UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the quarterly period ended September 30, 2003 | ||
| or | ||
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o
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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 1-16561
ANNUITY AND LIFE RE (HOLDINGS), LTD.
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Bermuda
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Not applicable | |
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(State or Other Jurisdiction of
Incorporation or Organization) |
(IRS Employer Identification No.) |
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Cumberland House, 1 Victoria Street, Hamilton, Bermuda |
HM11 |
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(Address of Principal Executive
Offices)
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(Zip Code) | |
441-296-7667
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 þ No o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o
The number of the registrant’s Common Shares (par value $1.00 per share) outstanding as of November 5, 2003 was 26,473,728.
INDEX TO FORM 10-Q
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PART I
FINANCIAL INFORMATION |
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| Item 1. |
Unaudited Consolidated Financial Statements
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Consolidated Balance Sheets September 30, 2003
and December 31, 2002
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1 | |||||
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Consolidated Statements of Operations Three
Months and Nine Months ended September 30, 2003 and
September 30, 2002
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2 | |||||
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Consolidated Statements of Comprehensive (Loss)
Three Months and Nine Months ended September 30, 2003 and
September 30, 2002
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3 | |||||
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Consolidated Statements of Cash Flows Nine Months
ended September 30, 2003 and September 30, 2002
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4 | |||||
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Consolidated Statements of Changes in
Stockholders’ Equity Nine Months ended September 30,
2003 and September 30, 2002
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5 | |||||
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Notes to Unaudited Consolidated Financial
Statements
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6 | |||||
| Item 2. |
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
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19 | ||||
| Item 3. |
Quantitative and Qualitative Disclosures About
Market Risk
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39 | ||||
| Item 4. |
Controls and Procedures
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41 | ||||
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PART II
OTHER INFORMATION |
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Item 1.
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Legal Proceedings
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42 | ||||
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Item 2.
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Changes in Securities and Use of Proceeds
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42 | ||||
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Item 5.
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Other Information
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43 | ||||
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Item 6.
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Exhibits and Reports on Form 8-K
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44 | ||||
| Signatures | 45 | |||||
PART I
FINANCIAL INFORMATION
| Item 1. | Unaudited Consolidated Financial Statements |
ANNUITY AND LIFE RE (HOLDINGS), LTD.
| September 30, | December 31, | ||||||||
| 2003 | 2002 | ||||||||
| (Unaudited) | |||||||||
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Assets
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Cash and cash equivalents
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$ | 113,859,239 | $ | 152,930,908 | |||||
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Fixed maturity investments at fair value
(amortized cost of $96,058,034 and $146,487,903 at
September 30, 2003 and December 31, 2002)
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98,810,759 | 153,415,429 | |||||||
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Funds withheld at interest
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695,573,638 | 1,427,093,380 | |||||||
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Accrued investment income
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1,083,924 | 2,141,338 | |||||||
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Receivable for reinsurance ceded
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89,506,699 | 93,669,173 | |||||||
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Other reinsurance receivables
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6,775,426 | 25,025,453 | |||||||
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Deferred policy acquisition costs
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74,844,406 | 187,913,648 | |||||||
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Other assets
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965,194 | 2,508,858 | |||||||
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Total Assets
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$ | 1,081,419,285 | $ | 2,044,698,187 | |||||
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Liabilities
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Reserves for future policy benefits
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$ | 187,391,334 | $ | 269,619,809 | |||||
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Interest sensitive contracts liability
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700,977,967 | 1,443,143,080 | |||||||
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Other reinsurance liabilities
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38,013,037 | 51,139,164 | |||||||
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Accounts payable and accrued expenses
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8,637,124 | 12,459,423 | |||||||
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Total Liabilities
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$ | 935,019,462 | $ | 1,776,361,476 | |||||
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Stockholders’ Equity
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Preferred shares (par value $1.00; 50,000,000
shares authorized; no shares outstanding)
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$ | — | $ | — | |||||
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Common shares (par value $1.00; 100,000,000
shares authorized; 26,473,728 and 26,106,328 shares outstanding
at September 30, 2003 and December 31, 2002)
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26,473,728 | 26,106,328 | |||||||
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Additional paid-in capital
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334,481,610 | 335,334,932 | |||||||
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Notes receivable from stock sales
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— | (1,626,493 | ) | ||||||
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Unamortized stock grant compensation
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(1,732,985 | ) | (2,514,693 | ) | |||||
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Stock warrants
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1,250,000 | — | |||||||
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Accumulated other comprehensive income
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2,211,223 | 6,162,525 | |||||||
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(Accumulated deficit)
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(216,283,753 | ) | (95,125,888 | ) | |||||
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Total Stockholders’ Equity
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$ | 146,399,823 | $ | 268,336,711 | |||||
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Total Liabilities and Stockholders’ Equity
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$ | 1,081,419,285 | $ | 2,044,698,187 | |||||
See accompanying Notes to Unaudited Consolidated Financial Statements
1
ANNUITY AND LIFE RE (HOLDINGS), LTD.
