APPENDIX F Additional information relating to the management report of the Company and the Group – correspondence table 306
A European Company with share capital of EUR 1,516,589,466.80 Registered Office: 5 avenue Kléber - 75016 Paris
Trade and Company register (RCS) Paris No. 562 033 357 1/ Registration Document 2016
#1 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 15 1.2.6. SCOR investments in tangible and intangible assets 22 1.3. MARKET AND FINANCIAL REVIEW 25 1.3.1. Reinsurance market developments 25 1.3.2. Financial market developments 26 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 27 1.3.6. Financial position, liquidity and capital resources 38 1.3.8. Cash Flows 40 1.3.9. Calculation of financial ratios 40 1.3.10. Events subsequent to December 31, 2016 42 1.3.11. Documents on display 42
SCOR GROup Selected financial information < #1 1.1. SELECTED FINANCIAL INFORMATION
(1) By net reinsurance premiums written, source: “AM Best Special Report Global Reinsurance 2016”.
Two of these Hubs resulted from the combination of previously existing Hubs with a view of strengthening the organizational structure of SCOR in Europe. The Zurich/Cologne Hub was established on October 1, 2014 and became fully operational in the first quarter of 2015. The Paris/London Hub was established on April 15, 2015 and became fully operational in the second quarter of 2015.
The sound 2016 year-end results and solidity of the balance sheet demonstrate the effectiveness of SCOR’s strategy, based on extensive business and geographical diversification, while focusing on traditional reinsurance activities.
Subordinated debt Total shareholders' Equity 4,9804,9804,807 * 2013 consolidated net income – group share included gains from bargain purchases for EUR 202 million (net of acquisition related costs).
* The leverage ratio is calculated as the percentage of subordinated debt compared to the sum of shareholders’ equity and subordinated debt. The calculation excludes accrued interest and includes the impact of swaps related to subordinated debt issuances.
SCOR GROup Selected financial information < #1 1.1.3. DIVIDEND DISTRIBuTION pOLICY
* 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.
A resolution will be presented to the Annual General Meeting held during the first half of 2017, to approve the financial statements for the financial year 2016, proposing the distribution of a dividend of EUR 1.65 per share for the financial year 2016.
In 1989, the Company and UAP Reassurances, a subsidiary of the state-owned Société Centrale de l’Union des Assurances de Paris, combined their Property and Casualty and Life reinsurance businesses. Following a reverse merger with Compagnie Générale des Voitures, the Company listed its ordinary shares on the Paris stock exchange and changed its name to SCOR SA and to SCOR in 1996. In the same year, UAP Reassurances sold its 41% stake in SCOR through an IPO. SCOR’s American depositary shares were also listed on the New York stock exchange at that time. They were delisted in 2007 and the Company’s securities were deregistered with the US Securities and Exchange Commission (SEC) on September 4, 2007.
Following the reorganization of Euronext indices on January 3, 2005, the ordinary shares are now included on the following indices: SBF 80, SBF 120, CAC Next 20, CAC Large 60, CAC All-Shares, CAC All Tradable, CAC Financials, Euronext FAS IAS and Euronext 100. The SBF 80 index is made up of 80 French stocks which are the most traded on the continuous segments not included in the CAC 40 index. The SBF 120 index consists of the 120 most actively traded French stocks. The CAC Next 20 index includes the most representative stocks in terms of free float-adjusted capitalization and share turnover not included in the CAC 40 index. The CAC Large 60 index is composed of the constituents of the CAC 40 and CAC Next 20 indices. The CAC All-shares index is composed of all the stocks listed on Euronext Paris with an annual velocity ratio of over 5%. The CAC All Tradable index includes all the stocks of the Euronext Paris market with a free float of at least 20%. The CAC Financials index is composed of the stocks included in the CAC All Tradable index belonging to the financial sector. The Euronext FAS IAS index is composed of the stocks included in the CAC All Tradable index that fulfill the following condition: at least 3% of the capital is controlled by employees, a minimum of 25% of the workforce in France should own shares of the company and a minimum of 15% of the overall workforce should own shares of the company. The Euronext 100 index comprises the 100 largest and most liquid stocks traded on Euronext.
