REPORT ON CORPORATE GOVERNANCE 47 2.1. Corporate governance principles, Shareholders’ Meetings, corporate officers, executives, employees, information required by article L. 225-37-5 of the French Commercial Code 48 2.2. Executive compensation and share ownership 79 2.3. Major shareholders and related party transactions 114 2.4. Audit report on the corporate governance report 129
RISK FACTORS AND RISK MANAGEMENT MECHANISMS 131 3.2. Strategic risks 133 3.3. Underwriting risks related to the P&C and Life reinsurance businesses 140 3.4. Market risks 150 3.5. Credit risks 154 3.6. Liquidity risks 157 3.7. Operational risks 160 3.8. Internal control and risk management procedures 162
This Registration Document was filed on March 4, 2019 with the French financial markets authority (Autorité des marchés financiers – AMF) in accordance with Article 212-13 of its General Regulation. It can be used as a support document for a financial transaction only if presented together with a securities information note (note d’opération) approved by the AMF. This Registration Document was prepared by the issuer and is the responsibility of the person whose signature appears therein.
1.1. SELECTED FINANCIAL INFORMATION 5 1.1.1. Group key figures 5 1.1.3. Dividend distribution policy 7 1.2. INFORMATION ABOUT THE SCOR GROUP 8 1.2.2. History and development of SCOR 10 1.2.3. Organizational structure of SCOR 12 1.2.4. Ratings information 14 1.2.5. Business overview 14 1.2.6. SCOR Investments in tangible and intangible assets 21 1.3. MARKET AND FINANCIAL REVIEW 25 1.3.1. Reinsurance market developments 25 1.3.2. Financial market developments 25 1.3.3. Significant events of the year 26 1.3.4. Information on SCOR’s competitive position 27 1.3.5. Revenues & earnings summary 28 1.3.6. Financial position, liquidity and capital resources 40 1.3.8. Cash flows 42 1.3.9. Calculation of financial ratios 43 1.3.10. Events subsequent to December 31, 2018 46 1.3.11. Documents on display 46
SCOR SE (“the Company”) and its consolidated subsidiaries (referred collectively as “SCOR” or the “Group”), form the world’s fifth largest reinsurer(1) serving more than 4,000 clients. The Group is organized in three divisions, SCOR Global P&C, SCOR Global Life and SCOR Global Investements, and three regional management platforms (the “Hubs”): the EMEA Hub, the Americas Hub and the Asia-Pacific Hub.
Return on equity – before US tax reform(1) 6.6% 4.5% 9.5%
(3) See Section 1.3.9 – Calculation of financial ratios, for detailed calculation. (4) Earnings per share are calculated as net income divided by the number of ordinary shares, which includes the average number of shares over the reporting period, shares issued during the period and time-weighted treasury shares. See Section 4.6.21 – Earnings per share for detailed calculation. (5) Closing stock price on December 31, 2018 (December 29, 2017 and December 30, 2016). (6) Includes a EUR 301 million one-off cash in-flow from the repayment of a cedent’s fund withheld.
(7) In 2017, the net combined ratio calculation has been refined to exclude some immaterial non-technical items that were previously included. Considering their potential growth, these items have been excluded to ensure they do not distort the net combined ratio in the future. The impact on the previously reported ratio was +0.26% pt as at December 31, 2016.
* Return on equity is based on the Group’s share of net income divided by average shareholders’ equity (calculated as shareholders’ equity at the beginning of the period adjusted for the effect of all movements during the period using a prorata temporis method). The ROE calculation method was adjusted in 2014 to take into account material foreign exchange rates movements that do not occur evenly throughout the reporting period. A daily weighted average is used for the currency or currencies that experienced such movements and simple weighted average is used for the other currencies.
* The net combined ratio is calculated by taking the sum of incurred losses, commissions and management expenses net of retrocession, divided by earned premiums net of retrocession. The net combined ratio calculation has been refined in 2017 to exclude some immaterial non-technical items that were previously included. Considering their potential growth, these items have been excluded to ensure they do not distort the net combined ratio in the future. The impact on the previously reported ratios is +0.26% pt and +0.22% pt as at December 31, 2016 and December 31, 2015, respectively.
01 SCOR GROUP Information about the SCOR Group 1.2. INFORMATION ABOUT THE SCOR GROUP
The Company was converted into a European Company (Societas Europaea) in 2007. As such, SCOR SE is governed by the provisions of Council Regulation (EC) No. 2157/2001 (the “SE Regulation”) and those of European Council Directive 2001/86/EC of October 8, 2001 supplementing the Statute for a European Company with regard to the involvement of employees, and by the provisions of French law relating to European Companies, as well as for all other matters partially covered or not covered by the SE Regulation, by French legal provisions applicable to sociétés anonymes, subject that they do not contrary the specific provisions applicable to European Companies.
The Group’s divisions’ business activities of insurance, reinsurance and asset management are subject to comprehensive regulation and supervision in each of the jurisdictions where the Group operates. Given that the Group is headquartered in Paris (France), this supervision is based, to a significant extent, on European Union directives and on the French regulatory system. The Group’s principal regulators in France are the financial markets authority (Autorité des marchés financiers – AMF), and the French insurance and reinsurance regulator (Autorité de contrôle prudentiel et de résolution – ACPR). While the extent and nature of regulation varies from country to country, most jurisdictions in which SCOR’s insurance and reinsurance subsidiaries operate have laws and regulations governing solvency standards, levels of reserves, permitted types and concentrations of investments, and business conduct to be respected by insurance and reinsurance companies. The supervisory authorities with jurisdiction over the Group’s operations may conduct regular or unexpected examinations of the insurers’/reinsurers’ or asset managers’ operations and accounts and request specific information from the insurer or reinsurer. Certain jurisdictions also require registration and periodic reporting by holding companies that control a licensed insurer or reinsurer. These holding company legislations typically require periodic disclosure concerning the corporate entity that controls the licensed insurer and other affiliated companies, including prior approval of transactions between the insurer, the reinsurer and other affiliated companies such as intragroup asset transfers and dividend payments by the authorized insurer or reinsurer. In general, these regulations are designed to protect the interests of insureds rather than shareholders.
The reform of the rules of personal data protection, contained in the General Data Protection Regulation (GDPR) (EU 2016/679) of April 27, 2016, applicable since May 25, 2018, has updated within the European Union the principles of personal data The main objectives of the reform are (i) the strengthening of individuals’ rights, to grant them more control over their personal data and facilitate them the relevant access, (ii) the harmonization of the applicable laws within the European Union as well as a system of one-stop shop resulting in closer cooperation between the Data protection authorities, and finally (iii) a stricter regime of application according to which the Data protection authorities can pronounce fines up to 4% of the global turnover of a company infringing the European regulation. The Group has terminated its project aiming to comply globally with the Regulation and closely monitor the various local regulations that are currently being developed.
In line with the GDPR, this draft regulation aims at completing the upgrade of personal data regulation.
The legislative, regulatory and litigation environment in which the Group operates is constantly changing. In continental Europe, reinsurers, insurers, asset managers and other financial institutions could face a danger of increasing the number of legal dispute and associated costs, as a result of the introduction of class action.
Following the acquisition of Revios and Converium, SCOR restructured its operations around several regional management platforms, or “Hubs”, which were phased in gradually.
The transaction also included the acquisition of an Irish entity, which underwrote certain Transamerica Re’s business risks. SCOR Global Life and Transamerica Re were merged into a new entity in North America: SCOR Global Life Americas Reinsurance Company (SCOR Global Life Americas).
On May 29, 2013, SCOR acquired a 59.9% stake in the capital of MRM, a listed real estate company subject to the French REIT régime (Régime des sociétés d’investissements immobiliers cotées or SIIC), as part of a cash capital increase, after the restructuring of MRM group’s banking and bond debts. This investment amounted to EUR 53.3 million.
On October 1, 2013, SCOR acquired Generali’s life reinsurance operations in the US (Generali US Holdings, Inc. or Generali US) for total consideration of EUR 573 million (USD 774 million).
In 2016, SCOR SE opened a Composite Branch office in India to conduct Life and P&C reinsurance business. This branch started underwriting business in 2017.
SCOR Global P&C, the Group’s Non-Life division, operates worldwide through two of the three main global reinsurance companies of the Group (SCOR Global P&C SE and SCOR SE) and their insurance and reinsurance subsidiaries and branches in the EMEA region, including Spain, Italy, Switzerland, the UK, Germany, Kenya, South Africa, Russia, the America region and the Asia-Pacific region, including Australia, China, India, South Korea, Hong Kong and Singapore.
SCOR Global Life, the Group’s Life division, operates worldwide through two of the three main global reinsurance companies of the Group (SCOR Global Life SE and SCOR SE) as well as their insurance and reinsurance subsidiaries and branches in the EMEA region including Germany, the UK, Ireland, Italy, Spain, Switzerland, the Netherlands, Sweden, Belgium, Russia, South Africa, in the Americas region including Canada, the US, Latin America, and the Asia-Pacific region including Australia, New Zealand, China, Hong Kong, Japan, Singapore, Malaysia, South Korea and India and, in relation to its distribution and distribution solutions, through its specialized subsidiary of SCOR Global Life SE.
SCOR Global Investments, the third division of the Group, manages the investment portfolio of the Group’s legal entities. It is composed of the Group Investment Office, a Strategic Planning and Investments Department and SCOR Investment Partners SE, a portfolio management company, approved by the AMF. The Group Investment Office manages the interaction between the SCOR Group and SCOR Investment Partners in managing the risk appetite, monitoring investment risks and setting investment guidelines. The Department Strategic Planning and Investments is in charge of financial planning and investments in Private Equity. SCOR Investment Partners manages directly the assets of many SCOR Group subsidiaries and manages also the funds on the behalf of the Group and third party clients.
(1) The full organizational chart is available on SCOR’s website www.scor.com.
SCOR GROUP Information about the SCOR Group 01 to the operating subsidiaries based on the profitability expected from their underwriting activity. The contracts that formalize the relationships between SCOR SE and its subsidiaries are presented in Appendix C – 5.2.9 – Transactions with subsidiaries, affiliates and others.
SCOR launched and completed several major restructuring projects, notably between 2005 and 2010, in order to simplify the legal structure of the Group and clearly differentiate between the operations of Life reinsurance subsidiaries and Non-Life reinsurance subsidiaries, with a view to optimizing the annual allocation of capital between operations under the Solvency I regime. In the context of Solvency II, SCOR announced in September of 2016 that it was considering merging its three reinsurance SE entities (SCOR SE, SCOR Global P&C SE and SCOR Global Life SE) as a way to optimize its legal entities’ structure. At the date of this Registration Document, the merger is on track and is expected to be completed in 2019.
Management reviews the operating results of the Non-Life and Life operating segments individually to assess the operational performance of the business and to allocate resources. For more information on SCOR’s operating segments, see Section 4.6 Note 4 – Segment information.
◆ Section 2.3.3 – Special report of the Statutory Auditors on related party agreements and commitments.
At December 31, 2018, the relevant ratings for the Company were as follows(1):
Since 2002, SCOR has defined its strategy and principle orientations through the creation of six successive three-year plans: “Back on Track” (2002-2004), “Moving Forward” (2004-2007), “Dynamic Lift” (2007-2010), “Strong Momentum” (2010 2013), “Optimal Dynamics” (2013-2016) and “Vision in Action” (2016-2019). The success of its various plans, along with the Group’s acquisitions of Revios (in 2006), Converium (in 2007), Transamerica Re (in 2011) and Generali US (in 2013), has contributed to the diversification strategy by balancing the proportion of the consolidated premiums written between its Non-Life and Life segments and has enabled the Group to preserve both its solvency and its profitability.
◆ a robust capital shield policy (see Section 3.3.5 – Retrocession and other risk mitigation techniques).
SCOR’s risk appetite framework is an integral part of the Group’s strategic plan. It is approved by the Board of Directors upon the review of new strategic plans, based on recommendations from the Group’s Executive Committee and the Risk Committee of the Board of Directors. The Board of Directors may vary the amount and the composition of risk that the Group is prepared to take.
The Group is organized into three divisions (SCOR Global P&C, SCOR Global Life and SCOR Global Investments), of which there are two reportable operating segments, and one corporate cost center referred to as “Group Functions”. The reportable operating segments are: the SCOR Global P&C business, with responsibility for property and casualty insurance and reinsurance (also referred to in this Registration Document as “Non-Life”); and the SCOR Global Life business, with responsibility for Life reinsurance (also referred to in this Registration Document as “Life”). These two businesses represent SCOR’s two “operating segments” for purposes of IFRS 8 – Operating segments, and are presented as such in its consolidated financial statements, included in Section 4 – Consolidated financial statements. Each operating segment underwrites different types of risks and offers different products and services, which are marketed via separate channels; responsibilities and reporting within the Group are established on the basis of this structure. SCOR Global Investments is the asset management division of the Group. Its role is complementary to the two operating segments as it manages SCOR Global P&C’s and SCOR Global Life’s investment assets associated with the contract liabilities. SCOR Global Investments also manages assets on behalf of third parties although these activities are currently not considered material. Therefore, SCOR Global Investments is not considered as a separate reportable operating segment for purposes of IFRS 8 – Operating segments.
SCOR GROUP Information about the SCOR Group 01 regional and Group responsibilities, with the managing directors of each Hub reporting to the Group Chief Operating Officer. Each Hub includes the following functions: Legal and Compliance, Information Technology support, Finance, Human Resources and General Services. Hub shared service costs are allocated to the segments based on allocation keys. For a description of the Hub structure, see Section 1.2.3 – Organizational structure of SCOR.
The SCOR Global P&C segment carries out its global operations through the subsidiaries and branches of its two main global reinsurance entities (SCOR Global P&C SE and SCOR SE). Through those entities, their subsidiaries and branches, SCOR Global P&C is represented in three business regions, EMEA, the Americas and Asia-Pacific and operates in three business areas: Specialty Insurance (large corporate accounts underwritten through facultative insurance contracts, direct insurance and through the participation in Lloyd’s syndicates’ Channel 2015 for which SCOR is the sole capital provider), Reinsurance (including Property, Casualty, Credit and Surety, Decennial Insurance, Aviation, Space, Marine, Engineering, Agricultural risks and Natural Catastrophes); and P&C Partners. For a description of products and services, see Section 1.2.5.2 – Non-Life reinsurance.
The SCOR Global Life segment operates worldwide through the subsidiaries and branches SCOR Global Life SE and SCOR SE. Via this network SCOR Global Life is represented in three business regions Americas, EMEA and Asia-Pacific reinsuring Life and Health insurance risks along the three product lines Protection, Longevity and Financial Solutions with a strong focus on biometric risks. In order to achieve this, SCOR Global Life manages and optimizes the in-force book, deepens the franchise and aims at having the best team, organization and tools. The franchise strategy is composed of three elements, which are the expansion of the footprint in protection to defend and strengthen market presence around the world, the diversification of the risk profile by growing health and longevity, and growth of consumer demand by supporting clients with unique distribution solutions. SCOR Global Life aims to achieve diversification, both from a geographical and a product lines perspective. For a description of products and services, see Section 1.2.5.3 – Life reinsurance.
P&C and Life products provides it with the benefits of balanced diversification (in terms of risks, geography and markets), which is a cornerstone of its strategy.
SCOR’s P&C Reinsurance business area provides proportional and non-proportional reinsurance in many forms across: ◆ Property: covering damage to underlying assets and direct or contingent business interruption losses caused by fire or other perils, including natural catastrophes.
The teams underwrite on the basis of sophisticated risk evaluation, seeking flexibility and innovative approaches for their clients, working closely with the following global business line experts: Credit and Surety
◆ Surety: various products to guarantee the completion of commitments, whether these are legal or contractual (obligation to perform), or relate to the payment of a certain sum (obligation to pay).
The team draws its expertise from an unparalleled local presence in the Americas (Miami), Europe (Paris, Zurich) and Asia (Singapore), combined with longstanding experience in the actual risk industry.
With a consistent and long-term underwriting philosophy, SCOR manages business cycles and takes a sustainable approach to both attritional / frequency risks and severity / catastrophe risks. SCOR is committed to creating a mutually beneficial relationship with its clients and brokers in order to provide appropriate cover on a worldwide basis.
SCOR’s dedicated Marine & Energy team combines local knowledge with global insights, in a line of business that requires constant monitoring of a rapidly changing global environment. SCOR offers flexible adequate solutions to protect its clients across a broad range of Marine and Energy risks: hull and cargo as well as marine liability, upstream energy, yacht, pleasure craft.
SCOR’s broad range of reinsurance solutions provides significant and stable capacity to cover standalone, specialized Marine and Energy risks and risks forming part of broader composite covers.
With a consistent, long-term approach to underwriting and pricing, SCOR’s dedicated Agriculture team offers a broad and flexible range of reinsurance cover, underpinned by a strong natural catastrophe modelling and analytics infrastructure. SCOR P&C provides customized risk transfer solutions and innovative approaches in the field of crop/crop hail, aquaculture, forestry, greenhouse and livestock/bloodstock insurance.
For more than 15 years, SCOR’s Property Cat team has provided non-proportional reinsurance and occasionally cat-driven proportional reinsurance. SCOR provides clients and brokers with flexible solutions and platforms in order to cover US and global Property Cat risks and manage accumulation issues.
The Channel Syndicate 2015 is SCOR’s Lloyd’s syndicate, offering a full suite of insurance products, from core lines of business to specialist lines such as Political and Credit risks, Cyber and Environmental Impairment Liability.
SCOR is the sole capital provider of the Channel Syndicate 2015.
01 SCOR GROUP Information about the SCOR Group 1.2.5.4. UNDERWRITING, DISTRIBUTION, CATASTROPHE RISK, CLAIMS AND RESERVES
For the year ended December 31, 2018, SCOR’s largest brokers for the Non-Life division were MMC with approximately 21% of the Group’s Non-Life gross written premiums, Aon Group with approximately 18% and Willis Group with approximately 12%. SCOR’s largest brokers for the Life division were Aon Group with approximately 2% of the Group’s Life gross written premiums and Willis Group with less than 1%.
For more information on the capital, refer to Section 1.3.6.1 – Capital. For more information on the Capital Shield Strategy, refer to Section 3.3.5 – Retrocession and other risk mitigation techniques. For information on the Group’s solvency scale, refer to Section 1.3.7 – Solvency and Section 4.6 – Notes to the consolidated financial statements, Note 12 – Information on share capital, capital management, regulatory framework and consolidated reserves. For information on the Atlas structured entities used in the Capital Shield Strategy, refer to Section 4.6 – Notes to the consolidated financial statements, Note 2 – Scope of consolidation.
The Group Investment Committee is chaired by the Group’s Chairman and Chief Executive Officer and is composed of the Group Chief Financial Officer, the Group Chief Risk Officer, the Chief Economist, the Chief Executive Officer of SCOR Global P&C, the Chief Executive Officer of SCOR Global Life, the Chief Executive Officer of SCOR Investment Partners and other representatives of SCOR Global Investments. The Group Investment Committee meets at least each quarter and defines the strategic and tactical asset allocation as well as the risk appetite of the Group.
The Group Investment Office manages the interaction between the SCOR Group and SCOR Investment Partners in managing the risk appetite, monitoring investment risks and setting investment guidelines. It is also responsible for portfolio monitoring and reporting, development of the Group’s strategic and operating plans, financial forecasts, performance analysis of SCOR’s investments, and for defining policies, governance and reporting on Environmental, Social and Governance matters within the investment portfolio.
The SCOR Investment Partners investment team is organized around six asset management desks: ◆ Aggregate, focusing on rates, covered bonds and investment grade credit; ◆ credit, focusing on high yield debt and on leveraged loans; ◆ equities and convertible bonds; ◆ infrastructure loans; ◆ Insurance-Linked Securities (ILS); and
Based on the expertise initially developed for the management of the SCOR Group’s invested assets, SCOR Investment Partners decided in 2012 to open some of its investment strategies to third-party investors. Third-party assets under management stood at EUR 3.7 billion as at December 31, 2018 (including undrawn commitments).
1.2.5.7. DEPENDENCY OF THE ISSUER WITH RESPECT TO PATENTS OR LICENSES, INDUSTRIAL, COMMERCIAL OR FINANCIAL CONTRACTS AND NEW MANUFACTURING PROCESSES
See Sections 3 – Risk factors and risk management mechanisms and 1.2.6.2 – Research and development, patents and licenses.
SCOR owns an office building in Paris, with a surface area of more than 20,000 m2, located at 5, avenue Kléber. The building is held by its OPCI (French real estate UCIT) SCOR-Properties, and occupied at 85% by SCOR, the remaining area being rented to third parties. In November 2016, a second building at 50 rue La Pérouse with a surface area of 1,500 m2 was acquired. The building was delivered in January 2017 and SCOR employees moved in in May 2017.
