximize
investment income while minimizing risk. At June 30, 1999, the portfolio had an
average quality rating of AA, an average duration of 4.68 years and an average
book yield of 6.06% this compares with AA, 4.73 years and 5.80% respectively at
March 31, 1999. The average yield has improved from March because we moved out
of governments and cash, and into corporates. A realized loss of $518,911 and
net unrealized depreciation of $5,303,913 was recognized on investments during
the period. The realized loss occurred as a result of the realignment. The
unrealized depreciation was the result of interest rates increasing from
March 31,1999.
Insurance operations
Our business consists of two lines of business, variable life insurance and
life and annuity reinsurance. Our second quarter results reflected revenues
from both of these lines of business. The insurance administration business,
which is part of the variable life insurance line, consists of a variety of
insurance administration, accounting and other services provided to The Scottish
Annuity Company (Cayman) Ltd.
During the second quarter we wrote our first variable life insurance
contracts and our first reinsurance treaty. The variable life contracts have
face policy values of $15 million.
The reinsurance treaty was a coinsurance transaction involving group long-
term disability claims for which we have established a reserve for policyholder
benefits of approximately $104 million. This transaction involves a closed
block of existing claims which were in effect as of June 1, 1999. The block
consists of approximately 1,500 claimants who are receiving disability income
payments. No additional claimants may be added. Further, our liability is
limited to income benefit payments only and does not include any health, medical
or other types of payments.
Outlook
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.
During the second quarter we continued to review a number of variable life
and reinsurance transactions. We expect to write some of these during the third
and fourth quarters. On the reinsurance side we continued to review several
opportunities. On July 12, 1999, we
-13-
<PAGE>
Scottish Annuity & Life Holdings, Ltd.
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
announced the execution of a definitive agreement to reinsure up to $400 million
of group funding agreement business. This transaction will consist of four
tranches each at $100 million. Each tranche is subject to final approval by both
parties. We closed on the first tranche in the third quarter, with the transfer
of $100 million in reserves during July. We expect to receive the second $100
million reserve installment on August 12, 1999. In addition, we announced our
intention to acquire the U.S. based reinsurer, Harbourton Reassurance, Inc.
This transaction will provide us with a United States platform to write
insurance business. Harbourton is licensed in 14 states and the District of
Columbia, and is an authorized reinsurer in 38 states. At March 31, 1999,
Harbourton's principal assets were four blocks of deferred annuities with
aggregate reserves of approximately $90 million. Harbourton had total statutory
assets of approximately $136 million and statutory capital of approximately $38
million at March 31, 1999. The transaction, which is expected to close prior to
year-end, is subject to regulatory approvals and other customary conditions.
Capital Resources and Liquidity
At June 30, 1999, total capitalization was $247,075,626. 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.
During the quarter we paid dividends of $928,822, or $0.05 per share. At
our July 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 September 6, 1999 to be paid on September 22, 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.
-14-
<PAGE>
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
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.
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, 2000. 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
-15-
<PAGE>
Scottish Annuity & Life Holdings, Ltd.
Management's Discussion and Analysis of Financial
Condition and Results of Operations (continued)
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 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.
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.
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.
-16-
<PAGE>
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 second quarter of 1999.
Item 5: Other Information.
Not applicable.
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits.
Except as otherwise indicated, the following Exhibits are filed herewith
and made a part hereof:
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
On June 16, 1999, the Company filed a Current Report on Form 8-K reporting
matters under Items 5 and 7 thereof.
-17-
<PAGE>
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: August 9, 1999 By: /s/ Michael C. French
------------------------------------------
Michael C. French
Chief Executive Officer and President
Date: August 9, 1999 By: /s/ Peter W. Presperin
------------------------------------------
Peter W. Presperin
Senior Vice President-Chief Financial Officer
and Secretary (Principal Financial Officer
and Principal Accounting Officer)
-18-
<PAGE>
EXHIBIT INDEX
EXHIBIT
SEQUENTIAL
NUMBER
PAGE NO. DESCRIPTION OF DOCUMENT
-------- -----------------------
27.1 Financial Data Schedule
-19-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 239,646,439
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 239,646,439
<CASH> 3,469,533
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 352,359,109
<POLICY-LOSSES> 104,027,579
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
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0
0
<COMMON> 185,764
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<TOTAL-LIABILITY-AND-EQUITY> 352,359,109
0
<INVESTMENT-INCOME> 4,124,756
<INVESTMENT-GAINS> (518,911)
<OTHER-INCOME> 250,496
<BENEFITS> 319,666
<UNDERWRITING-AMORTIZATION> 24,014
<UNDERWRITING-OTHER> 116,769
<INCOME-PRETAX> 2,190,809
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,190,809
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,190,809
<EPS-BASIC> 0.12
<EPS-DILUTED> 0.12
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
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