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 principal file:///\\Client\C$\Users\Mehdi\Desktop\DDR%20EN%20-%20BUILD\www.scor.com%20 mailto:scor@scor.com
SCOR Investment Partners SE (formerly known as SCOR Global Investments SE) is subject to extensive regulation in the various jurisdictions in which it operates. These regulations are generally designed to safeguard client assets and ensure the adequacy of disclosures concerning investment returns, risk characteristics of invested assets in various funds, suitability of investments for client investment objectives and risk tolerance, as well as the identity and qualifications of investment managers. These regulations generally grant supervisory authorities broad administrative powers, including the power to limit or restrict the performance of business activities for failure to comply with such laws and regulations.
October 6, 2015, the Court of justice of the European Union invalidated the adequacy decision adopted by the European Commission on July 26, 2000 authorizing the transfer of personal data to US companies subscribing to the principles of the “security sphere” (Safe Harbor). The negotiations between, on one hand, the members of the European Union and its institutions and, on the other hand, the US authorities ended in the creation of a new legal framework, the US-EU Privacy Shield: its entry into force on August 1, 2016 allows the transfer of personal data to the US companies duly registered with the Department of Trade of the United States. In parallel of this new facility, other mechanisms continue to allow the transfer of personal data to the United States, such as (i) the insertion in contracts with
Furthermore, complexity and extraterritorial scope of many legislations on fight against financial criminality (fight against money laundering, financing of terrorism and corruption, compliance with international financial sanctions) create serious risks of significant penalties in case of non-compliance. As an example, see the French Law Sapin II n° 2016-16-91 of December 9, 2016 on fight against corruption.
At the beginning of the 1980s, the French government’s stake in the Company’s share capital, held through the Caisse Centrale de Réassurance, was progressively reduced in favor of insurance companies that were active on the French market. (For more details, see Section 1.2.1 – Introduction).
Following the acquisition of Revios and Converium, SCOR restructured its operations around six regional management platforms, or “Hubs”, which were phased in gradually: ●● on May 5, 2008, for the Cologne Hub (combined with the Zurich Hub from October 1, 2014); ●● on May 20, 2008, for the London Hub (combined with the Paris Hub from April 15, 2015); ●● on June 18, 2008, for the Americas Hub; ●● on June 27, 2008, for the Singapore Hub;
On October 29, 2008, SCOR announced its decision to create SCOR Global Investments SE (which became SCOR Investment Partners SE), its asset management company (société de gestion de portefeuille) and third operational entity within the Group along with SCOR Global P&C SE and SCOR Global Life SE. This new company, incorporated on February 2, 2009, manages SCOR’s investment portfolio and implements the investment strategy determined by the Group’s Investment Committee chaired by the Group Chairman and Chief Executive Officer. SCOR Global Investments SE was approved by the AMF as a portfolio management company with effect from May 15, 2009. As a regulated portfolio management company, SCOR Investment Partners SE carries out its activities on an arms-length basis and with the operational independence required under Article L. 214-9 of the French Monetary and Financial Code (Code monétaire et financier).
On December 4, 2009, SCOR Global Life US Reinsurance Company, a wholly-owned subsidiary of the Group, acquired XL Re Life America Inc., a subsidiary of XL Capital Ltd, for an amount of EUR 31 million. The acquisition strengthened SCOR Global Life’s services in the mortality protection field and reinforced its position in the US Life reinsurance market.
The main operational entities of the Group are presented in the chart below (1): SCOR Global Life SE (France)
(1) The full organizational chart is available on SCOR’s website (www.scor.com).