In 2018, the Group vacated the floor in SCOR’s former headquarters (La Défense, Paris), which had been leased mainly for teams working on IT projects. From December 2018 these teams moved in to a recently renovated building located at 3-5 rue Maurice Ravel in Levallois, owned by SCOR Group. SCOR occupies 3,300 m2 of office space in this building, which is 86% of the total surface area.
In Cologne, since 2012 SCOR fully occupies an office building with a surface area of more than 6,000 m2 located at Goebenstrasse 1, held by the German branch of SCOR SE “SCOR Rückversicherung Direktion für Deutschland, Niederlassung der SCOR SE”.
In order to ensure that the Life division is continually up-to-date with biometric trends and scientific developments, the expertise of eight dedicated Research & Development (R&D) Centers is used to analyze and assess the key factors underlying mortality, longevity, morbidity and policyholder behavior. Biometric risks such as mortality, longevity, disability and long-term care are at the heart of underwriting in Life reinsurance. Since these risks are subject to shocks and various trends, SCOR Global Life closely monitors their developments in: ◆ R&D Center for Mortality Insurance: carrying out mortality studies on life portfolios, enhancing modeling for pricing, reserving and capital modeling and providing support in setting assumptions for new business, in particular new products, and reserving; ◆ R&D Center for Longevity Insurance: carrying out mortality studies on pension and annuity portfolios, enhancing risk modeling for pricing, reserving and capital modeling and providing support in setting assumptions for new business, in particular new products, and reserving; ◆ R&D Center for Long-Term Care (LTC) Insurance: providing support in the development of LTC products (definitions, pricing, guidelines) and the monitoring of the corresponding portfolios; ◆ R&D Center for Disability Insurance: providing support in the development of disability products (definitions, pricing, guidelines), the understanding of the experience and the impact of claims management; ◆ R&D Center for Critical Illness: dedicated to the analysis of critical illness risks; complex risks due to multiple definitions, cover types and socio-economic environments; ◆ R&D Center for Medical Underwriting and Claims Management: evaluating the impact on insurance of new medical advances, for both known pathologies and the most recently discovered ones; advising clients on the pricing of substandard risks; and
◆ R&D Center for Policyholder Behavior: providing support mainly in modeling and pricing lapse behavior within protection products;.
The Centers have entered into many scientific partnerships over the years, the active ones in 2018 being with the Assmann Foundation on cardiovascular diseases (EUR 100,000 annually) which ended in June 2018, the ADERA (Association pour le Développement de l’Enseignement et des Recherches auprès des universités, des centres de recherche et des entreprises d’Aquitaine – INSERM) on LTC (EUR 100,000 annually) and the Pierre et Marie Curie University at the Pitié-Salpêtrière Hospital on HIV developments (EUR 30,000 annually).
The R&D Centers are part of the Knowledge Department of SCOR Global Life. Their employees are based in Paris, Cologne, Dublin, Charlotte, Kansas City, Chicago and Singapore and are active worldwide, responding to requests from the local teams in charge of business development and client relationships.
At the forefront of risk modeling, particularly extreme risks in Life and Non-Life businesses, the Group devotes considerable resources to fundamental research and the promotion of scientific risk management techniques in various disciplines. As well as prize-winning internal research projects, conducted with the assistance of students from renowned schools and universities, SCOR Foundation for Science has signed partnership agreements with the following institutions: ◆ a Research Chair on Risk, in cooperation with the the Risk Foundation and Toulouse School of Economics of Toulouse University is dedicated to the risk market and to value creation, with a research program specially focused on Long-Term Care. For SCOR, this implies costs of EUR 0.9 million spread over three years; ◆ a Research Chair in Finance, in cooperation with the Toulouse School of Economics of Toulouse University, focuses on risk management, long-term investment, corporate governance and the links between insurance and financial markets. For SCOR, the related cost is EUR 1.5 million spread over five years; ◆ a Research Chair on Macroeconomic Risk in cooperation with the Paris School of Economics (PSE), is dedicated to the macroeconomic modeling of tail events, the consequences of uncertainty on the macroeconomic equilibrium and the contagion of extreme macroeconomic risks and crises. For SCOR, the related cost is EUR 900,000 spread over three years; and
Since 2015, SCOR has also been organizing, with the partnership of the French Institut of Actuaries, an actuarial symposium in Paris. In November 2015, the theme was centered around “Actuarial and Data Science”, in December 2016, the theme was “Scientific laws and mathematical models: from physics to actuarial science”, in December 2017, the theme was “Will Artificial Intelligence revolutionize actuarial science?”, and in December 2018, the theme was “Macroeconomic and Financial instabilities”.
SCOR was one of the first reinsurers to implement a global information system. This strategy is reaffirmed during the integration process after a new acquisition, when SCOR aims to rapidly reestablish a global integrated information system. In accounting, consolidation and financial reporting, SCOR has delivered its global solution based on SAP, embedding a unique chart of accounts and standard processes in all its Hubs throughout the Group. This solution has been reinforced by the introduction of Hana technology to extend its real-time analytical capabilities.
The Group’s Life and Non-Life reinsurance global back-office operates on a custom software package known as “Omega.” Omega was designed to allow the tracking of brokers and ceding companies within the Group, manage premiums and claims, analyze the technical profitability of contracts, and perform quarterly closings based on the latest estimated results. The Omega databases reflect the reinsurance risk of SCOR Global P&C and SCOR Global Life’s portfolios worldwide. Fully modernized in 2016, OMEGA has since been enriched every year, especially by the addition of analytical features powered by a big data solution – “Reinsurance Analytics”.
01 SCOR GROUP Information about the SCOR Group notably in the US market. The integration of Life Individual policy management systems is now completed in the US, and will now be extended to the rest of the world by the development of a new platform, named hElios, which will provide an even more accurate knowledge of the risks. These individual data are the basis for enhanced actuarial modeling, in which SCOR Global Life is also investing, targeting to unify pricing and reserving in one single technical platform and through the roll-out of a new experience analysis solution.
The Group is promoting a paperless environment. Internally, global document management and sharing processes have been set up for the Life and Non-Life divisions. With its clients, SCOR can automatically process claims, reinsurance and financial accounts received electronically in the standard formats defined by ACORD, an association created for the development of e-processing in insurance and reinsurance, without having to re-enter them. SCOR is also actively participating to the B3i initiative which aims at exploiting the power of the Blockchain technology to ease exchanges between actors of the insurance value chain.
The SCOR technical environment is based on a secured international network, a cloud-based global data center with a fully replicated dual site, and a standard workstation deployed everywhere in the world. SCOR has also implemented an ambitious security plan based on stronger physical and logical access controls, cyber security reinforcement, large program for data protection, and recovery in the event of any type of disaster. Such capabilities are key enablers that allowed SCOR to reach the GDPR compliance level in May 2018.
See Section 3.4.2 – Management of market risks, for a description of risk management connected with SCOR investments in debt instruments and equity securities as well as with investments it owns.
The year was marked by a shift, in the last quarter, in market expectations and in the development of financial asset prices. During the first part of the year, the economic cycle remained virtuous, with a sharp rise in corporate earnings (+20% in the US) and a progressive exit from accommodative monetary policies on the back of controlled inflation. Against this backdrop, financial asset volatility was low, with equity indices posting positive returns, rates rising gradually in the US and virtually stable credit spreads. Thus, the US Federal Reserve, relying in particular on the very low unemployment rate (3.8%) and on a rising trend towards endogenous inflation, gradually raised its key policy rates from 1.5% to 2.5%, while conducting a programmed reduction in the size of its balance sheet. The European Central Bank left its rates unchanged at -0.4% but resolutely began to reduce its asset purchase program.
By contrast, in the last quarter of the year, the increase in political and commercial uncertainties led to a downward revision in terms of economic outlook, leaving an impression of insufficiently accommodative monetary policies. The correction was therefore relatively violent, with equities falling by almost 20% and a flightto -quality movement to risk-free assets such as government bonds.
Over the year, the 10-year rates in the United States rose from 2.53% to 3.23% before ending at 2.68%. In Europe, the rates fell constantly, ending at 0.24% for the 10-year German rate, compared to 0.47% at the beginning of the year. The interest rate differential between the two zones thus remains historically very high, due to growth dynamics that are still very different. The Euro continued to fall against the US dollar, with an exchange rate that fell from 1.20 to 1.15, while the annualized cost of hedging dollars to euros rose from 2.3% to 3.1%.
In this environment, the main equity indices posted negative returns over the year with, including dividends, -4.4% for the S&P 500, -10.7% for the Stoxx Europe 600 and -10.4% for the Japanese Nikkei.
The execution of this implementation was subject to certain standard regulatory approvals which have been obtained before the end of 2018. The TCJA implications including the implementation of the new business structure resulted in an expense of USD 81 million (EUR 68 million) which has been recognized in SCOR’s 2018 result. The overall impact of the TCJA on the Group’s solvency ratio is not material.
SCOR reaffirms its independence and acknowledges Covéa’s decision to withdraw its proposal on a potential combination
On September 21, 2018, following in particular Covéa’s renewed expressions of interest in an unsolicited proposed combination with SCOR, SCOR’s Board of Directors unanimously decided to reaffirm in all respects its decision of August 30, 2018 not to enter into discussions with Covéa, and noted that the procedure and methods used by Thierry Derez and Covéa to prepare, submit and make public this proposed combination, as well as their renewed expressions of interest, could only be considered as hostile, unfriendly and disruptive to the functioning of SCOR.
On September 27, 2018, Covéa announced that it would comply with its standstill undertaking dated April 8, 2016 prohibiting it from exceeding, directly or indirectly, the threshold of 10% of the share capital of SCOR until April 7, 2019, at midnight.
On January 29, 2019, Covéa announced that a transaction with SCOR was no longer part of its strategic options.
In November 2018, SCOR announced the creation of SCOR Europe SE, its new Paris-based P&C specialty insurance company, which has been approved by the French supervisory authority, the ACPR (Autorité de Contrôle Prudentiel et de Résolution). This license enables SCOR Europe SE to operate within the European Economic Area (EEA) with effect from January 1, 2019. As announced on September 6, 2017, this enables the Group to ensure the continuity of the services offered to its insured clients in view of Brexit.
With this transaction, SCOR became the first reinsurer to use the new UK “ILS” (“Insurance-Linked Securities”) regime to issue a cat bond. This transaction received the approval of the PRA and the UK regulatory authorities.
On March 6, 2018, SCOR placed a perpetual deeply subordinated notes issue on the “Regulation S” USD market in the amount of USD 625 million. This was the first transaction for a restricted Tier 1 instrument with a principal write-down feature in USD, which provides the Group with the greatest financial flexibility and strongest quality of capital for a debt instrument.
On November 30, 2018, SCOR redeemed the CHF 250 million undated subordinated notes callable in November 2018.
SCOR has been a 33% shareholder and a major technical and commercial partner of MutRé S.A. since the company was created in 1998. In January 2018, SCOR completed the increase of its stake in MutRé S.A. to 100%. The control of MutRé S.A. by SCOR was obtained on the same date.
(1) By Net Reinsurance premiums written, source: “AM Best Special Report Global Reinsurance 2018”.
01 SCOR GROUP Market and financial review 1.3.5. REVENUES & EARNINGS SUMMARY
— maintaining its policy of being positioned on strong-growth markets such as Asia-Pacific and Latin America,
— operating as a mixed Non-Life and Life reinsurer in China using the license received in 2011, enabling SCOR to add Life reinsurance services to the existing Non-Life activities; and
Gross written premiums for the financial year ended December 31, 2018 amounted to EUR 15,258 million, an increase of 3.2% compared to EUR 14,789 million in 2017. At constant exchange rates the growth is 7.1%. The overall increase in gross written premiums of EUR 469 million in 2018 is composed of an increase of EUR 150 million for SCOR Global P&C and of EUR 319 million for SCOR Global Life.
(1) P&C partners is a business unit supporting the development of Reinsurance and Specialties Insurance.
In 2018, SCOR generated approximately 38% of its gross written premiums in Europe, Middle East and Africa (EMEA) (2017: 37%), with significant market positions in France, Germany, Spain and Italy, 43% of its gross written premiums in the Americas (2017: 46%) and 19% in Asia (2017: 17%).
The following table shows the breakdown by volume of Life and Non-Life gross premiums written by geographical area based on market responsibility, taking into account the country in which the ceding company operates for treaty business and location of the insured for facultative business: In EUR millions
Net earned premiums for the year ended December 31, 2018 amounted to EUR 13,611 million as compared to EUR 13,281 million and EUR 12,462 million for the years ended December 31, 2017 and 2016, respectively. The overall increase in net earned premiums of EUR 330 million from 2017 to 2018 and EUR 819 million from 2016 to 2017 is consistent with the evolution in gross written premiums.
Net investment income(1) for the year ended December 31, 2018 amounted to EUR 615 million as compared to EUR 764 million and EUR 670 million for the years ended December 31, 2017 and 2016, respectively. The net return on investments in 2018 was 2.3% compared to 2.9% in 2017 and 2.5% in 2016. The evolution of investment income is essentially driven by higher investment revenues and by the active portfolio management strategy implemented by SCOR Global Investments. The Group recorded a lower realized capital gains of EUR 123 million in 2018 compared to 2017 (EUR 272 million), mostly achieved on the equity portfolio and to a lesser extent on the real estate portfolio, which had in 2017 benefited from higher realized gain on sale.
The return on invested assets in 2018 was 2.8% as compared to 3.5% in 2017 and 2.9% in 2016.
Gross benefits and claims paid were EUR 11,168 million, EUR 11,963 million and EUR 9,848 million in 2018, 2017 and 2016, respectively. The level of gross benefits and claims paid for SCOR Global P&C decreased to EUR 3,942 million during 2018 from EUR 4,564 million in 2017 (2016: EUR 3,164 million). For SCOR Global Life the level of gross benefits and claims paid also decreased to EUR 7,226 million in 2018 from EUR 7,399 million in 2017 (2016: EUR 6,684 million).
The net result of the Group’s retrocession program was a net cost of EUR (264) million in 2018 as compared to a net gain of EUR 398 million and a net cost EUR (388) million in 2017 and 2016, respectively.
SCOR generated a consolidated net income of EUR 322 million in 2018, compared to EUR 286 million and EUR 603 million for the years ended December 31, 2017 and 2016, respectively.
In a year marked by a significant series of natural catastrophes which occurred mostly in the second part of the year, the results benefited from a positive underlying performance of SCOR Global P&C and SCOR Global Life and a prudent asset management policy which safeguarded shareholders’ interests whilst delivering solid returns.
In 2018, the effective tax rate was 34.7% compared to 16.3% in 2017 mainly due to the US tax reform which had a negative impact of EUR 68 million. See Section 4, Note 17 – Income taxes, for explanations on the effective tax rate.
Return on equity was 5.5%, 4.5% and 9.5% for the years ended December 31, 2018, 2017 and 2016 respectively. Basic earnings per share were EUR 1.72, EUR 1.53 and EUR 3.26 for the years ended December 31, 2018, 2017 and 2016, respectively.
The business comprises: Specialities Insurance and Reinsurance. SCOR Global P&C capitalizes on a long-standing franchise, experience, and an extensive data base comprising multi-line expertise.
In 2016, gross written premiums decreased by 1.5% compared to 2015 from EUR 5,723 million to EUR 5,639 million. At constant exchange rates the growth was 1.2%. Compared to 2015, growth at constant exchange rates was driven by the performance of the Property and Casualty Treaties (mainly in the Casualty and Natural Catastrophes portfolios).
In 2018, the net combined ratio reflects severe and extended natural catastrophes that occurred, especially in Japan and the Americas, partially absorbed by 1.9 percentage points of reserve releases (EUR 100 million). The natural catastrophe ratio stands at 12.6% compared to 14.9% in 2017 and 5.5% in 2016.
In 2017, the net combined ratio reflected the severity of higher natural catastrophes that occurred compared to previous years, especially the American hurricanes, earthquake and wildfires. The natural catastrophe ratio stands at 14.9% compared to 5.5% in 2016 and 2.2% in 2015. The net combined ratio was also negatively impacted by 1.4 percentage points (EUR 71 million) due to the change in the Ogden discount rate, partially balanced by a 0.9 percentage points of reserve releases (EUR 45 million).
The following table highlights losses due to natural catastrophes for the years 2018, 2017 and 2016: As at December 31
Number of catastrophes occured during previous financial year 7(4) 2(6) 14(8)
Losses and loss adjustment expenses due to catastrophes, gross 906(4) 1,374(6) 323(8)
(4) Including developments on Hurricane Harvey, Irma, Maria, Mexico Earthquakes, Northern and Southern California wildfires and Flash Flood N. Italia (Brescello). These figures do not take into account the late information received on typhon Jebi and that do not have any impact on the Group financial statements as mentioned in Section 4.6 – Notes to the consolidated financial statements, Note 15.1 – Net contract liabilities, SCOR Global P&C.
(6) Including development on Hurricane Matthew and Kaikoura Earthquake. (7) Including Hurricane Matthew, Fort McMurray Wildfires, Earthquakes in Ecuador, in Taiwan, in Kaikoura and in Italy, floodings in Europe, in Sri Lanka, in Texas, in Louisiana, in Johannesburg and in United Arab Emirates, Typhoon Meranti and Cyclone Winston.
Original estimated loss net of retrocession as at December 31, 2017
SCOR Global Life operates through its unified global organization with a specialized market approach in three regions: Americas, EMEA (Europe, Middle East and Africa) and Asia-Pacific. It underwrites Life reinsurance business in the following product lines: ◆ Protection; ◆ Financial Solutions; ◆ Longevity.
Protection encompasses traditional Life reinsurance business for living and death benefits. The main risks undertaken are mortality, morbidity and behavioral risks for individuals and groups of individuals. Financial Solutions combine traditional Life reinsurance with financing components providing liquidity, balance sheet, solvency and/or income improvements to the client. Longevity products cover the risk of negative deviation from expected results due to the insured or annuitant living longer than assumed in the pricing of insurance cover provided by insurers or pension funds.
(1) Based on 2017 gross written premiums. (2) At December 31, 2018 exchange rates. (3) Source: 2017 SOA/Munich Re survey of US life reinsurance, published in 2018.
◆ Disability: SCOR Global Life has established strong market positions in disability in many continental Europe markets and Canada.
◆ Although Medical represents a rather small portion of SCOR Global Life’s portfolio, it was a key growth driver within the Protection product line in 2018 due to new business volume in Asia and in France (due to the MutRé SA acquisition).
In the Financial Solutions product line, accounting for 15% of 2018 gross written premiums, SCOR Global Life has built a recognized position in providing capital and solvency solutions. Since 2013, SCOR Global Life has signed landmark transactions in Southern Europe, the US, Asia and Latin America. In 2018 SCOR Global Life expanded its footprint in the Asia-Pacific region and in the US market.
SCOR Global Life has established itself as a recognized provider for longevity reinsurance, focusing on longevity risk transfer transactions for large in-payment pension portfolios, creating a new business pipeline with growth opportunities. The Longevity product line accounts for 10% of SCOR Global Life’s gross written premiums in 2018 and is one of the main drivers of premium growth (14.4% increase in gross written premiums in 2018 at constant exchange rate(1)). The main active market to date for SCOR Global Life is UK with a portfolio from recent years and new business signed in 2018.
Overall, the Life technical margin in 2018 was 7.0% compared to 7.1% in 2017 and 7.0% in 2016.
Net investment income for the year ended December 31, 2018 amounted to EUR 615 million compared to EUR 764 million and EUR 670 million for the years ended December 31, 2017 and December 31, 2016, respectively.
Net interest income on funds withheld and contract deposits 151 177 182
IFRS INVESTMENT INCOME NET OF INVESTMENT MANAGEMENT EXPENSES 619 728 694
(2) Realized gains/(losses) on invested assets is net of EUR 4 million realized gain attributable to 3rd parties, included in realized capital gains/losses on investments under IFRS.
Available-for-sale financial assets - 15,867 1,203 137 117 110 17,434 41 17,475 136 - 17,611
Direct real estate unrealized gains and losses(5) - - - - 179 - 179 - 179 - - -
The strength of the 2018 results and balance sheet demonstrates the effectiveness of SCOR’s strategy which is based on extensive business and geographical diversification, focusing on traditional reinsurance activity with reinsurance liabilities with very limited exposure to economic activity risks, and no material off balance sheet exposure.
Shareholders’ equity stood at EUR 5,828 million at December 31, 2018 compared to EUR 6,225 million at December 31, 2017 and EUR 6,695 at December 31, 2016. See Section 4.5 – Consolidated statement of changes in shareholders’ equity for a description of this change.