| For the Three Months Ended | For the Nine Months Ended | ||||||||||||||||
| September 30, | September 30, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
| Revenues | |||||||||||||||||
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Net premiums
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$ | 28,657,263 | $ | 84,934,401 | $ | 148,586,899 | $ | 255,007,035 | |||||||||
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Investment income, net of related expenses
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16,250,225 | 31,127,396 | 30,143,651 | 82,083,855 | |||||||||||||
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Net realized investment (losses) gains
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(52,025 | ) | 9,297,351 | 6,508,019 | 10,813,315 | ||||||||||||
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Net change in fair value of embedded derivatives
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2,808,427 | (13,277,823 | ) | 14,845,749 | (18,254,530 | ) | |||||||||||
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Surrender fees and other revenues
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1,667,997 | 3,549,362 | 6,061,022 | 13,606,694 | |||||||||||||
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Total Revenues
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$ | 49,331,887 | $ | 115,630,687 | $ | 206,145,340 | $ | 343,256,369 | |||||||||
| Benefits and Expenses | |||||||||||||||||
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Claim and policy benefits
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$ | 19,075,004 | $ | 91,381,831 | $ | 178,589,650 | $ | 224,640,576 | |||||||||
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Interest credited to interest sensitive products
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3,821,854 | 18,345,349 | 12,911,155 | 57,215,862 | |||||||||||||
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Policy acquisition costs and other insurance
expenses
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22,796,448 | 17,492,342 | 119,928,722 | 73,700,329 | |||||||||||||
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Collateral costs
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— | 3,731,580 | — | 6,080,321 | |||||||||||||
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Operating expenses
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3,605,189 | 3,826,602 | 15,873,678 | 10,626,666 | |||||||||||||
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Total Benefits and Expenses
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$ | 49,298,495 | $ | 134,777,704 | $ | 327,303,205 | $ | 372,263,754 | |||||||||
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Net Income (Loss)
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$ | 33,392 | $ | (19,147,017 | ) | $ | (121,157,865 | ) | $ | (29,007,385 | ) | ||||||
| Net income (loss) per common share | |||||||||||||||||
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Basic
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$ | 0.00 | $ | (0.74 | ) | $ | (4.69 | ) | $ | (1.13 | ) | ||||||
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Diluted
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$ | 0.00 | $ | (0.74 | ) | $ | (4.69 | ) | $ | (1.13 | ) | ||||||
See accompanying Notes to Unaudited Consolidated Financial Statements
2
ANNUITY AND LIFE RE (HOLDINGS), LTD.
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
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Net income (loss) for the period
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$ | 33,392 | $ | (19,147,017 | ) | $ | (121,157,865 | ) | $ | (29,007,385 | ) | |||||
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Other comprehensive
(loss) income:
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Unrealized holding (losses) gains on securities
arising during the period
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(482,029 | ) | 17,633,359 | 2,556,717 | 20,486,539 | |||||||||||
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Less reclassification adjustment for realized
losses and gains in net income (loss)
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(52,025 | ) | 9,297,351 | 6,508,019 | 10,813,315 | |||||||||||
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Other comprehensive (loss) income
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$ | (430,004 | ) | $ | 8,336,008 | $ | (3,951,302 | ) | $ | 9,673,224 | ||||||
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Total Comprehensive (Loss)
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$ | (396,612 | ) | $ | (10,811,009 | ) | $ | (125,109,167 | ) | $ | (19,334,161 | ) | ||||
See accompanying Notes to Unaudited Consolidated Financial Statements
3
ANNUITY AND LIFE RE (HOLDINGS), LTD.