1.2.3.1. BRIEF DESCRIpTION OF THE GROup AND OF THE pOSITION OF THE ISSuER
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.
See: ●● Section 1.2.3 – Organizational structure of SCOR; ●● Appendix C – 5 Note 2 – Investments; ●● Section 4.6 Note 22 – Related party transactions; ●● Section 4.6 Note 2.1 – Significant subsidiaries, investments in associates and joint ventures; ●● Section 4.7 – Information on holdings; (1) Sources: www.standardandpoors.com; www.ambest.com; www.moodys.com and www.fitchratings.com
●● Section 2.3.3 – Special report of the Statutory Auditors on related party agreements and commitments.
At December 31, 2016, the relevant ratings for the Company were as follows (1): Financial Strength Senior Debt Subordinated Debt
On July 6, 2016, Fitch Ratings affirmed SCOR’s insurer financial strength rating at “AA-” and long-term issuer default Rating at
“A+”. Fitch Ratings also affirmed the ratings of SCOR’s main subsidiaries. The outlooks are stable.
On September 11, 2015, A.M. Best revised the outlook of SCOR and its main subsidiaries to “positive” from “stable”, as well as affirming the financial strength rating of “A” (Excellent) and the issuer credit ratings of “a+”, to reflect, according to A.M. Best’s statement, “the Group’s track record of solid earnings and stability in risk-adjusted capitalization despite the prevailing competitive market conditions”. With regard to SCOR’s debt instruments, A.M. Best also revised the outlook to “positive” from “stable” and affirmed the issue ratings.
and affirmed the long-term issuer default rating at “A+”. Fitch Ratings notably mentioned having taken into account “the development of SCOR’s reinsurance franchise, the scale and diversity of which have improved significantly through external growth and swift integration of acquired operations, helping to generate a more stable level of profitability”. The rating agency also noted “the level of capitalization that Fitch considers to be very strong” as well as “a consistent and prudent reserving philosophy”.
●● a robust capital shield policy (see Section 3.3.5 – Retrocession and other risk mitigation techniques).
With “Vision in Action”, SCOR continues to focus on its two equally weighted strategic targets, profitability and solvency: ●● a ROE at or above 800 basis points above the five-year rolling average of five-year risk-free rates over the cycle; ●● an optimal solvency ratio in the 185-220% range (percentage of SCR, according to the internal model) (1).
Taking into account SCOR’s current exposure and all risk mitigation instruments, footprint scenarios provide impact assessments of past events on the Group’s actual solvency ratio, liquidity, and current operations. SCOR regularly produces and evaluates footprint scenarios, providing comfort that the impact of such events on the Group’s current solvency would be limited.
●● enabling ceding companies to build up their business, particularly when launching new products requiring significant upfront investment or financing or when investing in new markets by starting their own operations or acquiring portfolios or companies.
In facultative reinsurance, the ceding company cedes and the reinsurer assumes all or part of the risks covered by a particular specified insurance policy or by insurance policies covering a specific ultimate group insured as part of the same program. Facultative reinsurance is negotiated separately for each insurance policy that is reinsured. Facultative reinsurance is normally purchased by ceding companies for individual risks not covered by their reinsurance treaties, for amounts in excess of the monetary limits of their reinsurance treaties or for unusual risks. Underwriting expenses and, in particular, personnel costs, are higher relative to premiums written on facultative business because each risk is individually underwritten and administered. The ability to separately evaluate each risk reinsured, however, increases the probability that the underwriter can price the contract more accurately to reflect the risks involved.
With respect to proportional (or quota share) reinsurance, the reinsurer, in return for a predetermined portion or share of the insurance premium charged by the ceding company, indemnifies the ceding company against the same portion of the losses under the covered insurance contract(s). In the case of reinsurance written on a non-proportional basis, through an excess of loss or a stop loss contract, basis, the reinsurer indemnifies the ceding company against all or a specified portion of the loss sustained, on a claim by claim basis or for amounts incurred, in excess of a specified amount, known as the ceding company’s retention or reinsurer’s attachment point, and up to a negotiated reinsurance contract limit.