On July 26, 2017, SCOR launched a share buy-back program commencing on July 27, 2017, for an amount of up to EUR 200 million over 24 months, subject to market conditions. This share buy-back has been fully executed in the course of 2018. For more information on the share buy-back program, see Section 4.6 – Notes to the consolidated financial statements, Note 12 – Information on share capital, capital management, regulatory framework and consolidated reserves.
For more information on the Capital Shield Strategy, refer to Section 3.3.5 – Retrocession and other risk mitigation techniques.
For information on the Atlas special purpose vehicles used in the Capital Shield Strategy, see Section 4.6 – Notes to the consolidated financial statements, Note 2 – Scope of consolidation.
The total level of financial liabilities which includes subordinated debt, real estate financing and other financial liabilities increased to EUR 2,831 million from EUR 2,702 million in 2017 (2016: EUR 2,758 million).
On March 6, 2018, SCOR placed a perpetual deeply subordinated notes issue on the “Regulation S” USD market in the amount of USD 625 million.
On June 8, 2018, SCOR redeemed the CHF 315 million undated subordinated notes (issued in 2012), and on November 30, 2018, SCOR redeemed the CHF 250 million undated subordinated notes callable in November 2018. The proceeds of the newly issued deeply subordinated Tier 1 Notes issued in 2018 were used to redeem those two subordinated CHF notes.
The Group has a leverage ratio of 27.5% at December 31, 2018, as compared to 25.7% at December 31, 2017 and 24.4% at December 31, 2016. This ratio is calculated as the percentage of subordinated debt compared to total shareholders’ equity plus subordinated debt. The calculation of the leverage ratio excludes accrued interest from debt.
SCOR uses real estate debt and other financial liabilities mainly to finance real estate investments and for general corporate purposes. Real estate debt are non-recourse, the debtors’ claims are limited to assets underlying the financing, and there is an asset and liability matching with little to no risk that the assets will be insufficient to service and settle the liabilities. They meet the conditions for operational leverage and can be classified as operational debts, and therefore excluded by the rating agencies from financial leverage calculations. As at December 31, 2018, real estate financing and other financial liabilities amounted to EUR 510 million and EUR 44 million, respectively (December 31, 2017: EUR 479 million and EUR 12 million, respectively). This includes the real estate debt of MRM for the amount of EUR 75 million (EUR 74 million as at December 31, 2017).
The Group has been granted credit facilities from several companies of the banking sector to guarantee the reinsurance activities of various subsidiaries for a global issued amount of USD 3.7 billion as at December 31, 2018. These credit facilities are stand-by letters of credit that the banking counterparty agrees to issue in the form acceptable to the American National Association of Insurance Commissioners (NAIC) or other appropriate regulatory body.
The Group’s total liquidity, defined as cash and cash equivalents (including cash and cash equivalents from third parties)(1), shortterm government bonds with maturities above three months and below twelve months and bank overdrafts, which is well diversified across a limited number of banks, stood at EUR 1.2 billion at the end of 2018 (2017: EUR 1.0 billion and 2016: EUR 2.3 billion) supported by strong operating cash flow generation. The Group executed its strategy of redeployment of liquidity as described by the “Vision in Action” asset management policy.
Total investments, including cash and cash equivalents, amounted to EUR 29.8 billion at December 31, 2018 compared to EUR 29.4 billion and EUR 29.8 billion at December 31, 2017 and 2016, respectively.
(1) See Section 1.3.5.4 – Net investment income and investment income on invested assets.
This comprehensive and holistic model was developed internally, on the basis of SCOR’s experience and expertise. It covers all known material quantifiable risks to which the Group is exposed (Life and Non-Life underwriting risk, market and credit risk, operational risk) and reflects SCOR’s risk profile and strategy. This model is based on the highest scientific standards, systematically applying stochastic simulations and modeling dependencies across risks and using cutting-edge methodologies.
At year-end 2018, SCOR’s solvency ratio stood at 215%(1), in the upper part of the optimal solvency range of 185%-220% as defined in the “Vision in Action” plan.
Cash flow used in financing activities amounted to EUR (638) million in 2018, (EUR (467) million in 2017 and EUR (895) million in 2016). This figure mainly includes dividend payments, the share buyback and treasury shares program, the issuance of a perpetual subordinated note of USD 625 million and the redemption of two subordinated notes of CHF 250 million and CHF 315 million.
The Group’s total liquidity, defined as cash and cash equivalents (including cash and cash equivalents from third parties)(2), shortterm government bonds with maturities above three months and below twelve months and bank overdrafts, which is well diversified across a limited number of banks, stands at EUR 1.2 billion at the end of 2018 (2017: EUR 1.0 billion and 2016: EUR 2.3 billion), supported by a very strong operating cash flow generation. The Group executed its strategy of redeployment of liquidity as described by the “Vision in Action” asset management policy.
(1) Solvency ratio based on Solvency II requirements. The Group solvency final results are to be filed to supervisory authorities by June 2019, and may differ from the estimates expressed or implied in this Registration Document. The overall impact of the Tax Cuts and Jobs Act enacted in United Stat on the Group’s solvency ratio is not material.
SCOR GROUP Market and financial review 01 1.3.9. CALCULATION OF FINANCIAL RATIOS
BASIC BOOK VALUE PER SHARE 31.53 33.01 35.94 1.3.9.2. RETURN ON INVESTMENTS AND RETURN ON INVESTED ASSETS
Total expenses as per profit & loss account(1) (831) (801) (761)
01 SCOR GROUP Market and financial review 1.3.9.4. RETURN ON EQUITY
Weighted average shareholders' equity – before US tax reform impact(1) 5,945 6,376 6,317
The loss ratio is calculated by dividing Non-Life claims (including natural catastrophes) by Non-Life premiums earned. This ratio is net of retrocession.
01 SCOR GROUP Market and financial review 1.3.10. EVENTS SUBSEQUENT TO DECEMBER 31, 2018
To SCOR’s knowledge, and except for any event mentioned under Section 4.6 – Notes to the consolidated financial statements, Note 26 – Subsequent events, there were no significant changes in the Group’s financial performance since the end of the 2018 financial year.
2.1. CORPORATE GOVERNANCE PRINCIPLES, SHAREHOLDERS’ MEETINGS, CORPORATE OFFICERS, EXECUTIVES, EMPLOYEES, INFORMATION REQUIRED BY ARTICLE L. 225-37-5 OF THE FRENCH COMMERCIAL CODE 48 2.1.1. Corporate governance principles 48 2.1.2. Shareholders’ Meetings 48 2.1.3. Board of Directors 48 2.1.4. Board of Directors’ Committees 71 2.1.5. Corporate officers and their powers 75 2.1.6. Executive Committee 76 2.1.7. Number of employees 78 2.1.8. Information required by article L. 225-37-5 of the French Commercial Code 78 2.2. EXECUTIVE COMPENSATION AND SHARE OWNERSHIP 79 2.2.1. Compensation of the Executive Corporate Officer and Directors 79 2.2.2. Compensation of Executive Committee members other than the Chairman and Chief Executive Officer 95 2.2.3. Stock options and performance shares 97 2.2.4. Summary of transactions in securities by persons discharging managerial responsibilities and persons closely associated pursuant to article L. 621-18-2 of the French Monetary and Financial Code 113 2.3. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 114 2.3.1. Capital ownership 114 2.3.2. Related party transactions and agreements 125 2.3.3. Special report of the Statutory Auditors on related party agreements and commitments 126 2.4. AUDIT REPORT ON THE CORPORATE GOVERNANCE REPORT 129
The provisions relating to corporate governance applicable to SCOR SE include French legal provisions, as well as rules laid down by the French financial markets authorities. SCOR believes that its application of corporate governance principles is appropriate and in compliance with best corporate governance practices in effect in France as per AMF recommendations.
The AFEP-MEDEF corporate governance code can be referred to on the Company’s website (www.scor.com) or on the AFEP’s website (www.afep.com).
SCOR decided to adapt a provision of the AFEP-MEDEF corporate governance code as follows: ◆ Section 8.5.1 of the AFEP-MEDEF corporate governance code related to the independence of the directors of the Company who hold a term in a Group subsidiary.
SCOR indeed considers that a director of SCOR SE who holds a term in a Group’s subsidiary can be qualified as independent provided he does not participate in the decisions of the Board of Directors of SCOR SE in the event of a conflict of interest with the subsidiary in which he/she has the term. SCOR considers that it is useful, in terms of corporate governance, that SCOR SE’s independent directors also have a seat in significant subsidiaries, notably in other countries than France, in order for them to complement their vision on the Group’s activities.
The terms and conditions for the participation of the shareholders at Shareholders’ Meetings and, more specifically, the mode of operation, the main powers of the Shareholders’ Meetings, the description of the shareholders’ rights as well as the methods of exercising the voting rights are set forth by the Article 19 of the Company’s bylaws, an electronic version of which is available on SCOR’s web site (www.scor.com).
REPORT ON CORPORATE GOVERNANCE Corporate governance principles, Shareholders’ Meetings, corporate officers, executives, employees, information required by article L. 225-37-5 of the French Commercial Code 2.1.3.2. INFORMATION CONCERNING THE MEMBERS OF THE BOARD OF DIRECTORS
French – Age: 66 – SCOR SE, 5, avenue Kléber, 75116 Paris, France
French – Age: 57 – Aéroports de Paris 1, rue de France, 95931 Roissy – Charles de Gaulle, France
◆ Chairman and Chief Executive Officer of Aéroports de Paris (France)*
◆ Member of the Supervisory Board of Le Cercle des économistes SAS (France)
◆ Director and Vice-Chairman of the Board of Directors of TAV Havalimanlari A.S. (TAV Airports) (Turkey)
◆ Director and Vice-Chairman of the Board of Directors of TAV Yatirim Holding A.S. (TAV Investment) (Turkey)
◆ Chairman of the Board of Directors of ACI Europe (Belgium)
◆ Member of the Supervisory Board of NV Luchthaven Schiphol (Netherlands)
Augustin de Romanet, a French citizen, is a graduate of the Institut d’Études Politiques in Paris and a former student of the École Nationale d’Administration. He was previously Chief Executive Officer of Caisse des dépôts et consignations, between 2007 and 2012, and chaired the Fonds Stratégique d’Investissement between 2009 and 2012. Prior to that, he was Deputy Finance Director at Crédit Agricole S.A. and a member of the Executive Committee. Before taking up that position, Augustin de Romanet served as Deputy Secretary General to the Presidency of the Republic of France, between June 2005 and October 2006, and held positions in various ministerial offices. In particular, between 2002 and 2005, he was Chief of Staff to Alain Lambert, Minister Delegate for the Budget, Deputy Chief of Staff to Francis Mer, Minister for the Economy, Finance and Industry, Chief of Staff to Jean-Louis Borloo, Minister for Employment, Labor and Social Cohesion, and lastly, Deputy Chief of Staff to Prime Minister Jean-Pierre Raffarin. Awarded the Légion d’honneur in 2007, Augustin de Romanet has received a number of awards, notably “Capitalist of the Year” awarded by the Nouvel Économiste magazine in 2008 and “Financier of the Year” awarded by Minister of the Economy in 2012. Augustin de Romanet has been Chairman and Chief Executive Officer of Aéroports de Paris since 2012 and Chairman of Paris Europlace since July 2018.
◆ Chairman of the SAS and Chairman of the Board of Directors of ISSORIA (France)
◆ Permanent representative of BPCE, Chairman of ISSORIA International Trading (France)
French – Age: 40 – SCOR SE, 5, avenue Kléber, 75116 Paris, France
Vincent Foucart, a French citizen, is graduated from ENSTA, HEC and CHEA. He is also a certified Financial Analyst and Actuary. After having contributed to Société Générale’s Asian operations reorganization, he joined in 2001 the French insurer AGF as an Investor Relations Officer. As of 2005, he was responsible for the management of the AGF Chairman’s Office. He then became in charge of the Alternative Equity Strategies portfolio in 2006, and of Tocqueville Finance asset management in 2007. Since he joined SCOR in 2009 at the Chairman’s Office, he worked as General Secretary until 2014. More recently, he contributed to the development of ILS Strategies for SCOR and in May 2014, he became the Chief Underwriting Officer of the Alternative Solutions Specialty Line. In 2018, he was appointed Deputy CEO of SCOR Global P&C Partners.
Date of first appointment: April 30, 2015 Expiration of term: 2020
Belgian – Age: 47 – Simont Braun SCRL, Avenue Louise, 149/20, 1050 Brussels, Belgium
Vanessa Marquette, a Belgian citizen, holds a law degree and an economic law degree from the Université Libre de Bruxelles. She also studied law at the University of Michigan Law School as well as at Davis University and Berkeley University. She has practiced as a lawyer of the Brussels Bar since 1995. She specializes in Banking Law and Financial Law and has particular expertise in the areas of Corporate Law, Insolvency Law and Security Interests and Private International Law. She is the partner and member of the Executive Committee of the business law firm Simont Braun, which she joined in 2005 after having practised law at the Brussels offices of Stibbe Simont Monahan Duhot and Freshfields Bruckhaus Deringer. Vanessa Marquette is an independent director of the Érasme Hospital. She is also a lecturer at the Université Libre de Bruxelles where she teaches International Financial Law.
02 REPORT ON CORPORATE GOVERNANCE Corporate governance principles, Shareholders’ Meetings, corporate officers, executives, employees, information required by article L. 225-37-5 of the French Commercial Code
Member of the Strategic Committee, Audit Committee, Compensation and Nomination Committee, Crisis Management Committee and Corporate and Social Responsibility and Environmental Sustainability Committee
Date of first appointment: April 27, 2016 Expiration of term: 2021
Swiss – Age: 59 – SCOR SE 5, avenue Kléber 75116 Paris, France
◆ Chairman of the Board of Directors of Crédit Suisse Asset Management (Switzerland) Ltd (Switzerland)
◆ Executive Chairman of the “Wealth Management & Trust” of Rothschild & Co Group
French – Age: 60 – MACIF, 17-21, place Étienne-Pernet,75015 Paris, France
OTHER POSITIONS ◆ Chief Executive Officer of Macif Sgam (France) ◆ Chief Executive Officer of UMG Macif Santé Prévoyance (France) ◆ Chief Executive Officer of Macif SAM (France) ◆ Chief Executive Officer of GIE Macif Finance Épargne (France) ◆ Chairman and director of Foncière de Lutèce (France) ◆ Director of Compagnie Foncière Macif (Permanent representative of Macif) (France) ◆ Director of Macif Participations (France) ◆ Member of the Supervisory Board of OFI Asset Management (France) ◆ Director of OFI Holding (permanent representative of Macif) (France) ◆ Member of the Supervisory Board of Inter Mutuelles Assistance (permanent representative of Macif) (France) ◆ Non-voting director of Macifilia (France) ◆ Non-voting director of Mutavie (France) ◆ Non-voting director of Socram Banque (France) ◆ Non-voting director of Ofivalmo Partenaires (France) ◆ Member of the Executive Committee of Siem (France) ◆ Member of the Steering Committee of Macifimo (France) ◆ Ex officio member at the Board of Directors of Campus (GIE), as an observer (France) ◆ Member of the Executive Board and Vice-Chairman of Association des Assureurs Mutualistes (AAM) (France)
Jean-Marc Raby, a French citizen, holds a degree in economics as well as an MBA from HEC. He has spent his entire professional career at the Macif group. He became Regional Director of Macif Centre (a regional Macif entity) in 2000, and was subsequently appointed Deputy Chief Executive Officer of the Macif group, in charge of Economic Management, alongside the Chief Executive Officer, Roger Iseli. In 2012, he was appointed Chief Executive Officer of the Macif Group.
Date of first appointment: April 27, 2017 Expiration of term: 2020
French – Age: 52 – Malakoff Médéric Assurances, 21, rue Laffitte, 75317 Paris Cedex 09, France
MAIN POSITION ◆ Chief Executive Officer of Malakoff Médéric Group and Humanis Group (France)
POSITIONS THAT EXPIRED DURING THE LAST FIVE YEARS ◆ Chairman of the Board of Directors of Quatrem SA (France) ◆ Chairman of the Board of Directors of Viamedis SA (France) ◆ Chairman of the Board of Directors of Auxia SA (France) ◆ Chairman of the Board of Directors of Auxia Assistance SA (France) ◆ Director of Viamédis (France) ◆ Director of GIE Karéo Services (France) ◆ Member of the Executive Committee of Cofifo SAS (France) ◆ Chairman of SAS Totem MM 1, now SA MM Retraite Supplémentaire (France) ◆ Chairman of SAS Totem MM 2, now MM INNOV’ (France) ◆ Permanent Representative of Malakoff Médéric Assurances at the Board of Directors of La Banque Postale Asset Management (France)
Date of first appointment: May 15, 2003 Expiration of term: 2021
French – Age: 73 – Generali France, 2, rue Pillet-Will, 75009 Paris, France
◆ Chairman of the Institut pour l’innovation économique et sociale (2IES) (France)
◆ Chairman of the Board of Directors of Europ Assistance Italie (Italy)
◆ Permanent representative of Europ Assistance Holding on the Board of Directors of Europ Assistance (Spain)
REPORT ON CORPORATE GOVERNANCE Corporate governance principles, Shareholders’ Meetings, corporate officers, executives, employees, information required by article L. 225-37-5 of the French Commercial Code
Member of the Strategic Committee, Audit Committee, Risk Committee, Compensation and Nomination Committee and Crisis Management Committee
* Companies whose shares are listed on a regulated or organized market. ** Companies of the SCOR Group.
2020 < 1 year ◆ Member of the Compensation and Nomination Committee ◆ Member of the Corporate Social and Societal Responsibility and Environmental Sustainability Committee
At the 2019 Annual General Meeting, it will be proposed to renew the mandates of Mr. Jean-Marc Raby, Mr. Augustin de Romanet, Mrs. Kory Sorenson and Mrs. Fields Wicker-Miurin as directors of SCOR SE.
As at December 31, 2018, the skills represented on the Board of Directors were as follows: Insurance and reinsurance market
Legislative and regulatory requirements applicable to insurance and reinsurance companies Accounting
Augustin DE ROMANET (Lead independent director) X X X X X X X X X
Marguerite BERARD X X X X X X X X X
Bruno PFISTER X X X X X X X X X
Jean-Marc RABY X X X X X X - - -
As of December 31, 2018, the membership of the Board of Directors is as follows: ◆ 81.8% are independent directors (excluding the employee director) (72.7% as at December 31, 2017). The Audit Committee is fully composed of independent directors, the Risk Committee is composed of 83.3% of independent directors and the Compensation and Nomination Committee is composed of 80.0% of independent directors (excluding the employee director) such as the Corporate Social and Societal Responsibility and Environmental Sustainability Committee; ◆ 58.3% are directors with past experience in the insurance or reinsurance industry, same as at December 31, 2017. The other directors work in the financial sector, banking, legal advisory services and other services; ◆ 41.7% are non-French directors (33.3% as at December 31, 2017) with directors who are American, British, Belgian, Swiss and Chinese; and
Thierry Derez April 25, 2013 April 27, 2017 November 13, 2018 M French Resignation
The Board of Directors defines the strategic orientations of the Company’s business activities and ensures their implementation. Without prejudice to the powers expressly invested in Shareholders’ Meetings, and within the objects of the Company, the Board of Directors deals with all matters relating to the conduct of the Company’s business and decides all pertinent issues through its deliberations. It takes part in the sound and prudent management of the Company. It endeavours to promote long-term value creation by the Company by considering the social and environmental aspects of its activities. If applicable, it proposes any statutory change that it considers appropriate. It regularly reviews, in relation to the strategy it has defined, the opportunities and risks, as well as the measures taken accordingly. To this end, the Board of Directors receives all of the information needed to carry out its tasks, notably from the executive officers. It is informed each quarter by the management of the financial situation, cash position and commitments of the Company. It is informed about market developments, the competitive environment and the most important issues at hand, including in the field of corporate social and environmental responsibility. It takes into account the Own Risk and Solvency Assessment (“ORSA”) when it makes a decision likely to have a significant impact on the Company. The Board also carries out the verifications and controls it deems necessary.
The Board meets at least four times a year. In accordance with legal provisions, it approves the financial statements, proposes dividends and makes investment and financial policy decisions. The Board examines and takes decisions on major operations, possibly after review by an ad-hoc committee. Beyond the cases provided by law, some operations are subject to the prior approval of the Board: any major organic growth investments or internal restructuring operations, any significant operation falling outside of the strategy announced by the Group and any project regarding a sale or acquisition, merger or asset contribution higher than one hundred million Euros (EUR 100 million). The Board’s duties and responsibilities beyond those set forth by applicable laws and regulations are set out in SCOR SE’s bylaws.