| For the Nine Months Ended | |||||||||
| September 30, | |||||||||
| 2003 | 2002 | ||||||||
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Cash flows from operating activities
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Net (loss)
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$ | (121,157,865 | ) | $ | (29,007,385 | ) | |||
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Adjustments to reconcile net (loss) to cash
(used) provided by operating activities:
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Net realized investment (gains)
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(6,508,019 | ) | (10,813,315 | ) | |||||
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Net change in fair value of embedded derivatives
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(14,845,749 | ) | 18,254,530 | ||||||
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Amortization of stock grant compensation
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295,786 | 541,344 | |||||||
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Unrealized loss on interest rate swap
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— | 2,005,000 | |||||||
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Stock warrants expense
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1,250,000 | — | |||||||
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Changes in:
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Accrued investment income
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1,057,414 | 833,266 | |||||||
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Deferred policy acquisition costs
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113,069,242 | (19,015,030 | ) | ||||||
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Other reinsurance receivables
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22,412,502 | (2,215,364 | ) | ||||||
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Other assets
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1,543,664 | 1,834,484 | |||||||
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Reserves for future policy benefits
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(82,228,475 | ) | 59,050,154 | ||||||
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Interest sensitive contracts, net of funds
withheld
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4,200,378 | 1,386,015 | |||||||
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Other reinsurance liabilities
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(13,126,127 | ) | 5,560,803 | ||||||
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Accounts payable and accrued expenses
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(3,822,299 | ) | 2,980,910 | ||||||
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Net cash (used) provided by operating
activities
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$ | (97,859,548 | ) | $ | 27,726,444 | ||||
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Cash flows from investing activities
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Proceeds from sales of fixed maturity investments
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$ | 329,135,148 | $ | 467,314,155 | |||||
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Purchase of fixed maturity investments
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(271,973,762 | ) | (485,627,324 | ) | |||||
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Net cash provided (used) by investing
activities
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$ | 57,161,386 | $ | (18,313,169 | ) | ||||
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Cash flows from financing activities
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Interest accrued on notes receivable
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$ | (43,998 | ) | $ | (74,437 | ) | |||
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Interest collected on notes receivable
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420,491 | 38,620 | |||||||
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Repayments (issuances) of notes receivable
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1,250,000 | (250,000 | ) | ||||||
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Dividends paid to stockholders
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— | (3,867,909 | ) | ||||||
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Increase in deposit liability
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— | 10,000,000 | |||||||
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Net cash provided by financing activities
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$ | 1,626,493 | $ | 5,846,274 | |||||
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(Decrease) increase in cash and cash equivalents
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$ | (39,071,669 | ) | $ | 15,259,549 | ||||
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Cash and cash equivalents, beginning of period
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152,930,908 | 104,793,019 | |||||||
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Cash and cash equivalents, end of period
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$ | 113,859,239 | $ | 120,052,568 | |||||
See accompanying Notes to Unaudited Consolidated Financial Statements
4
ANNUITY AND LIFE RE (HOLDINGS), LTD.
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2003 | 2002 | |||||||
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Preferred shares par value $1.00
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Balance at beginning and end of period
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$ | — | $ | — | ||||
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Common shares par value $1.00
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Balance at beginning of period
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$ | 26,106,328 | $ | 25,705,328 | ||||
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Issuance of shares
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575,000 | 401,000 | ||||||
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(Cancellation) of shares
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207,600 | — | ||||||
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Balance at end of period
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$ | 26,473,728 | $ | 26,106,328 | ||||
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Additional paid-in capital
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Balance at beginning of period
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$ | 335,334,932 | $ | 332,447,062 | ||||
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Issuance of shares
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353,250 | 2,887,870 | ||||||
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(Cancellation) of shares
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(1,206,572 | ) | — | |||||
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Balance at end of period
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$ | 334,481,610 | $ | 335,334,932 | ||||
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Notes receivable from stock sales
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Balance at beginning of period
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$ | (1,626,493 | ) | $ | (1,317,259 | ) | ||
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Repayments (issuances)
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1,250,000 | (250,000 | ) | |||||
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Interest collected on notes receivable
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420,491 | 38,620 | ||||||
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Accrued interest during period
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(43,998 | ) | (74,437 | ) | ||||
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Balance at end of period
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$ | — | $ | (1,603,076 | ) | |||
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Unamortized stock grant compensation
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Balance at beginning of period
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$ | (2,514,693 | ) | $ | — | |||
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(Issuance) of stock grants
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(928,250 | ) | (3,288,870 | ) | ||||
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Cancellation of stock grants
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1,414,172 | — | ||||||
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Amortization of stock grants
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295,786 | 541,344 | ||||||
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Balance at end of period
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$ | (1,732,985 | ) | $ | (2,747,526 | ) | ||
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Stock warrants outstanding
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Balance at beginning of period
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$ | — | $ | — | ||||
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Issuance of warrants
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1,250,000 | — | ||||||
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Balance at end of period
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$ | 1,250,000 | $ | — | ||||