The Group is organized into three divisions (SCOR Global P&C, SCOR Global Life and SCOR Global Investments), of which 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 a separate reportable operating segment for purposes of IFRS 8 – Operating segments.
The SCOR Global Life segment operates worldwide through the subsidiaries and branches of the global reinsurance companies SCOR Global Life SE and SCOR SE. Via this network SCOR Global Life is represented in its 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 have 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 intends 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.
SCOR Global P&C and SCOR Global Life, through their respective legal entities, are leading global reinsurers, executing an underwriting policy focused on profitability, developing valueadded services and adhering to a cautious financial policy. As at December 31, 2016, the Group served more than 4,000 clients throughout the world. SCOR’s strategy of offering both 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 Non-Life segment is divided into four business areas: ●● Property and Casualty Treaties; ●● Specialty Treaties; ●● Business Solutions (underwriting of large corporate accounts); and
SCOR’s Property and Casualty Treaties business area underwrites proportional and non-proportional reinsurance treaties.
Aviation insurance covers damage caused to aircraft, injuries to persons transported and damage to third parties caused by aircraft or air navigation, as well as losses resulting from products manufactured by companies in the aerospace sector.
To cope with the broader needs of reinsurance buyers in transferring risk, and to benefit from these changes by broadening its services to clients, the Group has developed within the SCOR Global P&C division a dedicated center of expertise that provides insurance and corporate clients with a wider range of hybrid reinsurance solutions for the transformation, financing or transfer of risks. Consequently, the Group is able to assist clients in their active and effective capital management. This business unit combines the division’s expertise in terms of Structured Risk Transfer (SRT), Alternative Risk Financing (ARF) and Insurance Linked Securities (ILS).
Natural Resources insurance covers midstream and downstream business (mainly the oil and gas, refining, petrochemicals, liquefaction, gasification, power generation and distribution, new energy sources and mining sectors), and upstream business (oil and gas exploration and production, offshore construction), shipbuilding groups and oil services companies.
Industrial & Commercial Risks insurance covers manufacturing and heavy industries (automotive, pulp and paper, aeronautics/ defense, high tech) and finance and services (infrastructures, intellectual services, general contractors, distribution and trading).
The Group also participates in insurance and reinsurance pools, mainly Assuratome and Assurpol.
Disability insurance mitigates the loss of income when the insured is totally or partially unable to continue his or her professional occupation or any occupation for which he or she is suited due to sickness or accident.
Critical Illness (CI) insurance typically pays a lump sum benefit, to be used at the policyholder’s discretion, if the insured suffers from a serious condition and survives a defined period.
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 the cover provided by insurers or pension funds.
For information on underwriting, catastrophe risk, claims and reserves, see Section 3.3.1.4 – Management of underwriting risks related to the P&C business and Section 3.3.2.7 – Management of underwriting risks related to the Life reinsurance business.
The proportion of brokered and direct business written by the Group’s subsidiaries varies according to market and cedent practices. For the year ended December 31, 2016, Non-Life wrote approximately 61% of gross written premiums through brokers and 39% through direct business, while Life wrote approximately 6% through brokers and approximately 94% through direct business.
The Group reconciles its strategic objectives with the protection of its capital via its “Capital Shield Strategy”, which articulates the Group’s risk appetite. This strategy is based on an economic approach and aims to protect the Group against potential shock losses. The policy builds on the following four concepts: traditional retrocession, capital market solutions, the solvency scale and the contingent capital facility.
The investment portfolio is positioned dynamically in order to optimize the financial contribution from the investment portfolio to the Group’s results and capital allocation. SCOR follows a capital-driven investment process, ensuring through a very strict ALM process that the tactical asset allocation is aligned with the Group’s risk appetite. Meanwhile, the Group has set very stringent risk limits (value at risk “VaR”, investment guidelines) that enable permanent monitoring of limits to protect the Group from extreme market events and severe loss scenarios.