The independence of the directors is assessed on the basis of the following criteria. Accordingly, an independent director: 1. must not currently be or have been within the last five (5) years, an employee or a corporate officer of SCOR or an employee or a director of a company consolidated by the Company. However, a director may be deemed to be independent provided that he abstains from taking part in Board decisions in the event of conflict of interest with the subsidiary concerned; 2. must not have received, in any form, compensation greater than EUR 100,000 from the Company within the last five years, excluding that received as directors’ fees; 3. must not be an executive corporate officer of a company in which the Company holds, directly or indirectly, a directorship, or in which an employee designated as such or an executive corporate officer of the Company (current or in the last five years) holds a directorship; 4. must not be a significant customer, supplier, investment or commercial banker, consultant of SCOR or its Group, or for whom SCOR or its Group represent a significant part of such person’s business activities. For the quantitative assessment, a business relationship is deemed significant if it amounts to an annual sum of more than 5% of SCOR’s consolidated revenues, or more than 5% of the turnover, consolidated as necessary, of the director or the company with which he is affiliated. For the qualitative assessment, the criteria to qualify that a business relationship is deemed significant will be notably duration and continuity, economic dependence, exclusivity. The evaluation of how significant the relationship is with SCOR or its Group must be debated by the Board in consideration of the Compensation and Nomination Committee’s report; 5. must not have a close family relationship with one of the Company’s corporate officers;
02 REPORT ON CORPORATE GOVERNANCE Corporate governance principles, Shareholders’ Meetings, corporate officers, executives, employees, information required by article L. 225-37-5 of the French Commercial Code 6. must not have been an auditor for the Company within the last five years; 7. must not have been a director of the Company for more than twelve (12) years (the loss of independent director status in this regard will occur on the date at which this period of twelve years is reached); 8. must not represent a significant shareholder of the Company with the stipulation that: — a shareholder is deemed significant if he holds more than 5% of the shares or voting rights (calculation consolidating his various holdings),
Marguerite Bérard Yes Yes Yes Yes Yes Yes Yes Yes Yes
Claude Tendil Yes Yes Yes Yes Yes Yes No Yes No
Zhen Wang Yes Yes Yes Yes Yes Yes Yes Yes Yes
They hold less than 5% of SCOR’s capital and the Board of Directors, upon the recommendation of the Compensation and Nomination Committee, stated that: ◆ Malakoff Médéric Assurances, represented by Thomas Saunier, and Jean-Marc Raby can be considered as independent; ◆ Claude Tendil cannot be considered as independent. Although Generali Group holds less than 5%, Claude Tendil has been a director of the Company for more than twelve years and for this reason cannot be deemed independent since the Shareholders’ Meeting held on April 27, 2017.
Directors may receive training, if they feel it is necessary, on the specific aspects of the Company, its lines of business, its area of activity and its challenges in terms of social and environmental responsibility. They agree to regularly attend meetings of the Board of Directors’ Committees of which they are members, and Shareholders’ Meetings. Lastly, they are obliged to express their opposition when they believe that a decision of the Board of Directors is likely to be harmful to the Company.
In accordance with the recommendations of the AFEP-MEDEF corporate governance code, the executive corporate officer should not hold more than two other directorships in listed corporations, including foreign corporations, not affiliated with the SCOR Group. Moreover, he shall also seek the opinion of the Board before accepting a new directorship in a listed company.
In the event of characterized general conflict of interest, each Director must immediately notify the Chairman of the Compensation and Nomination Committee and if the situation has not been cured within one (1) month following the notification, resign from the Board of Directors.
During its meetings in 2018, the main topics which were discussed were: ◆ financial and compliance matters: approval of the quarterly, half-year and annual financial statements, impact of the US tax reform on SCOR, approval of the half-year interim report, hybrid debt issuance, 2018 budget and operating plan, review of the 2017 Registration Document, annual review of the system of governance and of the Group Policies; ◆ risk matters: quarterly review of the risk dashboard, approval of the regulatory reports (RSR and SFCR), update on Solvency II and update on the prudential developments, review of the Group internal model results, approval of the 2018 ORSA report, annual review of the Group Policies, hearing of the actuarial key function report; ◆ governance and human resources matters: review of the Group compensation policy, and of the related recommendations of the Compensation and Nomination Committee, approval of stock option and free share allocation plans, compensation of the executive corporate officer, review of the “say on pay”, human resources briefing and outlook, assessment of the Board of Directors, annual review of the independence, fitness and properness of directors and persons effectively running the Company, employee director appointment terms, director’s fees, composition of the Board of Directors and of the specialized Committees, failure of the participants to Covéa’s unsolicited project (in particular Thierry Derez) to comply with applicable legal and governance rules; ◆ review of the corporate and social responsibility matters: annual deliberation on professional gender equality and equal pay; ◆ shareholders’ Meeting: convening of the annual Shareholders’ Meeting and approval of the related reports; ◆ strategic matters: review of and position to be taken concerning a strategic project (i.e., Covéa’s unsolicited proposed combination with SCOR); ◆ business matters: 2018 investment strategy, SCOR Global P&C development in the United States; ◆ other various topics: annual review and authorization of related party agreements, approval of the modifications made to the Board Internal Charter, planned merger of SCOR SE, SCOR Global P&C SE and SCOR Global Life SE, Brexit consequences for SCOR, approval of the Company’s statement with regard to the UK Modern Slavery Act, creation by SCOR SE of a new subsidiary in Brazil.
Fields Wicker-Miurin 100 * Director whose term ended at the Shareholders’ Meeting on April 26, 2018. ** Thierry Derez was included in the calculation until the date of his resignation, November 13, 2018, taking into account the conflicts of interests situation that preceded it.
*** Director appointed by the Shareholders’ Meeting on April 26, 2018 or director whose term of office began at the end of the Sharerholders’ Meeting on April 26, 2018.
During the 2018 financial year, the Chairman of the Board of Directors participated in numerous national and international events during which he represented the company. Thus, he spoke on the extreme events and climate risk topic, and then led a round table of experts on the same topic at the Geneva Association’s General Meeting which gathered more than 70 Chairmen and CEOs of (re)insurance companies from all over the world in June. At the Monte Carlo Rendez-vous, in September, he spoke about strengths, balances and imbalances affecting the reinsurance industry, in particular the protection gap and the regulatory developments. He also promoted the development of Blockchain technology at this annual gathering of the (re)insurance sector. In October, during SCOR’s annual conference, he shared with nearly 150 clients of the Group his vision of insurability evolution resulting from scientific progress and technological developments. He also spoke twice in London: in September he expressed himself at the annual conference organized by a major investment bank and recalled the significant development of the Group, in terms of business, financial rating, solvency, market capitalization and valuation. Then, in November he spoke at the opening of the S&P conference dedicated to the insurance sector and gave an overview of the developments that had an impact on the reinsurance sector over the past fifteen years. Moreover, the Chairman of the Board of Directors has also spoken on several occasions in the national and international media. In addition, he met with many of the Group’s clients, investors and shareholders.
Pursuant to the recommendations stated by the AFEP-MEDEF corporate governance code and in the Board Internal Charter of SCOR SE, an assessment of the Board of Directors and of its Committees was conducted at the end of 2018/beginning of 2019.
Fields Wicker-Miurin, member of the Compensation and Nomination Committee and independent director, managed this assessment by sending a questionnaire to the directors and by leading in-depth individual interviews with them. The questionnaire was about the composition of the Board, its organization, its functioning and the composition and functioning of its Committees. All the directors completed this questionnaire. Fields Wicker-Miurin presented her report during the meetings of the Compensation and Nomination Committee held on January 31, 2019, the non-executive directors’ session and the Board of Directors held on February 19, 2019.
Covéa’s unsolicited offer in August 2018 had a significant impact on how directors perceive the governance system and their own responsibilities within it. On this occasion, the directors acknowledged the strength of SCOR’s governance practices, and in particular the Internal Regulations of the Board of Directors, as well as the value of the work of the Crisis Management Committee, whose members, who met for the first time and on several occasions in 2018 on this topic, welcomed the functioning of the Committee. This event also highlighted the key role of the Lead Independent Director, the importance of the absolute requirement of confidentiality and the importance of preventing conflicts of interest of directors, these concepts being recognized by the Board members as being well defined within SCOR.
2.1.3.8. NEGATIVE DISCLOSURES ABOUT MEMBERS OF THE BOARD OF DIRECTORS AND THE EXECUTIVE COMMITTEE
To SCOR’s knowledge, with exception of the case mentioned below, there are no conflicts of interest between the duties of the directors and Executive Committee members to SCOR and their own private interests.
Pursuant to the provisions of the Internal Regulations of SCOR’s Board of Directors, Bruno Pfister mentioned to the Chairman of the Board and to the Lead Independent Director, in August 2018, the situation resulting from his mandates as Chairman of the Board of Directors of Rothschild & Co Bank AG and Chairman of the Board of Directors of Credit Suisse Asset Management (Switzerland) Ltd. He considered that his position vis-à-vis Rothschild and Credit Suisse was not such as to impair his independence of analysis, of judgement and of action in the performance of his duties on SCOR’s Board of Directors and did not put him in a conflict of interest situation. The Chairman of the Board and the Lead Independent Director of SCOR acknowledged it and agreed with Bruno Pfister to regularly review his situation in order to prevent any risk in that regard. He could therefore be in a situation to have to abstain from taking part in the Board’s discussions and any decisions of the Board of Directors of SCOR and its specialized Board Committees in relation to the legal actions announced by SCOR on January 29, 2019.
It is reminded that Thierry Derez resigned from SCOR’s Board of Directors on November 13, 2018. This resignation came in response to (i) the multiple reminders by SCOR to Thierry Derez regarding the situation of conflicts of interests that affected him and his commitment to resign from SCOR’s Board of Directors pursuant to the provisions of the latter’s Internal Charter, due to Covéa’s unsolicited proposed combination with SCOR and (ii) the opinion rendered on October 30, 2018 by the Haut Comité de Gouvernement d’Entreprise consulted by SCOR’s Lead Independent Director regarding the situation of Thierry Derez, which confirmed SCOR’s position in all respects and unequivocally.
2.1.3.10. INFORMATION ON SERVICE CONTRACTS OF MEMBERS OF THE BOARD OF DIRECTORS AND THE EXECUTIVE COMMITTEE
To SCOR’s knowledge, there are no service agreements involving the members of the Board of Directors or the Executive Committee and the Company or one of its subsidiaries providing for benefits upon termination of such agreement.
REPORT ON CORPORATE GOVERNANCE Corporate governance principles, Shareholders’ Meetings, corporate officers, executives, employees, information required by article L. 225-37-5 of the French Commercial Code 2.1.4. BOARD OF DIRECTORS’ COMMITTEES
Moreover, the non-executive directors’ session is composed of all voting directors, with the exception of the Chairman and Chief Executive Officer and the employee director.
The Strategic Committee is composed of Denis Kessler (Chairman), Marguerite Bérard, Vanessa Marquette, Bruno Pfister, Jean-Marc Raby, Augustin de Romanet, Thomas Saunier (as representative of Malakoff Médéric Assurances), Kory Sorenson, Claude Tendil, Zhen Wang and Fields Wicker-Miurin.
The average attendance rate of the Committee members was 97%. The following table states the attendance rates of the members of the Strategic Committee in 2018: Board members Attendance rate (%)
Due to the experience and positions held by its members during their career, the Committee has a high level of financial expertise (for further detail, see Section 2.1.2.1 – Information concerning the members of the Board of Directors).
The Committee mainly discussed the following matters: the quarterly review of the main exposures risks of the Group, the Group’s risk appetite, the capital shield policy and its effectiveness, Solvency II compliance the review of RSR and SFCR regulatory reports, the review of the Group Policies required by Solvency II, the internal model results of the Group, the review of the 2018 ORSA report, and the changes in prudential regulations.
The Committee reviews the compensation of the executive corporate officer and members of the Executive Committee of the Group, share allocation plans and stock option plans and examines proposals related to the composition, organization and functioning of the Board of Directors and its Committees. Its missions are described in the Board Internal Charter.
The Compensation and Nomination Committee met four times in 2018, each meeting lasting approximately two to three hours.
The Corporate Social and Societal Responsibility and Environmental Sustainability Committee is composed of Fields Wicker-Miurin (Chairman), Vincent Foucart (employee director), Vanessa Marquette, Bruno Pfister, Augustin de Romanet and Claude Tendil.
Claude Tendil 100 * Member of the Corporate Social and Societal Responsibility and Environmental Sustainability Committee until April 26, 2018. ** During its meeting held on October 23, 2018, after having examined the unanimous opinion of the Compensation and Nomination Committee and noted that the situation of Thierry Derez disturbed the proper functioning of SCOR’s governing bodies of which he was a member, the Board of Directors unanimously decided that Thierry Derez was no longer, with immediate effect, a member of the Strategic Committee, the Risk Committee, the Compensation and Nomination Committee and the Corporate Social Responsibility Committee. Thierry Derez was included in the calculation of the attendance to the meetings of the Committees until October 23, 2018, taking into account the situation of conflicts of interests which preceded it.
*** Member of the Corporate Social and Societal Responsibility and Environmental Sustainability Committee from April 26, 2018.
Its mission is to assist and advise the Board of Directors and propose to the Board any necessary measures and decisions in the event of a crisis affecting the Company, the Group or one of its members, as well as following up on such measures and decisions.
The Crisis Management Committee meeting met three times in 2018, each meeting lasting approximately two hours.
The non-executive directors’ session involves all the directors, with the exception of the employee director and the executive corporate officer of the Company.
This session met three times in 2018, under the chairmanship of the Lead Independent Director. On this occasion, non-executive directors discussed of possible follow-up actions to the annual evaluation of the Board as well as to Covéa’s unsolicited proposed combination with SCOR and the situation of conflicts of interests affecting Thierry Derez pursuant to the Board of Directors’ Internal Charter. The session was also informed of the deliberations of the Compensation and Nomination Committee regarding the performance of the executive corporate officer.
Denis Kessler joined the Group on November 4, 2002, with the objective of turning the Company around in the face of a very difficult financial situation. The Board of Directors considered that, in order to achieve this, it was preferable to entrust him with the powers of Chairman of the Board of Directors and of Chief Executive Officer. When his term was renewed in May 2011, the Board of Directors considered that Denis Kessler had demonstrated the benefit of combining the offices of Chairman of the Board of Directors and Chief Executive Officer during the turnaround period experienced by SCOR between 2003 and 2007, and then during the economic crisis between 2007 and 2011. The Board of Directors thus felt it was in the best interests of SCOR, its shareholders and all its employees, for Denis Kessler to be re-appointed as Chairman and Chief Executive Officer and to continue the development of the Group. By combining the roles of Chairman and Chief Executive Officer, the Company benefits from a faster decision-making process and strategic alignment in terms of its governance bodies. Since 2011, SCOR’s results have demonstrated the success of this form of governance. On April 27, 2017, the Shareholders’ Meeting renewed Denis Kessler’s director term for a four-year duration and the Board of Directors held on April 27, 2017 re-appointed him as the Chairman and Chief Executive Officer.
The Chairman and Chief Executive Officer has executive authority to manage SCOR’s business, subject to the prior authorization of the Board of Directors or the Shareholders’ Meeting for certain decisions as required by law and by the Company’s bylaws, and subject to compliance with the French Insurance Code according to which SCOR must be effectively run by at least two persons. The Chairman and Chief Executive Officer has the authority to act on behalf of and in the name of SCOR and to represent SCOR in dealings with third parties, subject only to those powers expressly reserved by law to the Board of Directors or the shareholders. The Chairman and Chief Executive Officer determines, and is responsible for, the implementation of SCOR’s goals, strategies and budgets, which are reviewed and monitored by the Board of Directors.
02 REPORT ON CORPORATE GOVERNANCE Corporate governance principles, Shareholders’ Meetings, corporate officers, executives, employees, information required by article L. 225-37-5 of the French Commercial Code 2.1.5.2. POWERS OF THE CORPORATE OFFICERS
Furthermore, according to the Board’s Internal Charter, the directors may ask that the Company’s principal executives attend meetings of the Board of Directors in order to hear them, if necessary, on topics related to the performance of their functions in the absence of the Chairman and Chief Executive Officer.
Lastly, as per the French Insurance Code and to requirements of the Solvency 2 directive, four key functions holders (compliance, risk management, actuarial, internal audit) have been appointed for SCOR SE and the Group. They are heard at least annually by the Board or one of its Committees, and may raise any issues directly to the Board.
Paolo De Martin, an Italian citizen, graduated from Ca’ Foscari University, Italy, with a degree in Business Economics. He subsequently spent two years in the optical business as founder and managing partner of an eyewear manufacturer. He joined General Electric Company (GE) in 1995 as a finance trainee in London. In 1997, he joined GE’s internal auditing & consulting Group, charged with assignments in multiple GE businesses in the Americas, Europe and the Asia-Pacific region. In 2001, Paolo De Martin was promoted to Executive Manager for GE Capital Europe, before joining GE Insurance Solutions as Financial Planning and Analysis Manager for Global Property and Casualty Reinsurance. In 2003, he was appointed Chief Financial Officer of GE Frankona Group before becoming Chief Financial Officer of Converium Holding AG in July 2006. In September 2007, Paolo De Martin was appointed Group Chief Financial Officer of SCOR. In January 2014, Paolo De Martin was appointed Chief Executive Officer of SCOR Global Life.
Mark Kociancic, a dual citizen of Canada and the USA, is a graduate of the University of Toronto and holds a Bachelor of Commerce degree. He also holds a Chartered Professional Accountant (CPA) designation and a Chartered Financial Analyst (CFA) designation. Upon graduation in 1992, Mark joined Ernst & Young within its Life and P&C insurance practice and has subsequently held successively senior positions within the insurance industry with St Paul Guarantee, Avalon Risk Associates and Tokio Marine, prior to joining SCOR US as Senior Vice-President and Chief Financial Officer in May 2006. He was appointed SCOR Americas Hub Chief Financial Officer in June 2008 and was promoted to Executive Vice-President in July 2010. He was appointed Deputy Chief Financial Officer of SCOR Group in October 2012 before being appointed Group Chief Financial Officer of SCOR SE and joining the SCOR Group Executive Committee on May 15, 2013.
Laurent Rousseau, a French citizen, is a graduate of HEC (École des Hautes Études Commerciales). He started his career in 2001 as an equity analyst at Credit Suisse First Boston in London, covering European insurers and reinsurers. In 2005, he joined J.P. Morgan in the insurance Investment Banking team, executing M&A, capital raising and restructuring transactions for European insurers and reinsurers. He joined SCOR in 2010 as Advisor to the CEO, and became Head of SCOR Global P&C’s Strategy and Business Development in 2012. In July 2015, Laurent became Chief Underwriting Officer of SCOR Global P&C’s treaty business in Europe, Middle East & Africa. In April 2018, he was appointed Deputy Chief Executive Officer of SCOR Global P&C, member of the Group’s Executive Committee and since September 2018, CEO for Specialty Insurance (SCOR Business Solutions, the Channel Managing Agency and MGAs).
François de Varenne, a French citizen, is a graduate of the École Polytechnique and a civil engineer of the Ponts et Chaussées. He holds a PhD in finance and graduated as an actuary from the Institut de Science Financière et d’Assurances (ISFA). François de Varenne joined the Fédération Française des Sociétés d’Assurances (FFSA) in 1993 as Manager of Economic and Financial Affairs. In London, beginning in 1998, he served successively as Insurance Strategist with Lehman Brothers, Vice-President for asset management solutions and structured transactions specialist in insurance and reinsurance companies at Merrill Lynch and then at Deutsche Bank. In 2003, he became Managing Partner of Gimar Finance & Cie. He joined the Group in 2005 as Director of Corporate Finance and Asset Management. On September 3, 2007, he was named Group Chief Operating Officer. On October 29, 2008, he was appointed Chief Executive Officer of SCOR Global Investments.
The total number of employees of the Group (including Essor) increased from 2,801 as at December 31, 2017 to 2,887 as at December 31, 2018. The distribution of personnel covers the various geographical areas to meet the strategic principles of the Group.
The following table sets forth the distribution of employees at the dates indicated: Distribution by Hub(1)
Switzerland, Israel and Germany. (3) The Americas Hub covers employees in the United States, Mexico, Brazil, Canada, Chile, Colombia and Argentina. (4) The Asia-Pacific Hub covers employees in China, Hong Kong, India, Japan, South Korea, Malaysia, Singapore, Taiwan and Australia. (5) From 2018, Essor (76 employees at December 31, 2018) is a subsidiary of SCOR Global P&C SE, managed independently from the Group in terms of human resources and therefore not aggregated in the Group figures.
