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The company said it had posted net income of $176.9 million, compared with a net loss of $466.0 million for the same period last year.
An overall market recovery of fixed maturity investments led to net realized and unrealized gains of $133.1 million. An additional $59.8 million gain stemmed from the first-quarter sale of a block of individual life reinsurance business (which Scottish Re had acquired from ING) to reinsurer Hannover Ruckversicherung AG.
The gain on sale of the individual life reinsurance business to Hannover Re was subject to certain contingencies that resulted in a $702.2 million gain for the six-month period ended June 30, 2009, of which $642.4 million and $59.8 million were recognized in the first and second quarters of 2009, respectively. An additional $1.4 million gain may be recognized in the second half of 2009 if additional contingencies are satisfied, the company said.
Total shareholder deficit improved to $514.3 million from $2.4 billion at year-end 2008.
In May, when the company posted its year-end 2008 earnings, auditors Ernst & Young said, "the company?s primary operating subsidiary is operating its business in run-off under an Order of Supervision with the Delaware Department of Insurance and the company has reported a net loss for the year... and has a shareholders? deficit at Dec. 31, 2008. These conditions raise substantial doubt about the company?s ability to continue as a going concern" (BestWire, May 5, 2009).
In June, A.M. Best Co. affirmed the Best's Financial Strength Rating of D (Poor) and issuer credit rating of c of the primary operating insurance subsidiaries of Scottish Re Group Ltd., but then withdrew the ratings at Scottish Re's request (BestWire, June 12, 2009).
A.M. Best said it believes Scottish Re continues to be affected by the adverse credit and equity market conditions, which is believed to have weakened the value of underlying collateral used to secure a portion of Scottish Re and its subsidiaries' life reinsurance obligations and statutory reserves for its operating companies. "A.M. Best remains concerned with the limited information available with respect to Scottish Re's financial strength position and diminishing business prospects going forward," the company said in June.
Scottish Re (Pink Sheets: SKRRF | Quote | Chart | News | PowerRating) stopped writing new business in February 2008.
Scottish Re's stock was trading at 7 cents a share on Sept. 16, unchanged from the previous close.
(By Meg Green, senior associate editor, BestWeek: Meg.Green@ambest.com)
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