(6) During the period covered, the Lloyd's Channel Syndicate (132 employees at December 31, 2018) is a subsidiary of SCOR Global P&C SE, managed independently from the Group in terms of human resources and therefore not aggregated in the Group figures. (7) During the period covered, Remark (150 employees at December 31, 2018), Réhalto (28 employees at December 31, 2018) and Telemed (38 employees at December 31, 2018), wholly-owned subsidiaries of SCOR Global Life SE are managed independently from the Group in terms of human resources and therefore not aggregated in the Group figures.
(8) The “Group Functions and Support” division includes the departments reporting to the CFO, CRO and COO of the Group as well as the departments directly managed by the Chairman and Chief Executive Officer. SCOR SE controls 59.9% of the capital of MRM (5 employees at December 31, 2018), Château Mondot SAS (22 employees at December 31, 2018) and Les Belles Perdrix de Troplong Mondot EURL (9 employees at December 31, 2018). Due to their specific activities, their business models and their organizations,they are managed independently from the Group in terms of human resources and therefore not aggregated in the Group figures.
By the end of 2018, women held about 18% of the 10% of positions with the highest responsibilities (based on the highest levels of the Partners program). The policy to build a more mixed talent pool as well as the related 2018 achievements, are described in Section 2.1.2 of Appendix D – Non financial performance declaration.
2.1.8. INFORMATION REQUIRED BY ARTICLE L. 225-37-5 OF THE FRENCH COMMERCIAL CODE
The information referred to in Article L. 225-37-5 of the French Commercial Code is made public in the Report on corporate governance which is included in this Registration Document (refer to Section 2).
REPORT ON CORPORATE GOVERNANCE Executive compensation and share ownership 02 2.2. EXECUTIVE COMPENSATION AND SHARE OWNERSHIP
2.2.1.1. PRINCIPLES AND RULES STATED FOR THE DETERMINATION OF COMPENSATION AND IN-KIND BENEFITS ATTRIBUTABLE TO MR. DENIS KESSLER AS CHAIRMAN AND CHIEF EXECUTIVE OFFICER FOR THE 2018 REPORTING PERIOD
In accordance with Article L. 225-100-II of the French Commercial Code, at the 2019 Shareholders’ Meeting, the shareholders will vote on the aforementioned compensation items (fixed, variable and exceptional elements) paid or awarded to Mr. Denis Kessler in respect of the financial year ended December 31, 2018.
The benchmark study conducted by Mercer in 2018 on behalf of the Compensation and Nomination Committee concludes that the compensation package of the Chairman and Chief Executive Officer (all compensation items included) is aligned with market practice. More specifically, the Chairman and Chief Executive Officer’s 2017 total compensation was equal to 104% of the median (among a list of peers including the main global reinsurers selected by premium income and for which information on the pay of top management is available, i.e. Alleghany, Arch Capital Group, Axis Capital Holdings Limited, Everest Re, Great West Life Co, Hannover Re, Munich Re, Reinsurance Group of America, Swiss Re, Validus Holdings and XL Group).
EUR 1,200,000 Following the recommendation of the Compensation and Nomination Committee on its meeting of February 20, 2018, the Board of Directors on February 21, 2018 decided that the Chairman and Chief Executive Officer would receive a fixed gross annual compensation of EUR 1,200,000, payable in 12 monthly instalments. The fixed compensation of the Chairman and Chief Executive Officer has not changed since January 1, 2008.
For 2018, the variable compensation of the Chairman and Chief Executive Officer has been determined according to the following objectives: ◆ 50% based on the achievement of a financial objective: ROE level achieved by SCOR, with a target of 800 bps above the five-year risk-free-rate (“Vision In Action” target); ◆ 50% based on the achievement of personal objectives: maintaining a solvency ratio equal or higher than the lower limit of the optimal range defined in the strategic plan, achievement of the strategic plan “Vision in Action”, preparation of the Group to the Brexit, adaptation of the Group to the new fiscal, competitive and regulatory context, preparation of the merger of SCOR SE, SCOR Global Life SE and SCOR Global P&C SE, ensure a high level of protection for the Group against cyber risk, develop a cyber risk coverage offer, implement the Group Climate Policy, brodening and deepening of the Group’s talent pool, including the development of SCOR’s employer brand, conduct a policy of active career and skill management.
The Board of Directors determined, on the proposal of the Compensation and Nomination Committee a percentage of achievement for the objectives of 98.7%. The objectives, their respective assessment and achievement rate are detailed in a table below. In addition, the Board of Directors, on the proposal of the Compensation and Nomination Committee, decided not to attribute to the Chairman and Chief Executive Officer any Exceptional Contribution Bonus (ECB). This variable annual compensation shall be paid in one instalment.
Proportion of the options that can be exercised via this criterion
In any case, if the average ROE is lower than 5%, the portion of options that could be exercised based on this criterion would be at 0%. The other half of options will be exercisable from March 9, 2022, provided: (1) that the conditions set out in the enclosed Plan of March 8, 2018 are fulfilled and in particular that he remains a corporate officer of SCOR Group until March 8, 2022 inclusive, except as otherwise stated by the Plan; (2) that the Group’s ethical principles as described in its Code of Conduct are respected; therefore, in case of actual misconduct as per the Code of Conduct, for instance in the event of fraud, the beneficiary will lose all of his/her stock options benefits (clawback policy); (3) that the training obligation in terms of corporate social responsibility (CSR) is met; (4) that the average solvency ratio over three years (from January 1, 2018 to December 31, 2020) is at least equal to the average of the SCOR Solvency strategic target over the period (the «Target Solvency Ratio»).
Aside from the mandatory conditions (1), (2) and (3), if the observed average solvency ratio (condition (4)) is lower than the “Target Solvency Ratio”(1), the options will be exercisable according to the sliding scale set out in the table below: Difference between the average solvency ratio and the “Target Solvency Ratio”(1)
Proportion of the options that can be exercised in line with this criterion higher than or equal to 0 percentage point 100%
(1) If the strategic plan sets a target or «optimal» range, the lower end of this range is considered for calculation purposes as being the Target Solvency Ratio.
Directors’ fees EUR 70,000 In 2018, the Chairman and Chief Executive Officer received directors’ fees in a fixed amount of EUR 28,000 and a variable amount equal to EUR 3,000 per Board meeting and Committee meeting in which he participated. In 2018, he attended seven Board meetings (a single amount of EUR 3,000 was paid for the two Board meetings held on April 26, 2018), five Strategic Committee meetings and three Crisis Management Committee meetings, leading to a variable amount of EUR 42,000.
As the Company representative, the Chairman and Chief Executive Officer is granted a Company car with a shared driver. The insurance, maintenance, fuel and all costs related to the driver are paid by the Company. The Chairman and Chief Executive Officer benefits also from a health insurance policy under the terms of a contract dated September 16, 1988.
Moreover, in accordance with the decision taken by the Board of Directors on March 21, 2006, repeated on December 12, 2008, May 4, 2011 and July 30, 2014, the Chairman and Chief Executive Officer benefits from specific life insurance in an amount equivalent to three years of fixed and variable compensation; this insurance policy is taken out by the Company. To this end, an individual insurance policy has been underwritten to complement the “all causes” death or permanent disability insurance policy for senior executives, dated June 30, 1993, as renewed or renegotiated annually, and for which the latest version is compliant with the collective compulsory welfare plan, specific to SCOR, which benefits to an objective category of employees who have an annual gross base compensation equal to or exceeding three times the social security ceiling. It is specified that these individual and collective “all causes” death insurance policies are renewed or renegotiated on an annual basis so that the Chairman and Chief Executive Officer will benefit from any policies that may replace the existing ones. Moreover, the Chairman and Chief Executive Officer benefits from a death or permanent disability insurance in case of an accident, also underwritten for the senior executives of the Company, on January 1, 2006. It is specified that this collective insurance is renewed or renegotiated on an annual basis so that the Chairman and Chief Executive Officer will benefit from any policies that may replace the existing one.
The Ordinary and Extraordinary Shareholders’ Meeting of April 26, 2018, in its 5th resolution, approved, in accordance with the provisions of Article L. 225-42-1 of the French Commercial Code, the commitments made by the Board of Directors for the benefit of the Chairman and Chief Executive Officer.
The Ordinary and Extraordinary Shareholders’ Meeting of April 26, 2018, in its 4th resolution, approved, in accordance with the provisions of Article L. 225-42-1 of the French Commercial Code, the following commitments made by the Board of Directors in favor of the Chairman and Chief Executive Officer: Like all the Group’s senior executives based in France and employed by the Group as at June 30, 2008, the Chairman and Chief Executive Officer is entitled to a guaranteed pension plan of 50% of his reference revenue, less any pension benefits acquired under other collective and mandatory pension schemes. Moreover, this amount may under no circumstances exceed 45% of the benchmark compensation, pursuant to the AFEP-MEDEF corporate governance code. It should be noted that, given his seniority within the Company, the Chairman and Chief Executive Officer reached the ceiling of 45% set by the plan. In this context, the legal provision which limits the annual increase in potential rights to 3% of the compensation of the beneficiary has no practical implications in his case. This guarantee is calculated according to a reference revenue based on his average compensation received over the last five years within the Group considered as “traitements et salaires” under French tax laws. The Chairman and Chief Executive Officer is entitled to this supplementary pension plan, subject to still being in the Company as a corporate officer or an employee of the Company when the benefits are granted.
The commitments made by SCOR concerning the defined benefit supplementary pension scheme of its Chairman and Chief Executive Officer represent, as at December 31, 2018, an estimated annual gross pension amount of EUR 1,142,573, based on seniority as at December 31, 2018. This amount represents 44.7% of the Chairman and CEO’s reference compensation, which corresponds to the average of the compensation over the five last years, including the base salary and the variable salary. No retirement benefit (or commitment) has been paid to the Chairman and Chief Executive Officer in 2018.
Achieving profitability in line with the objective defined in the strategic plan
The 2018 ROE is 5.45%. The 2018 target ROE is equal to 800 bps above the 5-year risk-free rate, i.e. 8.73%. Thus, the 2018 ROE/2018 target ROE amounts to 62.4%.
The Group’s results are in line with the objectives of the “Vision in Action” plan: ◆ P&C: gross premium growth: +6.7% at constant exchange rates/ normalized net combined ratio: 94.7%; ◆ Life: premium growth: +7.3% at constant exchange rates / technical margin: 7.0%, ◆ Investment: return on invested assests of 2.8%.
The project to adapt to the consequences of the US tax reform has limited the total impact on SCOR to EUR 68 million, compared to a maximum impact of USD 350 million communicated to the market in early 2018. The merger of SCOR SE, SCOR Global Life SE and SCOR Global P&C SE was decided by their respective Boards of Directors in February 2019, in accordance with the timetable initially set. The solvency capital benefits of this merger are expected to be in the order of EUR 200 million. The Board of Directors notes that the various strategic objectives have been achieved or significantly exceeded.
On the basis of the Climate Policy defined last year, the Chairman and Chief Executive Offiicer continued the Group’s actions in the fight against climate change. Many systems have been successfully deployed such as: ◆ 25% reduction in carbon intensity by the end of 2018 (baseline: 2014), compared to a 15% reduction target by 2020; ◆ multiplication by 2.5 of the carbon emissions offset by the acquisition of certified credits; ◆ extension of the coal disinvestment policy to the 120 largest developers (Global Coal Exit List); ◆ implementation of a sectoral coal exclusion policy for P&C underwriting; ◆ implementation of a sectoral exclusion policy related to tobacco, both in terms of investments and P&C underwriting, in line with the Group’s support for Tobacco-Free Finance Pledge; ◆ adherence to the PSI/WWF/Unesco Declaration on the Protection of the World Heritage of Humanity and implementation of associated policies for both investment and P&C underwriting.
Broadening and deepening of the Group’s talent pool, including the development of SCOR’s employer brand Conduct a policy of active career and skill management
Valuation of options as per method used in the consolidated financial statements (in EUR)
Performance shares granted to the executive corporate officer by the issuer or by another company of the Group
Denis Kessler 125,000 March 4, 2014 Presence condition until March 4, 2016 and performance conditions
Each of the performance conditions related to the plan dated March 4, 2014 set out below was fully met, bringing the share acquisition rate to 100%. In addition to the performance conditions described below (three out of four needing to be satisfied), the strict compliance with the Group’s ethical principles as described in the Code of Conduct of SCOR Group was met.
SCOR Global P&C’s net combined ratio < 100% on average in 2014 and 2015 91.25% Yes
SCOR Group’s ROE > 1,000 points above the risk-free rate on average in 2014 and 2015 1,014.5 bps Yes
The Chairman and Chief Executive Officer did not acquire any performance share in 2018.
No pension contribution (or commitment) has been paid to the directors, except for the Chairman and Chief Executive Officer.
(3) Director whose term of office ended at the Shareholders’ Meeting on April 26, 2018. (4) Thierry Derez has been a director of SCOR SE until November 13, 2018.
Moreover, some of the directors in place are, or have been, members of the Boards of Directors of subsidiaries of the Group and they have received directors’ fees for 2018 and/or 2017 as follows: SCOR UK Company Ltd
Set out below is the compensation policy regarding the Chairman and Chief Executive Officer of SCOR SE for the 2019 reporting period, submitted for approval to the shareholders in accordance with the provisions of Article L. 225-37-2 of the French Commercial Code.
Pursuant to the July 3, 2008 Act implementing the European Union Directive 2006/46/EC of June 14, 2006, SCOR shall refer to the AFEP-MEDEF Corporate Governance Code in preparing the report to be issued in accordance with Article L. 225-37 of the French Commercial Code.
In compliance with the AFEP and MEDEF recommendation applicable to the Chairman and Chief Executive Officer, there is no employment contract between Denis Kessler and the Company.
Each element composing the compensation and benefits is analyzed individually and then collectively, in order to reach the appropriate balance between fixed and variable, individual and collective, short- and long-term components, including the post-employment benefit resulting from the supplementary pension scheme.
Consequently, market studies are regularly conducted by an external company for the Compensation and Nomination Committee, in order to put into perspective the amount and structure of the Chairman and Chief Executive Officer’s compensation compared to a panel of peers made up of the main global reinsurers selected by premium income and for which information on the pay of top management is available
The fixed compensation of the Chairman and Chief Executive Officer, payable in 12 monthly installments, is determined on the basis of: ◆ the level and complexity of his responsibilities; ◆ his career path, professional experience and expertise; ◆ market analyses with regard to comparable functions (external competitiveness); ◆ consistency with regard to other Group functions (internal equality).
For the financial year 2019, the Board of Directors decided at its February 19, 2019 meeting that the fixed compensation would remain unchanged at EUR 1,200,000.
This variable annual compensation is determined as follows: ◆ 50% on the basis of the achievement of financial objectives, defined at the beginning of each year by the Board of Directors on the recommendation of the Compensation and Nomination Committee; and
The target variable annual compensation represents 100% of the fixed compensation.
Moreover, the Group policy states that, for participation in and strong contribution to the success of specific strategic projects, an additional and exceptional bonus (“Exceptional Contribution Bonus” – ECB) may be granted; the ECB can reach a maximum of 25% of the target variable annual compensation of the Chairman and Chief Executive Officer.
Moreover, the Board of Directors may also decide to award an amount designed to compensate the new executive corporate officer for the loss of the variable annual compensation linked to his/her departure from his/her previous employer, bearing in mind that the payment of such compensation may only take place with the approval of shareholders, in accordance with Article L. 225-37-2 of the French Commercial Code.
The Board of Directors considers that long-term variable compensation, which is a significant component of the remuneration of all Group Partners (around 25% of the workforce), is particularly well suited to the function of Chairman and Chief Executive Officer, given the expected level of his direct contribution to the long-term, overall performance of the Company. This compensation policy favors stock options and performance shares over variable cash compensation, thereby promoting a strong alignment of the interests of beneficiaries with those of shareholders, both during the performance measurement period and beyond, through holding those shares.
The performance shares require a vesting period of three years after the grant date and are subject to performance conditions over three calendar years, i.e. 2019, 2020 and 2021 for the plans granted in 2019.
For 50% of the allocation: ◆ Achievement over the period used to measure the performance conditions (three years), of a level of average return on equity (“ROE”) equal to the average of SCOR’s strategic target ROE for the period (the “Target ROE”).
◆ If the observed average ROE is lower or higher than the Target ROE, the shares will be acquired/the stock options may be exercised based on the sliding scale set out in the table below: Ratio between the observed average ROE and the Target ROE Proportion of the shares definitively acquired / options that could be exercised via this criterion
◆ If the observed average solvency ratio is lower than the “Target Solvency Ratio”*, the shares will be acquired/the stock options may be exercised according to the sliding scale set out in the table below: Difference between the average solvency ratio and the Target Solvency Ratio*
Between 0 and up to -35 percentage points Linear sliding scale
In addition, notwithstanding the total or partial achievement of the two conditions described above, the definitive acquisition of shares and the right to exercise the stock-options would be subject, in any event, to strict compliance by all the beneficiaries with the Group’s ethical principles as set out in the Group’s code of conduct (the “Group Code of Conduct”). The Group Code of Conduct covers mandatory aspects of corporate responsibility, including: integrity, data protection and privacy protection, combating corruption, strict compliance with sanctions and embargos, prevention of money laundering, transparency, promoting equal opportunities in all areas of employment, encouraging the notification of ethical issues via an alerts procedure, together with the promotion of and respect for the principles of the United Nations Global Compact. In the event of a breach of the Code of Conduct, for instance in the event of fraud, no shares will be definitively acquired and no stock options could be exercised (clawback policy).
Other than in specific cases(1), the definitive acquisition of performance shares and the right to exercise stock options by the Chairman and Chief Executive Officer are subject to a presence condition until the end of the acquisition period.
The Board of Directors has decided not to use this type of longterm compensation system with a cash payment, preferring to focus instead on share-based instruments that strengthen the alignment of interests with shareholders.
The performance condition (C_n), approved by the Board of Directors, upon the recommendation of the Compensation and Nomination Committee, will be met if both criteria below are fulfilled: (A) SCOR’s average return on equity «ROE» for the three financial years preceding the date of departure of the Chief Executive Officer exceeds 50% of the average of the strategic objective of ROE (defined in the strategic plan) of SCOR calculated on the same period (the «Target ROE»); (B) the average solvency ratio of SCOR for the three financial years preceding the date of departure of the Chief Executive Officer exceeds the average of the strategic solvency ratio target (defined in the strategic plan) of SCOR calculated over the same period (the «Target Solvency Ratio»); it being specified that in the event that the strategic plan sets a target or «optimal» range, the lower end of this range is considered for calculation purposes as being the Target Solvency Ratio.
The Board of Directors has decided that, in the event of the nomination of a new CEO, the conditions of his/her severance pay will not be more favorable than those currently in force.
Like all the Group’s senior executives based in France and employed by the Group as at June 30, 2008, the Chairman and Chief Executive Officer is entitled to a guaranteed pension plan of 50% of his benchmark compensation, less any pension benefits acquired under other collective and mandatory pension schemes. Moreover, this amount may under no circumstances exceed 45% of the benchmark compensation, pursuant to the AFEP-MEDEF Corporate Governance Code. It should be noted that, given his seniority within the Company, the Chairman and Chief Executive Officer has reached the ceiling of 45% set by the plan. In this context, the legal provision which limits the annual increase in potential rights to 3% of the compensation of the beneficiary has no practical implications in his case.
Moreover, in accordance with the decision taken by the Board of Directors on March 21, 2006, repeated on December 12, 2008, May 4, 2011 and July 30, 2014, the Chairman and Chief Executive Officer benefits from specific life insurance in an amount equivalent to three years of fixed and variable compensation; this insurance policy is taken out by the Company.
In the event of the appointment of one or more Deputy Chief Executive Officers (Directeurs Généraux Délégués), the remuneration components, principles and criteria set out in the Compensation Policy and the benefits granted to the Chairman and Chief Executive Officer would also apply to them. It would be the responsibility of the Board of Directors, on the recommendation of the Compensation and Nomination Committee, to adapt the objectives, performance levels, parameters and structure, bearing in mind that the target amounts expressed as percentages of the fixed compensation may not be higher than those of the Chairman and Chief Executive Officer.
In the event of the appointment of a Non-Executive Chairman, the remuneration principles set out in the Remuneration and Benefits Policy granted to the Chairman and Chief Executive Officer would be used as a reference. It would be the responsibility of the Board of Directors, on the recommendation of the Compensation and Nomination Committee, to adapt the structure to align it with market practices and the recommendations of the AFEP-MEDEF Code (Article 24.2). It is mentioned in particular that the Non-Executive Chairman may not be awarded variable compensation, performance shares or stock options.
The Compensation and Nomination Committee is informed about the compensation policy of the members of the Executive Committee and proposes to the Board of Directors the conditions, the amount and the allocation of the stock-options programs and of the performance shares grant programs of the members of the Executive Committee. Regarding the variable portion of the compensation, it depends, on one hand, on the achievement of the Group’s earnings objective, which is based on return on equity (or ROE), and the other hand on the achievement of individual objectives.
Each member of the Executive Committee benefits from the use of a vehicle (or equivalent car allowance) for business purposes.
02 REPORT ON CORPORATE GOVERNANCE Executive compensation and share ownership 2.2.2.2. COMPENSATION OF THE EXECUTIVE COMMITTEE MEMBERS (OTHER THAN THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER) FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2018
The following table presents the aggregate gross compensation in respect of financial years 2018, 2017 and 2016 due and paid to the members of the Executive Committee (including and excluding the executive corporate officer): In EUR Amount due Amount paid Amount due Amount paid Amount due Amount paid
(1) Compared to 2017, the compensation of Executive Committee members includes Laurent Rousseau et Brona Magee in 2018. Benjamin Gentsch and Simon Pearson left the Executive Committee in 2018.
REPORT ON CORPORATE GOVERNANCE Executive compensation and share ownership 02 2.2.3. STOCK OPTIONS AND PERFORMANCE SHARES
2.2.3.1. STOCK OPTIONS HELD BY THE EXECUTIVE CORPORATE OFFICER AND THE MEMBERS OF THE EXECUTIVE COMMITTEE AS AT DECEMBER 31, 2018
The annual reports published by the company on previous years show the information related to the plans for which the exercise period ended before 2018.
02 REPORT ON CORPORATE GOVERNANCE Executive compensation and share ownership 2.2.3.2. FREE ALLOCATION OF SHARES TO THE MEMBERS OF THE EXECUTIVE COMMITTEE AND THE EXECUTIVE CORPORATE OFFICER AS AT DECEMBER 31, 2018
Frieder Knüpling 2011-2019 Long Term Incentive Plan 40,000 - - 09/02/2019
(1) Shares allocated in non-qualified plans. (2) Shares allocated in a collective plan.
The annual reports published by the company on previous years show the information related to the plans covering shares delivered before 2018.
If, nonetheless, free shares were taken into account in the calculation of the potential volume of new shares from outstanding share-based compensation, this theoretical volume (which corresponds to outstanding shares or new shares to be issued) would stand at 14,265,171 on December 31, 2018, due to the addition of (i) outstanding free share allocation plans (shares allocated but not vested on December 31, 2018, i.e. 5,917,627 shares) and, (ii) the unused part of the authorization granted by the Shareholders’ Meeting of April 26, 2018 in its 24th resolution concerning the free allocation of outstanding shares (2,578,889 shares).
◆ of which number of potential new shares from outstanding free shares(1) 0
(1) The free share allocation plans currently in force only allocate outstanding shares. (2) 19,198,044 shares underlying the warrants issued on December 16, 2016 under the contingent capital facility with an exercise period starting on
If, despite the absence of the dilutive effect mentioned above, free shares were taken into account in the calculation of the potential volume of new shares from outstanding share-based compensation plans, the fully diluted share capital would stand at 225,240,345 on December 31, 2018.
See Section 4.6 – Notes to the consolidated financial statements, Note 14 – Employee benefits and other provisions and Appendix C – 5 – Notes to the corporate financial statements, Section 5.3.6 – Employee share ownership plans.
On April 26, 2018, the Shareholders’ Meeting authorized the Company’s Board of Directors, in its 23rd resolution, under the provisions of Articles L. 225-177 to L. 225-186-1 of the Commercial Code, upon proposal of the Compensation and Nomination Committee, on one or more occasions, to grant employees of the Company and related companies or groups in terms of Article L. 225-180 of the Commercial Code, as well as the executive corporate officer, options giving the right to the subscription of new shares of the Company to be issued to increase the capital, as well as options giving the right to purchase shares of the Company repurchased by the Company as authorized by the law and within the limits of a number of options giving right to a maximum of one million five hundred thousand (1,500,000) shares. This authorization was given for a period of 24 months from April 26, 2018 and cancelled and replaced, for the unused portion thereof, the previous authorization of April 27, 2017.
Following the authorization by the combined Shareholders’ Meeting on April 27, 2017 and on the proposal of the Compensation and Nomination Committee meeting of February 20, 2018, the Board of Directors’ meeting of February 21, 2018, decided to allocate, on March 8, 2018, stock options to the Chairman and Chief Executive Officer and to the other members of the Executive Committee.
The exercise of all of the stock options allocated in 2018 is subject to performance conditions.
Aside from the mandatory conditions (1), if the observed average ROE (condition (2)) is lower or higher than the Target ROE, the options will vest in accordance with the sliding scale set out in the table below: Ratio between the observed average ROE and the Target ROE Proportion of the options that can be exercised via this criterion
All the options awarded are subject to the satisfaction of performance conditions (for the description of performance conditions, refer to the sectin related to March 8, 2018 stock option plan.
The table below presents the total number of stock options allocated in 2017 and 2018 by category of beneficiary within the Group: Total number of stock options allocated in 2018
A table showing features of the SCOR stock option plans can be found in Section 4.6 – Notes to the consolidated financial statements, Note 16.2 – Stock options and share allocations.
No options have been granted by a related company as defined by Article L. 225-180 of the French Commercial Code.
The exercise of stock options allocated since 2008 is subject, as applicable, to the satisfaction of performance conditions. Thus, a third of the number of options awarded under the May 22, 2008 plan, half of the options awarded under the March 23, 2009 plan and all the options awarded since the March 18, 2010 plan are subject to the satisfaction of performance conditions. However, all the options allocated since the March 23, 2009 plan to the Chairman and Chief Executive Officer are subject to the satisfaction of performance conditions.
Number of shares underlying stock ptions granted/stock options subscribed or purchased
Number of shares underlying the stock options granted during the financial year by the issuer and by any company included in the scope of allocation of the options to the ten employees of the issuer and of any company included in such scope, whose number of shares thus purchased or granted is the highest (aggregate information) 329,804 35.96
For additional information on the stock options plans currently in force within the Group see Appendix C – 5. Notes to the corporate financial statements, Section 5.3.5 – Stock options.
On April 27, 2017, the Shareholders’ Meeting of the Company, in its 22nd resolution, authorized the Company’s Board of Directors, under the provisions of Articles L. 225-197-1 to L. 225-197-6 of the French Commercial Code, to grant, upon a proposal of the Compensation and Nomination Committee, on one or more occasions, in favor of employees of the Company and of companies or groups affiliated with it pursuant to Article L. 225-197-2 of the French Commercial Code, as well as in favor of the corporate officers as defined under Article L. 225-197-1-II of the French Commercial Code, free allocations of existing or yet-to-be-issued shares of the Company and resolved that the Company’s Board of Directors would determine the identity of the beneficiaries of the allocation as well as the rights and conditions attached to the conditional entitlement to receive the shares.
This authorization was given for a period of 24 months from the day of shareholder’s meeting, i.e. until April 26, 2019.
The Ordinary and Extraordinary Shareholders’ Meeting also decided that (i) the total number of free shares granted under the conditions and, if applicable, subject to the fulfillment of the performance conditions set by the Board of Directors further to a proposal from the Compensation and Nomination Committee, pursuant to this authorization may not exceed 3,000,000 shares, (ii) the allocation of shares to their beneficiaries will be definitive only after a vesting period of a minimum set at three years.
Following the authorization given by the Extraordinary Shareholders’ Meeting on April 27, 2016, the Company’s Board of Directors’ meeting of February 21, 2018, on the proposal of the Compensation and Nomination Committee meeting of February 20, 2018, decided to grant performance shares to the Chairman and Chief Executive Officer and to the French tax resident members of the Executive Committee.
The Company’s Board of Directors’ meeting of February 21, 2018, on the proposal of the Compensation and Nomination Committee meeting of February 20, 2018, decided to allocate 125,000 performance shares to the Chairman and Chief Executive Officer and 150,000 performance shares to the French tax resident members of the Executive Committee.
All the shares awarded to the Chairman and Chief Executive and to the Executive Committee members, are subject to the satisfaction of the conditions set out in the Plan of February 21, 2018 and in particular that the beneficiary remains an employee or a corporate officer of the SCOR Group until February 21, 2021 inclusive, except as otherwise stated by the Plan.
The final vesting of half of the shares is subject to the fact that the average SCOR ROE over three years (from January 1, 2018 to December 31, 2020) is equal to the average SCOR ROE strategic target (the “Target ROE”) over the same period. If the observed average ROE is lower or higher than the Target ROE, the shares will vest according to the sliding scale set out in the table below: Ratio between the observed average ROE and the Target ROE Proportion of the shares finally vested in line with this criterion
Following the Company’s Board of Directors’ meeting of October 23, 2018, 315,702 performance shares were awarded on the December 22, 2018 to French tax residents Partners and specific Non Partners employees of the Group (274 employees).
In the meantime, 525,380 performance shares were awarded on the December 22, 2018 to Non-French tax residents Partners and specific Non Partners employees of the Group (514 employees) as part of a so-called non-qualified plan. The provisions of the plan provide for a vesting period of three years for all beneficiaries.
All the shares awarded to Executive Global Partners and Senior Global Partners, and half of the shares awarded to other Partners (below Senior Global Partners) are subject to the satisfaction of performance conditions. The performance conditions include those of the performance share plan of February 21, 2018, in addition to the following two conditions: ◆ The acquisition of all shares is subject to the fulfilment of the corporate social responsibility (CSR) training obligation,
◆ in the event of an average ROE of less than 5%, the portion of stock options that could be exercised based on this criterion would be at 0%.
In the meantime, 174,468 free shares were awarded on the December 23, 2018 to all Non-French tax residents of the Group (2,061 employees) as part of a so-called non-qualified plan.
In accordance with the authorization by the Shareholders’ Meeting on April 26, 2018, the Company’s Board of Directors’ meeting of October 23, 2018, on the proposal of the Compensation and Nomination Committee meeting of October 23, 2018, decided to allocate performance shares to Partners and specific Non Partners in a Long Term Incentive Plan (LTIP).
The final vesting of the shares granted is subject to the fulfilment of the terms and conditions set out in the Plan, and in particular that the beneficiary remains employee or corporate officer of the SCOR Group until December 22, 2024 inclusive, except as otherwise stated by the Plan.
The final vesting of the shares granted is also subject to the fulfilment of performance conditions.
The final vesting of half of the shares granted is subject to the fact that the average SCOR ROE over six years (from January 1, 2018 to December 31, 2023) is equal to the average SCOR ROE strategic target (the “Target ROE”) over the same period. If the observed average ROE is lower or higher than the Target ROE, the shares will vest according to the sliding scale set out in the table below: Ratio between the observed average ROE and the Target ROE Proportion of the shares finally vested via this criterion
In addition, notwithstanding the total or partial achievement of the performance conditions described above, the right to exercise all or some options would be subject, in any event, to strict compliance with the Group’s ethical principles as set out in the Group’s Code of Conduct and to the fulfilment of the corporate social responsibility (CSR) training obligation.
(1) If the strategic plan sets a target or «optimal» interval, the lower end of this range is considered for calculation purposes as being the Target Solvency Ratio.
The table below presents the total number of shares allocated in 2017 and 2018 by category within the Group, all types of plans included: Total number of LTIP shares allocated in 2018
Ratio between the observed average ROE over 2015 – 2017 and the target ROE 87.6% 90%
It should be noted that the source of shares to be allocated to these plans is treasury stock.
See also Section 4.6 – Notes to the consolidated financial statements, Note 16 – Stock options and share allocations.
Since the implementation of free share plans in 2004, 22,805,019 shares have been allocated, all types of plans included.
The employees with a French work contract (excluding corporate officers) may invest in the employee savings plan. An agreement specifies the principle, financing, and conditions of the plan. The employee savings plan has five mutual investment funds, one of which is entirely dedicated to SCOR employees. An employer’s contribution is provided for on two funds. Sums may be transferred into the funds in several different ways: sums received from profit-sharing plans, collective incentive plans, or any other voluntary contributions.
REPORT ON CORPORATE GOVERNANCE Executive compensation and share ownership 02 2.2.4. SUMMARY OF TRANSACTIONS IN SECURITIES BY PERSONS DISCHARGING MANAGERIAL RESPONSIBILITIES AND PERSONS CLOSELY ASSOCIATED PURSUANT TO ARTICLE L. 621-18-2 OF THE FRENCH MONETARY AND FINANCIAL CODE
Mr. Denis Kessler Exercise of stock options for a total amount of EUR 4,164,625
Exercise of stock options for a total amount of EUR 160,210 Sale of shares resulting from the exercise of stock options for a total amount of EUR 273,011 Acquisition of shares for a total amount of EUR 109,725
Distribution of capital (number of shares, % of capital and voting rights) – (i) shareholders with more than 2.5% of the registered capital and/or voting rights and (ii) shareholders who are members of the Board of Directors (on the basis of a study of identifiable share bearers (TPI) conducted by the Company as at December 31, 2018): As at December 31, 2018 Number of shares % of capital % voting rights(1)
(1) The percentage of voting rights is determined on the basis of the number of shares at year-end, excluding the Company’s own treasury shares. (2) BlackRock Inc.’s aggregated number of shares, including BlackRock Fund Advisors, amounted to 15,111,779 representing 7.83% of the capital and 8.22%
(4) Employee shares carrying voting rights, excluding sold or transferred employee shares. (5) This shareholding notably includes performance shares granted in accordance with the authorizations of the SCOR SE Shareholders’ Meeting, prior to the publication of Law No. 2015-990 of August 6, 2015 and held as registered shares by employees as at December 31, 2016. Employee shareholdings, as defined in Article L. 225-102 of the French Commercial Code, amount to 0.36% of the capital and 0.38% of voting rights.
Pursuant to the shareholders’ notifications received by SCOR, there was no shareholder other than those indicated in the table above holding, directly or indirectly, alone or in concert, more than 2.5% of the share capital and/or voting rights of the Company as at December 31, 2018, December 31, 2017 and December 31, 2016.
According to the CMi2i share analysis on December 31, 2018, and Nasdaq’s share analysis on December 31, 2017 and December 31, 2016, some of these companies are, in addition, shareholders via mutual funds and other investment funds.
The results of the TPI study conducted as at December 31, 2018 are presented in the following table: TPI Date December 2015 December 2016 December 2017 December 2018
SCOR discloses below the threshold declarations sent by the significant shareholders in 2018. SCOR is not responsible for ensuring the completeness of these declarations.
2.3.1.2. STATEMENT AS TO THE ABSENCE OF DIFFERENCES BETWEEN THE VOTING RIGHTS OF VARIOUS SHAREHOLDERS
2.3.1.4. AGREEMENT WHICH COULD RESULT IN A SUBSEQUENT CHANGE IN CONTROL
2.3.1.5. AGREEMENT THAT ARE SUBJECT TO TERMINATION IN THE EVENT OF A CHANGE OF CONTROL
REPORT ON CORPORATE GOVERNANCE Major shareholders and related party transactions 02 2.3.1.6. SHARE CAPITAL
Increase of the share capital resulting from the exercise of stock-options as from January 1 to March 31, 2015
Situation on March 31, acknowledged by the Board of Directors on April 30,
Increase of the share capital resulting from the exercise of stock-options as from April 1 to December 31, 2015
Increase of the share capital resulting from the exercise of stock-options as from January 1 to December 31, 2016
Increase of the share capital resulting from the exercise of stock-options as from January 1 to December 31, 2017
April 26, 2018 Situation on April 26, 2018 according to the decision of the Board of Directors on April 26,
Increase of the share capital resulting from the exercise of stock-options as from January 1 to December 31, 2018
Given the exercise of 72,150 options for the subscription of shares since January 1, 2019, on the date of the Registration Document, SCOR SE’s existing share capital amounts to EUR 521,499,759 divided into 193,157,942 shares with a nominal value of EUR 7.8769723 each.
The total number of new shares authorized at the date of the Registration Document, including the shares that could be issued in connection with the implementation of (i) stock option plans, (ii) securities granting access to the capital and (iii) the current delegations and authorizations is 150,035,172.
Stock buyback program in force on the date of filing this Registration Document (program authorized by the Ordinary and Extraordinary Shareholders’ Meeting of April 26, 2018)
It granted to the Board of Directors, with the option to sub-delegate under the conditions provided for by law, all powers to implement this resolution.
The authorization described above, still in force on the filing date of this Registration Document, will expire at the time of the next Annual Shareholders’ Meeting held for the approval of the financial statements without, however, exceeding a maximum term of eighteen (18) months with effect from the date of the April 26, 2018 Ordinary and Extraordinary Shareholders’ Meeting, i.e. until October 25, 2019.
Summary of the transactions carried out by SCOR SE on its own shares in the course of the financial year 2018
On December 31, 2018, SCOR held 9,142,675 shares compared with 5,866,249 shares at December 31, 2017. The par value of these treasury shares is EUR 72,016,597.72 and their book value is EUR 337,921,305.37. The average purchase price was EUR 37.53. The average sale price was EUR 34.95. The amount of fees was EUR 1,150,762.08.
As at December 31, 2018, the treasury shares owned by SCOR SE represented 4.74% of the share capital. On such date, the portfolio of treasury shares was allocated as follows: ◆ 108,796 treasury shares allocated to the stimulation of the secondary market or provision of liquidity to the Company’s shares; ◆ 2,262,543 treasury shares allocated to the hedging of any form of allocation to employees and/or corporate officers (mandataires sociaux) of the Company and/or of affiliated companies; ◆ 0 treasury shares allocated to the retention and subsequent remittance in exchange or as payment; ◆ 0 treasury shares allocated to the compliance with all obligations related to the issuance of securities granting access to capital; ◆ 6,771,336 treasury shares allocated to the cancellation of the shares repurchased.
Description of the new share repurchase program 2019/2020 submitted for authorization to the Ordinary and Extraordinary Shareholders’ Meeting to be held on April 26, 2019
Such transactions on securities would be carried out for any purposes permitted or which would become authorized under applicable laws and regulations, including for purposes of the following objectives: ◆ stimulation of the secondary market or provision of liquidity to the Company’s shares by an investment service provider through a liquidity contract in accordance with a code of practice recognized by the regulation;
Such transactions would be carried out, under the conditions authorized by the stock exchange authorities, by any means, including on a regulated market, on a multilateral trading facility, via a systematic internalizer or over-the-counter, including, inter alia, by buying or selling blocks, by applying derivative financial instruments, listed on a regulated stock exchange or over-thecounter, or by the implementation of optional strategies and, if applicable, by any third party authorized for such purpose by the Company.
The maximum purchase price would be EUR 60 (excluding acquisition fees). Based on the shares representing the Company’s share capital on December 31, 2018 as established by the Board of Directors on February 19, 2019 (without taking into account the number of treasury shares held by the Company), the theoretical maximum number of shares which may be acquired amounts to 19,308,579 and the theoretical maximum amount allocated to the share buy-back program pursuant to this resolution amounts to EUR 1,158,514,752 (excluding acquisition fees).
All powers would be granted to the Board of Directors, with the option to sub-delegate under the conditions provided for by law, to implement this resolution including to carry out all stock exchange orders, enter into any agreements with a view, inter alia, to keeping share purchase and sale records, to establish all documents, including information documents, to proceed with any adjustments anticipated by this resolution, to carry out all declarations and formalities with the French Financial Markets Authority (Autorité des marchés financiers) and others and, more generally, to do whatever may be necessary.
This authorization would be granted for a period expiring at the time of the next Annual Shareholders’ Meeting held as from the Shareholders’ Meeting dated April 26, 2019 without, however, exceeding a maximum term of eighteen (18) months with effect from the date of such General Meeting, i.e. until October 25, 2020. It would supersede the unused portion of the authorization granted by the shareholders at the Ordinary and Extraordinary Shareholders’ Meeting of April 26, 2018, in its 12th resolution.
Information about and terms and conditions of any acquisition rights and/or obligations oversubscribed but unissued capital or an undertaking to increase the capital
Information about the capital of any member of the Group which is under option or is to be put under option and characteristics of such options
◆ Appendix C – Notes to the corporate financial statements, 5.3.5 – Stock options.
Transactions with related parties as required by the regulations adopted under EC regulation No. 297/2008, entered into by the Group appear in Section 4.6.22, Note 22 – Related party transactions.
We are required to inform you, on the basis of the information provided to us, of the terms, the conditions and the reasons for the company’s interest of those agreements and commitments indicated to us, or that we may have identified in the performance of our engagement. We are not required to comment as to whether they are beneficial or appropriate or to ascertain the existence of any such agreements and commitments. It is your responsibility, in accordance with article R. 225-31 of the French commercial code (Code de commerce), to evaluate the benefits resulting from these agreements and commitments prior to their approval.
AGREEMENTS AND COMMITMENTS SUBMITTED FOR APPROVAL TO THE ANNUAL GENERAL MEETING OF SHAREHOLDERS
We have also been informed of the execution, during the past financial year, of the following agreements and commitments, already approved by the Mixed Shareholders’ Meeting of April 26, 2018, on Statutory auditors’ report on related party agreements and commitments of February 21, 2018
◆ the gradual increase of the beneficiaries’ rights to 5% of the reference salary per year, as is put forth by the AFEP-MEDEF code.
The modifications of the aforementioned commitment made to the benefit of the Chairman and Chief Executive Officer have been published on the Company’s website within five days of their adoption at the Mixed Shareholders’ Meeting of April 26, 2018.
The Board of Directors, at its meetings of May 4 and July 27, 2011, in accordance with articles L. 225-38 and L. 225-42-1 of the French commercial code (Code de commerce), and upon the recommendation of the Compensations and Nominations Committee, renewed the commitments for the benefit of the Chairman and Chief Executive Officer, which had been decided by the Board of Directors on March 21, 2006 and amended on December 12, 2008. These commitments to the Chairman and Chief Executive Officer have been approved under the fifth resolution adopted at the Mixed Shareholders’ Meeting of May 3, 2012.
(B) SCOR’s average solvency ratio for the three financial years preceding the date of departure of the Chief Executive Officer exceeds the average of SCOR’s strategic solvency ratio target (defined in the strategic plan) calculated over the same period (the “Target Solvency Ratio”); it is specified that in the event that the strategic plan sets a targeted or «optimal» interval, the lower bound of this interval is considered for calculation purposes as the Target Solvency Ratio.
The Board of Directors will note whether or not the performance condition (C_n) has been met on the recommendation of the Compensation and Appointments Committee.
The changes to the commitment made to the Chairman and Chief Executive Officer have been published on the Company’s website within five days of their adoption adopted at the Mixed Shareholders’ Meeting of April 26, 2018.
The Group regularly conducts reviews of the risks that could have a material adverse effect on its activity, its financial situation or its results (or capacity to reach objectives). However, the risks described below are not the only risks that SCOR faces. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, results of operations or cash flows. SCOR may also change its view of the relative importance of risk factors at any time, particularly if new external or internal facts come to light. With this in mind, this section outlines the management’s current view of SCOR’s main risks and main risk management mechanisms currently in place.
The Group has identified the following risk categories: ◆ strategic risks; ◆ underwriting risks related to the P&C and Life reinsurance businesses; ◆ market risks; ◆ credit risks; ◆ liquidity risks; ◆ operational risks.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS Strategic risks 03 3.2. STRATEGIC RISKS
Strategic risks can arise either from the strategy itself (such as the accumulation of risks or development in lines of business or less known markets), from external risks (such as an adverse economic environment), or from internal risks (such as certain causes of operational risk). Therefore, many of the risks discussed throughout Section 3, including emerging risks, could also impact the success of the strategy.
3.2.1.1. A DETERIORATION IN THE GLOBAL CAPITAL MARKETS AND GLOBAL ECONOMY FROM PRESENT CONDITIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON SCOR’S BUSINESS AND OPERATING RESULTS
Even in the absence of a market downturn, SCOR remains exposed to a substantial risk of losses due to market volatility. See Section 3.4 – Market risks.
SCOR is also dependent upon customer behavior and premium growth. The Group’s premiums could decline in the case of an unfavourable macroeconomic environment and its profit margins could erode. In an economic downturn, the demand for SCOR’s and its clients’ products could be adversely affected. Factors such as government and consumer spending, corporate investment, the volatility and strength of both debt and equity markets, and inflation, all affect the business and economic environment and ultimately, the size and profitability of SCOR’s business. In addition, the ongoing low interest rate environment continues to stimulate the inflow of alternative capital, which has been contributing to the current soft market i.e. the reduction in (re) insurance premium rates.
The Group may also experience an elevated incidence of claims or be impacted by a decrease in demand for reinsurance and increased surrenders of policies from the cedents (see paragraph on lapse risk in Section 3.3.2 – Life reinsurance) that could affect the current and future profitability of its business. Although written premiums have seen steady growth in prior years, a prolonged economic crisis could result in lower written premiums in the future.
These risks are monitored via a robust strategic planning approach and regular risk reporting mechanisms throughout the Group, including complementary risk analyses on ad-hoc topics, where deemed necessary. Potential impacts on SCOR’s risk profile are managed through a variety of dedicated and transversal risk management mechanisms. For more details on risk reporting mechanisms and roles and responsibilities of SCOR’s main governance bodies, see Appendix A – Internal control and risk management procedures.
The Solvency II regime applies since January 1, 2016, in the European Union. It was transposed into national laws in all relevant European jurisdictions over recent years. Actual implementation by supervisory and regulatory authorities could vary between these jurisdictions, which could place SCOR at a competitive disadvantage with regard to other European financial services groups. The ongoing Solvency II reviews could lead to additional requirements for insurance and reinsurance undertakings. Furthermore, Solvency II may no longer apply in the United Kingdom after its departure from the European Union and the new regulatory framework could lead to additional requirements for SCOR.
In addition, the supervisory and regulatory authorities could develop new regulations with the objective of further strengthening the protection of policyholders and/or financial stability, especially in developing countries. These new regulations may then increase solvency margin obligations, thereby restricting SCOR’s underwriting capacity.
For further information on risks related to current legislation and regulations and their impact on SCOR’s operations, see Section 3.7.1.4 – Risks related to external events.
3.2.3. THE VALUATION OF SCOR’S INTANGIBLE ASSETS AND DEFERRED TAX ASSETS MAY SIGNIFICANTLY AFFECT ITS SHAREHOLDERS’ EQUITY AND THE PRICE OF ITS SECURITIES
3.2.3.1. RISKS RELATED TO THE VALUATION OF SCOR’S INTANGIBLE ASSETS AND DEFERRED TAX ASSETS
For further details on the management of valuation risks related to goodwill and Value of Business Acquired, see Section 3.2.6.2 – Risks related to acquisitions.
Therefore, SCOR remains exposed to the risk of losing its competitive advantage. In particular, when available reinsurance capacity via traditional reinsurers or capital markets is greater than the demand from ceding companies. Its competitors, in particular (re)insurers benefiting from higher ratings than SCOR’s or other competitors in alternative capital markets, may be better positioned to enter new contracts and gain market shares at SCOR’s expense.
There has been an increase of the M&A activity among (re) insurers in 2018.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS Strategic risks 03 3.2.5. DOWNGRADE RISK
Credit ratings are very important to all reinsurance companies, including SCOR, as ceding companies wish to reinsure their risks with companies that have a satisfactory financial position. For more details on the current rating of the Group, see Section 1.2.4 – Ratings information.
Some of SCOR’s cedents’ credit models or reinsurance guidelines face regulatory capital requirements or depend on their reinsurers’ credit rating. If SCOR’s rating deteriorates, cedents could be forced to increase their capital requirement in respect of their counterparty risk on SCOR. This could lead to a loss of competitive advantage for SCOR.
Many of SCOR’s reinsurance treaties, notably in the US and in Asia, and also increasingly in Europe, contain clauses concerning the financial strength of the Company and/or its operating subsidiaries, and provide for the possibility of early termination for its cedents if the rating of the Company and/or its subsidiaries is downgraded. Early termination may also occur when the net financial position of the Company falls below a certain threshold, or if it carries out a reduction in share capital.
In the case of a large number of LOCs being drawn simultaneously, SCOR could encounter difficulties in providing the total amount of required cash or fungible assets, i.e. exposing itself to a liquidity risk.
For more details about the Group’s lines of credit, see Section 1.3.6 – Financial position, liquidity and capital resources. For more details on liquidity risk, see Section 3.6 – Liquidity risks.
SCOR’s regulated legal entities must satisfy local regulatory capital requirements. There could potentially be some local regulatory constraints, which in certain circumstances could affect SCOR’s ability to transfer capital from one legal entity to another, and in particular from one subsidiary or branch to another, or to the parent legal entity. This may have negative consequences for the legal entity concerned and could have a material adverse impact on SCOR.
Disruptions to financial markets, and more particularly credit market conditions, could also affect SCOR’s ability to access liquidity. Please see Section 3.6 – Liquidity risks, for further details.
The businesses SCOR has recently acquired are described in Section 1.2.2 – History and development of SCOR.
In certain cases, e.g. SCOR’s acquisition of Transamerica Re’s mortality reinsurance portfolio from Aegon in 2011, SCOR may acquire a reinsurance portfolio from a company (the vendor) where not all underlying reinsurance agreements between cedants and the vendor are immediately novated. In such cases, SCOR could be at risk if the vendor becomes insolvent, since the vendor’s cedants could reduce or terminate reinsurance premium payments.
03 RISK FACTORS AND RISK MANAGEMENT MECHANISMS Underwriting risks related to the P&C and Life reinsurance businesses 3.3. UNDERWRITING RISKS RELATED TO THE P&C AND LIFE REINSURANCE BUSINESSES
For further details on the terminology used to describe the Group’s activity, see Section 1.2.5 – Business overview.
SCOR is exposed to insured losses, arising from single or multiple events, which can be catastrophic, caused by the occurrence of a man-made event. The lines of business mostly exposed to man-made catastrophe are Property (other than natural catastrophe), Marine, Motor, Casualty, Credit and Surety, Aviation and Space.
SCOR’s exposure to terrorism arises from participation in the protection of existing national terrorism pools and exposure from some markets that do not permit the exclusion of terrorism from insurance policies due to local regulation, such as in the US, or due to market practice. Furthermore, the US insurance market is exposed to significant risks due to the insurance obligation created by the law. However federal aid is also provided by the Terrorism Risk Insurance Program Reauthorization Act (“TRIPRA”).
P&C insurance and reinsurance businesses are cyclical. The primary consequences of the market softening are a reduction in the volume of P&C reinsurance premiums on the market, an increase in competition within the reinsurance market, and also a preference for those operators who are most attentive to the specific needs of the cedents and the most capable of meeting them. This could potentially lead to a loss of competitive advantage for SCOR.
SCOR generates its P&C business both through brokers and through direct relationships with insurance company clients. The risk for SCOR is mainly the concentration of premiums written through a limited number of brokers. A significant reduction in the business generated through these brokers could potentially reduce premium volume and net income. For further information, refer to Section 1.2.5.4 – paragraph on Distribution by production source. for a breakdown of SCOR’s business though brokers.
The P&C division is organized in order to enable it to assess and control its risks at each level of its business.
◆ The claims handling function is performed by the claims teams, which review, process and monitor reported claims. P&C division’s Claims & Commutations is responsible for the implementation and overview of the overall claims handling and commutation management policy for the P&C division, implementing worldwide control and reporting procedures and managing commutation of portfolios and commitments. It supports and controls the day-to-day activity and takes over the direct management of large, litigious, serial and latent claims. In addition, periodic audits are conducted on specific claims and lines of business, and claims processing and procedures are examined at the ceding companies’ offices with the aim of evaluating their claims adjustment process, valuation of case reserves and overall performance. When needed, recommendations are given to underwriters and local management.
◆ The adequacy of the P&C division’s reserves is controlled based on specific procedures. For further information on how risks related to reserves are managed, see Section 3.3.4 – Risks related to reserves.
The main underwriting risks for SCOR’s Life division are described below.
SCOR’s Life division is also exposed to risks related to policyholder behavior, including risks such as lapsation and adverse selection.
Adverse selection refers to the problem of asymmetry of information between the insured and the insurer. An individual applying for life or health insurance cover usually has better knowledge about his or her own state of health than the insurer.
This might lead to a portfolio composition which differs from the one assumed during pricing and might imply lower than expected profits for both the direct insurer and the reinsurer.
3.3.2.7. MANAGEMENT OF UNDERWRITING RISKS RELATED TO THE LIFE REINSURANCE BUSINESS
In addition to the transversal risk management mechanisms described in the introduction to this section, SCOR’s Life division also implements mechanisms to mitigate certain risks specific to the division: ◆ Claims deterioration risks are mitigated through yearly renewable terms for parts of the mortality business, and through premium adjustment clauses for some Disability, Long-Term Care (LTC) and Critical Illness (CI) products. In the case of LTC, the premium adjustments are designed to offset worsening incidence or increasing longevity of disabled lives. In the case of CI, premium adjustments mitigate potential negative impacts on future claims patterns due to a general deterioration in health and improved medical diagnosis.
◆ Lapse risks are mitigated through appropriate reinsurance treaty clauses, as well as product, client and market diversification.
◆ Adverse selection risks are mitigated through careful product design and a well-defined medical and financial underwriting process.
◆ Underwriting of the Life business within the Group is under the worldwide responsibility of SCOR’s Life division. Clients are worldwide insurance companies. They are served by SCOR’s specialized underwriters and actuaries who are familiar with the specific features of the markets in which they operate, particularly with local lines of business and policy conditions, as well as the technical specifics such as mortality tables, morbidity incidence rates and persistency rates. In the Life underwriting process, consideration is typically given to the quality of the client’s medical and financial underwriting standards, the target clientele of the ceding company, as well as past experience to the extent credible data is available.
◆ Guidelines and other documents defined by the Life division specify the underwriting rules and principles to be complied with, underwriting capacities delegated to the underwriters and pricing actuaries in each of the markets in which the Group operates, as well as maximum acceptable commitments per risk and per event. These guidelines outline contract types and terms and conditions of acceptance. Furthermore, they set out the level of retention of the Life division for various risks and types of cover (for more information, see Section 3.3.5 – Retrocession and other risk mitigation techniques). Revisions and updates follow a formalized approval process.
Departments and, where applicable, the Finance Department. Cases which may have a significant impact on the balance sheet of the Group are additionally reviewed by the Group Risk Management. Thresholds or conditions for a referral to Group Risk Management are outlined in specific guidelines.
◆ Maximum underwriting capacities are established to limit the Life division’s exposure from various types of treaties underwritten, proportional and non-proportional, covering individual or Group policies. These capacities are reviewed each year, taking into account the capacities obtained by retrocession coverage. The exposure is monitored throughout the year against SCOR’s defined risk limits and used for decisions on mitigating measures. Monitoring of peak exposures is included in Life regular risk reporting. See Section 3.3.5 – Retrocession and other risk mitigation techniques for further information on how these instruments are managed.
◆ Claims handling is performed by local claims teams that handle and monitor claims. Claims exceeding a predefined threshold are reviewed by the Life division’s global medical underwriting and claims research center (CREDISS). In addition, where deemed appropriate, audits are conducted on claims or specific lines of business at the ceding companies’ offices.
◆ A quarterly review of technical results is performed by region and by business area.
SCOR’s ability to grow or maintain its portfolios in the P&C and Life reinsurance divisions may also be subject to external factors which may be interconnected, such as economic and political risks. For instance, slowdowns in economic growth or recessions in the major markets may lead households and companies to take out less insurance, to suspend certain premium payments, or to terminate the insurance policies underlying the existing P&C and Life treaties earlier than anticipated. Similarly, the risk of social and political instability is particularly significant in emerging markets, in which both divisions operate. These risks could lead to significantly reduced business growth in these target markets. See Section 3.2 – Strategic risks for further details.
SCOR manages its exposure to catastrophes through selective underwriting practices, especially by limiting its exposure to certain events in certain geographic areas, by monitoring risk accumulation on a geographic basis and by retroceding a portion of those risks to other selectively chosen reinsurers.
The adequacy of P&C and Life reserves is checked on a quarterly basis by internal actuaries at division level as well as at the Group level by the Group Chief Actuary who signs off on the adequacy of reserves and reports to the Executive Committee and the Audit Committee.
A centrally defined and tightly controlled reserving process, strong portfolio diversification, prudent reserving, sound reserving tools and, actuarial methods used by highly skilled professionals and a high level of transparency, both internally and externally, all tend to minimize the risk of inadequate reserves.
In compliance with applicable regulatory requirements and in accordance with industry practices, the Group maintains IBNR reserves in addition to outstanding claims reserves. These reserves represent: ◆ the estimated final amount that may be paid by the Group on losses or events that have occurred, but are not yet reported to the ceding company or to the SCOR entity concerned; and
◆ the estimated cost variation on claims already reported to the Group.
A table showing historical changes in reserves for P&C claims is provided in Section 4.6 – Notes to the consolidated financial statements, Note 15 – Net contract liabilities.
Within SCOR’s Life division, in order to ensure an adequate and efficient monitoring of the reserves, a report is established on a yearly basis by the Group Actuarial Department where the Group Chief Actuary gives his opinion on the year-end booked reserves’ adequacy. The main objective of this report is to provide SCOR’s Executive Committee and Audit Committee with an overall opinion on the adequacy of the Life division’s reserves but also to highlight the inherent uncertainties surrounding this assessment.
The monitoring of the reserves by the division’s and Group’s Actuarial Department is centered on three mechanisms: ◆ a quarterly follow-up of the claims activity and review of reserves for each segment through adequate reporting procedures; ◆ an annual internal actuarial analysis, including a review of all segments together with a full analysis of the segments that may have a substantial impact on SCOR’s balance sheet.
The Group Actuarial Department does not intend to provide an alternative best estimate but verifies the adequacy of the assumptions and methods and processes used by the teams of the Life division to determine the reserves. In some cases, the Group Actuarial Department applies a global approach and calculates a confidence range in order to check that the reserves booked are within said confidence range.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS Underwriting risks related to the P&C and Life reinsurance businesses 03 3.3.5. RETROCESSION AND OTHER RISK MITIGATION TECHNIQUES
Beyond traditional retrocession, purchased for all main lines of business, SCOR has implemented a Capital Shield Strategy, which combines the following solutions: ◆ traditional retrocession (proportional or non-proportional); ◆ capital markets solutions and alternative risk transfer solutions (collateralized retrocession, Insurance-Linked Securities including catastrophe bonds); ◆ solvency buffer; SCOR has set out a solvency scale with clear and well-defined buffers safeguarding the Group’s franchise; ◆ contingent capital facilities, designed as tools of last resort, to partially replenish the Group’s capital base in case of very remote pre-defined events. The current contingent capital guaranteed equity line is providing the Group with EUR 300 million coverage. It is innovative in that it protects the Group against both natural catastrophes and extreme mortality events.
Retrocession procedures are centralized within the retrocession teams of the P&C and Life divisions: ◆ within the P&C division, the Underwriting Management and Retrocession Department establishes and implements the external retrocession plan for P&C business. This department is responsible for proper application of the plan, for monitoring the solvency of the retrocessionaires, the related counterparty risks and, when necessary, recovery of balances due; ◆ within the Life division, scenarios are established within the Actuarial & Risk department in order to define the need for retrocession coverage. The retention and the retrocession structure are revised every year.
For further information on how counterparty default risk related to retrocessionaires is managed, see Section 3.5 – Credit risks.
An analysis of the share of retrocessionaires in contract liabilities by rating of the retrocessionaires and collateral from retrocessionaires in favor of SCOR at December 31, 2018 and 2017 is presented in Section 4.6 – Notes to the consolidated financial statements, Note 15 – Net contract liabilities and Note 19 – Net retrocession result.
Market risk is the risk that the fair value or future cash flows of a financial instrument fluctuates because of changes in market prices or macro-economic variables. This includes interest rate risk and currency risk, further described below, as well as equity risk and real estate risk, to which SCOR is exposed through its investments. Market risk also includes credit spread risk on these invested assets. For further information on credit risk (counterparty default), see Section 3.5 – Credit risks.
The following types of currency risk have been identified by SCOR: Transaction risk
SCOR publishes its consolidated financial statements in Euros, but a significant part of its income and expenses, as well as of its assets and liabilities, are denominated in currencies other than the Euro. Consequently, fluctuations in the exchange rates used to convert these currencies into Euros may have a significant impact on its reported net income and net equity from year to year.
Credit spread risk on invested assets is the risk of incurring a financial loss arising from the change in the market assessment of the counterparty risk of financial instruments or counterparties. Credit spread variations could have a direct impact on the market value of the fixed-income securities and loans, and as a consequence, on the unrealized capital gains or losses of the fixed-income securities held in the portfolio.
Equity prices are likely to be affected by risks which affect the market as a whole (uncertainty on economic conditions in general, such as anticipated changes in growth, inflation, interest rate fluctuations, sovereign risk, etc.) and/or by risks which influence a single asset or a small number of assets (specific or idiosyncratic risk). This may lead to a decrease in prices of the equity held by SCOR and may impact its unrealized gains and losses. A material or long-lasting decline in the prices of SCOR’s equity holdings may also result in the impairment of its equity portfolio which would affect its net income.
03 RISK FACTORS AND RISK MANAGEMENT MECHANISMS Market risks 3.4.2.2. MANAGEMENT OF CURRENCY RISKS
The interest rate sensitivities of income presented in the table below show the impact of changes in fair value of financial assets at fair value through income held at closing date, and changes in income on variable rate financial assets held at the closing date, following an increase/decrease in interest rates of 100 basis points. An estimate of the impact on the future income following a change of 100 basis points is therefore included. However, SCOR does not include in this analysis the potential impact of change in interest rates on the reinvestment of future cash flows, as future cash flows of SCOR business are difficult to predict and asset allocations might change over time.
SCOR conducted an analysis of the sensitivity of net income and shareholders’ equity to the price of equity securities. The analysis considers the impact on both equities at fair value through the income statement and on equities classified as available for sale. For equities classified as available for sale, the impact on impairment is computed by applying the accounting policy and application guidance set out in Section 4.6 – Notes to the consolidated financial statements, Note 7 – Insurance business investments, to theoretical future market value changes. SCOR estimates that, excluding any impairment arising from duration, a further uniform decline of 10% from December 31, 2018 market values would generate no further impairment of equity securities (2017: EUR 0 million; 2016: EUR 0 million). It should be noted that, the potential further impairment should not be scaled up or down as the impairment rules are not a linear function of market value. For example, a scenario with a market value decline of 20% would not double the potential further equity impairment.
03 RISK FACTORS AND RISK MANAGEMENT MECHANISMS Credit risks 3.5. CREDIT RISKS
Under most of its Life reinsurance contracts, SCOR expects to receive premiums from its cedents over several years. These often exceed expected future payments for claims, commissions, etc., meaning that SCOR expects to receive positive future cash flows.
However, depositing these amounts does not a priori discharge the Group of its liability towards the cedent in cases where it is not able to recover all or part of these amounts in the event of a cedent default or a deterioration in the financial situation of that cedent. Hence, it is at least in principle, possible that the Group may remain liable for paying claims due under the reinsurance treaty without being able to offset all or part of the corresponding deposits.
For details on the debt securities portfolio, see Section 4.6 – Notes to the consolidated financial statements, Note 7 – Insurance business investments.
Management of credit risk related to future cash flows of Life reinsurance treaties
SCOR monitors the development of its cedents financial situation through regular contact, which enables SCOR to take appropriate action when deemed necessary. In addition, credit risk on future cash flows from Life reinsurance policies is mitigated by industrywide protection solutions in several countries, such as “Protektor” in Germany.
For more details on the impact of the valuation of intangible assets, see Section 3.2.5 – The valuation of SCOR’s intangible assets and deferred tax assets may significantly affect its shareholders’ equity and the price of its securities, and Section 4.6 – Notes to the consolidated financial statements, Note 6 – Value of business acquired.
The retrocessionaires’ share in the reserves broken down by retrocessionaires’ credit rating is included in Section 4.6, Note 15 – Net contract liabilities.
In the event of joint liability of the members in pools to which SCOR participates, the risk of default of other pool members is carefully monitored by SCOR: ◆ through its appointment as director and via the participation of its senior management in dedicated committees such as Audit and Risk Committees and Technical Committees, for the pools in which SCOR’s participation is the most significant; and
Financial assets at fair value through income 1,245 - - - - 1,245
The following table provides an overall analysis of the aging of financial assets and receivables as at December 31, 2017: In EUR millions Current months months months months Total
RISK FACTORS AND RISK MANAGEMENT MECHANISMS Liquidity risks 03 3.6. LIQUIDITY RISKS
SCOR’s ability to access external sources of liquidity may be subject to adverse capital and credit market conditions.
◆ the appropriateness of the composition of the assets in terms of their nature, duration and liquidity in order to meet the obligations as they fall due.
In addition, SCOR monitors the level of transferability of immediately tradable assets between entities, depending on local and regulatory constraints.
Additional information on SCOR’s letter of credit facilities is included in Section 4.6 – Notes to the financial statement, Note 23 – Commitments received and granted.
P&C insurance contract liabilities In EUR millions 0-1 year 1-3 years 3-7 years > 7 years Total
Maturity profiles have been based on undiscounted contractual maturities and include contractual interest payments (including those from cross-currency and interest rate swaps). In the case of perpetual debt, or debt which is subject to multiple optional reimbursement dates, the analysis below has been prepared based on the assumption that the Company does not make use of any of the early optional reimbursement dates. Perpetual debts are classified in the column “Over 5 years” (no maturity date).
Various entities in the Group rent their office headquarters. The minimum payments relating to these operating leases are presented within Section 4.6 – Notes to the consolidated financial statements, Note 9 – Miscellaneous Assets (Tangible assets and related commitments).
03 RISK FACTORS AND RISK MANAGEMENT MECHANISMS Operational risks 3.7. OPERATIONAL RISKS
RISK FACTORS AND RISK MANAGEMENT MECHANISMS Operational risks 03 financing and insider trading (e.g. the European Regulation of April 2014 on market abuses). Regarding anti-corruption laws and regulations, SCOR must comply with the Foreign Corrupt Practices Act (FCPA) and other laws such as the UK Bribery Act that bar corrupt payments or unreasonable gifts to foreign governments or officials. SCOR mus also comply with the provisions of the Sapin II law, which requires large companies (i.e. with revenues exceeding EUR 100 million and with at least 500 employees) to implement programs that prevent corruption, with financial sanctions in case of non-compliance. Additionally, SCOR must comply with regulatory requirements regarding data management (both SCOR’s data and that of its clients), in particular the General Data Protection Regulation (GDPR) enacted by the European Union. Any breach to these requirements could lead to regulatory sanctions, including significant fines and expose SCOR to legal proceedings from clients, and reputational damage.
Following Brexit, the direct P&C insurance activities for European Economic Area (EEA) clients currently carried by SCOR UK may need to be carried in the future by a legal entity based in the EEA in case insurers based in the United Kingdom would lose their European passport. In order to prepare for such an event SCOR has created a P&C insurance company in France to serve its continental clients, while maintaining the insurance company SCOR UK for its other clients. Also, SCOR stands ready to ask the Prudential Regulation Authority for any required approvals in order to allow the continuation of the activity of its reinsurance branches in the United Kingdom. For further details on current main regulatory developments which may have an impact on SCOR, see Section 3.2.3 – Risks related to legal and regulatory developments.
SCOR is also exposed to external fraud which is characterized by the theft of certain SCOR assets by third parties. External frauds may be perpetrated by various means including cyber-attacks, and usually target cash or data. Should an act of fraud succeed in bypassing the controls or protection measures in place, this could generate a direct loss for the Group.
The two main principles driving the operational risk management approach are: ◆ exhaustiveness: ensure that a complete and exhaustive identification of all risks within the Group is carried out to the extent possible; ◆ proportionality: once operational risks are identified, management uses appropriate and proportionate responses, resources and procedures, focusing on key risks.
In order to support the staff, SCOR has developed Internal Control System (ICS) standards. According to the ICS standards, process owners should be in a position to identify the critical operational risks within the processes assigned to their area of responsibility. The process owners design, implement and operate appropriate key controls and maintain the net risk exposure at or below an acceptable level of possible damage.
Some of the above operational risks are transferred in whole or in part to direct insurers as follows: ◆ the properties and other main physical assets of SCOR and its subsidiaries are covered locally through property damage policies; ◆ risks which are mostly covered at Group level include civil liability risks related to the operation of the Company caused by employees and real estate, professional liability risks, civil liability risks of directors and officers, and cyber risks.
Nevertheless, these insurance covers could prove to be insufficient and some losses could fall into the scope of the exclusion clauses (or interpreted as such by the insurance company).
report on these consolidated financial statements as at December 31, 2017 is included from pages 234 to 239 of the Registration
Goodwill arising from insurance activities Note 5 788 788 Goodwill arising from non insurance activities Note 5 71 71 Value of business acquired Note 6 1,471 1,412 Insurance business investments Note 7 28,586 28,360 Real estate investments 685 701 Available-for-sale financial assets 17,611 17,089 Investments at fair value through income 1,245 1,157 Loans and receivables 8,978 9,299 Derivative instruments 67 114 Investments in associates Note 2 9 75 Share of retrocessionaires in insurance and investment contract liabilities Note 15 2,141 2,037 Other assets 10,142 9,490 Accounts receivable from assumed insurance and reinsurance transactions Note 8 6,352 5,875 Accounts receivable from ceded reinsurance transactions Note 8 267 146 Deferred tax assets Note 17 554 533 Tax receivables 188 193 Miscellaneous assets Note 9 1,280 1,328 Deferred acquisition costs Note 10 1,501 1,415 Cash and cash equivalents Note 11 1,175 1,001 TOTAL ASSETS 44,383 43,234
CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of income 04 4.2. CONSOLIDATED STATEMENT OF INCOME
Impact from the US tax reform Note 17 (68) - -
04 CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of comprehensive income 4.3. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Net cash flows provided by/(used in) operations Note 11 891 1,144 1,354(1)
Change in scope of consolidation (cash and cash equivalents of acquired/disposed companies) 80(2) 1(3) -
Effect of change in foreign exchange rates on cash and cash equivalents 22 (84) (29)
(1) Includes a EUR 301 million one-off cash in-flow from the repayment of a cedent’s fund withheld. (2) Cash related to the acquisition of the capital voting rights of MutRé and Essor Seguros, see Note 3 – Acquisitions and disposals. (3) Cash related to the acquisition of 80% of the capital and voting rights of Château Mondot, see Note 3 – Acquisitions and disposals. (4) Partial disposal of Asefa in 2018 for EUR 4 million (EUR 3 million in 2017 and EUR 8 million in 2016).
(5) Acquisitions and disposals of other insurance business investments also include movements relating to bonds and other short-term investments with a maturity of less than three months, and classified as cash equivalents.
(6) Of which EUR 2 million of dividends paid by MRM to non-controlling interests (EUR 2 million paid in 2017 and EUR 2 million paid in 2016). (7) Cash generated by issuance of financial liabilities includes net proceeds from subordinated notes issuance of USD 625 million (EUR 497 million in 2016). See
Revaluation – Assets available for sale - - (511) - - - - - (511)
Effect of changes in foreign exchange rates - - - 145 - - - - 145
Net gains/(losses) on cash flow hedge - - - (6) - - - - (6)
Allocation of prior year net income - - - 603 - (603) - - -
Net income for the year ended December 31, 2017 - - - - - 286 - (1) 285
Other comprehensive income net of tax - - 22 (514) - - - - (492)
Other comprehensive income net of tax - - 22 62 - - - - 84
Net gains/(losses) on cash flow hedge - - - 3 - - - - 3
NOTE 8. ACCOUNTS RECEIVABLE FROM AND PAYABLE ON ASSUMED AND CEDED INSURANCE AND REINSURANCE TRANSACTIONS 203
NOTE 12. INFORMATION ON SHARE CAPITAL, CAPITAL MANAGEMENT, REGULATORY FRAMEWORK AND CONSOLIDATED RESERVES 211
The other key currencies in which the Group conducts business and the exchange rates used for the preparation of the consolidated financial statements are as follows: EUR per foreign currency unit Closing rate
The Group reviews the functional currencies of its entities on an ongoing basis to ensure they appropriately reflect the currency of the primary economic environment in which they operate.
At each period end, the entity must translate the items on its balance sheet which are denominated in a foreign currency into the functional currency, using the following procedures: ◆ monetary items and non-monetary items measured at fair value through income are translated at end of period exchange rates and the resulting gains and losses are recorded in the statement of income; ◆ other non-monetary items are translated: — at the exchange rates in effect on the transaction date for items measured at historical cost, or
The contracts assumed and retroceded by the Group are subject to different IFRS accounting rules depending on whether they fall within the scope of IFRS 4 – Insurance Contracts or IAS 39 – Financial Instruments: Recognition and Measurement.
◆ On September 12, 2016, the IASB published an Amendment to IFRS 4 – Insurance contracts, in order to address the temporary consequences of different effective dates of IFRS 9 and IFRS 17. The EU endorsed this amendment on November 3, 2017. Applying IFRS 9 before IFRS 17 would potentially increase volatility in profit or loss. The amendment introduces two independent options to address such additional accounting volatility: a temporary exemption from applying IFRS 9 (“Deferral
Approach”), and reclassifying the increased volatility from profit or loss to other comprehensive income (“Overlay Approach”). The Deferral Approach would result in continued application of IAS 39 and some additional disclosures about the fair value of asset meeting the “solely payment of principal and interest” criterion and information about their credit risk exposure until IFRS 17 becomes effective. The deferral option is restricted to companies whose predominant activity is to issue insurance contracts. SCOR has assessed it would meet the predominance criteria and will defer the application of IFRS 9. SCOR’s predominant activity is issuing (re)insurance contracts, which is reflected in the significance of liabilities arising from (re)insurance activities representing more than 90% of total liabilities. Liabilities connected to (re)insurance activities amounted to EUR 32.9 billion compared to total liabilities of EUR 35.2 billion as at December 31, 2015. For calculating the predominance ratio, subordinated debt, accounts payable on assumed and ceded reinsurance transactions, pension liabilities and deferred tax liabilities have been considered in addition to the contract liabilities in scope of IFRS 4.
During 2018, SCOR performed an impact assessment of classification and measurement of its financial assets under IFRS 9. This initial assessment is based on currently available information and may be subject to changes arising from further detailed analyses or additional reasonable and supportable information becoming available in the future. The tables below relate to the additional disclosures required when the IFRS 9 Deferral Approach is applied. Disclosures are based on the current financial assets portfolio and on the initial assessment conducted.
(1) The change in fair value during 2018 displays the movement in unrealized gain/loss balances of financial assets held as at December 31, 2018. The change in fair value includes the impact from foreign exchange rate changes and partial reductions in holdings of financial assets still in the portfolio as at December 31, 2018.
The following standards relevant to SCOR and expected to have a significant impact on its consolidated financial statements have been issued by the International Accounting Standards Board but are not yet effective or have not been adopted by the European Union: ◆ On July 24, 2014, the IASB published IFRS 9 – Financial Instruments. The final version of IFRS 9 replaces the previously published versions of IFRS 9 on classification and measurement and hedge accounting. It also replaces IAS 39 – Financial Instruments: Recognition and Measurement and covers classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018 with earlier application permitted. The EU endorsed IFRS 9 on November 22, 2016. However, as described above, SCOR opted for the Deferral Approach for IFRS 9 as granted by IFRS 4 and thus can defer application of the standard until January 1, 2022 if such effective date will be confirmed by the IASB and endorsed by the EU.
◆ On January 13, 2016, the IASB published IFRS 16 – Leases. The Standard will replace the current guidance in IAS 17 – Leases, and is applicable from January 1, 2019. The EU endorsed IFRS 16 on October 31, 2017. IFRS 16 will significantly change the accounting by lessees, who will recognize a lease liability reflecting the present value of future lease payments and a ‘right-of-use asset’ for lease contracts on the balance sheet. Exemptions are optional for certain short-term leases and leases of low-value assets. Lessees will recognize depreciation of the right-of use asset and interest expense in accordance with the effective interest rate method on the lease liability in their income statement. The accounting for lessors remains broadly unchanged from IAS 17. Transition to the new principles for lease accounting can be done either fully retrospectively or by adopting a simplified approach that includes specified reliefs related to the measurement of the right-of use asset and the lease liability and would not require a restatement of comparative amounts. SCOR is currently finalizing the implementation of IFRS 16. Overall, the impact is expected to be limited and will mainly result from leased office space used by the Group.
Subsidiaries are consolidated from the date on which the Group acquires control until the date on which control is transferred outside the Group or control ceases.
SCOR determined that its Lloyd’s participations and reinsurance pools do not constitute joint arrangements as there is no contractually agreed sharing of control requiring unanimous consent for decisions about the relevant activities of those arrangements.
When determining whether the Group acts as an agent or a principal with respect to investment funds, the power to direct the relevant fund activities, i.e. the scope of the Group’s decision-making authority over the funds, as well as the aggregated economic interest, including the returns and fund management compensation generated for the Group are taken into account.
Aggregate net book value (in SCOR) of individually immaterial associates 9 75
Depending on the design of the risk transfer agreement with the SPV, the transaction is classified as either a derivative instrument or an insurance contract. Derivatives are accounted for at fair value through income and are presented in the balance sheet line item “Derivative instruments”. Future payments to the SPV scheduled in the risk transfer contract are recognized as “Other liabilities”. Assets from the agreements designated as insurance contracts, are recognized in the balance sheet line item “Share of retrocessionaires in insurance and investment contract liabilities”. Payments to the SPV are recognized in the income statement as “Retroceded written premiums”.
Share of retrocessionaires in insurance and investment contract liabilities - - - -
US and Canada Earthquake events. This transaction replaced the US tranches of Atlas VI Series 2011-1. The issuer of the cat bond, Atlas IX Capital Limited, is an Irish private limited company, incorporated on August 2, 2013. The risk period for Atlas IX 2015-1 ran from February 11, 2015 to December 31, 2018. The instrument was accounted for as a derivative instrument.
Capital UK 2018 PLC, which provides the Group with multi-year risk transfer capacity of USD 300 million to protect itself against named storms in the US, earthquakes in the US and Canada, and windstorms in Europe. The risk period for Atlas Capital UK 2018 runs from June 1, 2018, to May 31, 2022.
The contract has been accounted for as a reinsurance contract, in accordance with IFRS 4 – Insurance Contracts.
On July 17, 2017, SCOR signed an agreement with the Fédération Nationale de la Mutualité Française and Matmut with a view to the acquisition of 100% of the shares of MutRé S.A.
The ratification of the agreement by MutRé’s other shareholders (which represent approximately 15% of MutRé’s capital) was finalised during October 2017.
The accounting for the acquisition of MutRé resulted in a gain from bargain purchase of EUR 26 million as the fair value of net assets acquired exceeds the consideration transferred after reassessment of the acquired assets and assumed liabilities. The revaluation of shares previously held (step acquisition) resulted in an additional gain of EUR 2 million.
The VOBA has been estimated based on the best estimate of expected future profits using a discount rate including an appropriate risk premium. This intangible asset will be amortized over the lifetime of the underlying treaties, in line with expected emergence of profits.
The company was initially created in 2011 by SCOR and MAF and started its insurance operations in December 2012. The Group held 49% of the company since 2011. Until December 31, 2017 M&S Brazil was accounted for as an equity method investee. It has been fully consolidated in the SCOR Group financial statements since January 1, 2018.
In 2017, the Group entered into the following acquisition: Château Mondot S.A.S.
The purchase price has been allocated based on a provisional estimate of the fair value of assets acquired and liabilities assumed at the date of acquisition determined in accordance with IFRS 3 “Business Combinations”.
The fair value of the assets acquired and liabilities assumed as at December 31, 2017 were as follows: Château Mondot – Fair value of assets acquired and liabilities assumed
Financial liabilities (as well as other assets) were valued at their carrying amount, approximating their fair value.
The following table sets forth the operating results for the Group’s operating segments and its corporate cost center for the financial years ended December 31, 2018, 2017, and 2016.
Gross benefits and claims paid (7,226) (3,942) - (11,168) (7,399) (4,564) - (11,963) (6,684) (3,164) - (9,848)
Gross commission on earned premiums (1,332) (1,454) - (2,786) (1,050) (1,422) - (2,472) (1,053) (1,404) - (2,457)
Other income and expense excl. revenues associated with financial reinsurance contracts (14) (51) - (65) (13) (36) - (49) (3) (56) - (59)
Capital gains/(losses) on the sale of investments (2) 129 - 127 22 246 - 268 70 144 - 214
Change in impairment and amortization of investments (3) (29) - (32) (1) (28) - (29) (2) (29) - (31)
The distribution of gross written premiums by geographic region for SCOR Global P&C, based on the country in which the ceding company operates for treaty business and location of the insured for facultative business, is as follows: In EUR millions 2018 2017 2016
Key balance sheet captions by operating segment, as reviewed by management, are broken down as follows: In EUR millions
Effect of changes in foreign exchange rates on cash and cash equivalents 6 16 22 (45) (39) (84) (12) (17) (29)
Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. It is initially measured at cost which is calculated as the difference between the business combination cost and the fair value of the Group’s share at acquisition date. The fair value is the net amount of identifiable assets and assumed liabilities at the acquisition date.