SCOR has set up a rigorous governance process and an ERM-focused organizational structure: ●● the Board of Directors approves risk appetite, risk limits and as a consequence, the capital allocated to insurance business investments on the basis of the Risk Committee’s recommendations; ●● the COMEX approves the overall investment strategy and the macro-positioning of the investment portfolio on the basis of the Group Investment Committee’s recommendation.
SCOR Investment Partners centralizes the management of all the assets of the Group entities, however in some jurisdictions, such management is delegated to external asset managers. 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. While this business currently remains in the development phase, SCOR Investment Partners is maintaining good momentum and is increasing its third-party assets, which stood at EUR 2.2 billion as at December 31, 2016 (including undrawn commitments).
SCOR Investment Partners benefits from third-party asset management through management fees on the assets under management. SCOR Investment Partners has eight investment strategies which are open to third parties with funds in key products such as High Yield, Private Debt (corporate, infrastructure and real estate loans), ILS and Convertible Bonds.
SCOR GROup #1 1.2.5.7. DEpENDENCY OF THE ISSuER WITH RESpECT TO pATENTS OR LICENSES, INDuSTRIAL, COMMERCIAL OR FINANCIAL CONTRACTS AND NEW MANuFACTuRING pROCESSES
SCOR owns a 5,000 m² office and retail leasehold building at 10 Lime Street in London. As at December 31, 2016, the building was occupied at 53% by SCOR for its London Hub office. The remaining space was rented to third parties. In June 2015, a second building at 32 Lime Street with a surface area of 1,800 m² was made available to SCOR which had committed to acquire it for its operational needs in 2014.
In 2012, SCOR moved into its new 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. On December 28, 2012, the lease of SCOR’s former headquarters (La Défense, Paris), was terminated. Nevertheless, the Group is continuing to lease one floor for IT projects. In November 2016, a second building at 50 rue La Pérouse with a surface area of 1,500 m² was acquired.
In Cologne, SCOR moved in 2012 into its new office building with a surface area of more than 6,000 m² located at 10, Goebenstrasse, held by the German branch of SCOR SE “SCOR Rückversicherung Direktion für Deutschland, Niederlassung der SCOR SE”, and fully occupied by SCOR.
In October 2013, SCOR Reinsurance Asia Pacific PTE LTD, signed a sale and purchase agreement to acquire two floors with a surface area of 2,016 m² for its operational needs in a leasehold building under construction in Singapore. In 2014, four units of an additional floor were acquired in the same building with a surface area of 274 m². In 2015, four additional units of another floor were acquired with a surface area of 269 m². In November 2014, the floors formerly occupied by SCOR in another building were sold and rented pending the delivery of the new building. The building is now completed and the teams are expected to move into the new spaces during the spring 2017.
The Madrid office with a surface area of 1,700 m² is fully occupied by SCOR for its operational needs.
Biometric risks such as mortality, longevity, disability and longterm 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 six Research & Development (R&D) Centers: ●● R&D Center for Mortality Insurance: carrying out mortality studies on life portfolios, enhancing modelling for pricing, reserving and capital modelling 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 modelling for pricing, reserving and capital modelling and providing support in setting assumptions for new business, in particular new products, and reserving; ●● R&D Center for Long-Term Care (LTC) and Disability Insurance: providing support in the development of LTC and disability products (definitions, pricing, guidelines) and the monitoring of the corresponding portfolios; ●● 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
The Centers have entered into many scientific partnerships over the years, the current ones being with: the Assmann Foundation on cardiovascular diseases (EUR 100,000 annually), the Erasmus University on the impact of cancer screening programs (EUR 58,000 over three years ending in 2016) and the Pierre et Marie Curie University at the Pitié Salpêtrière Hospital on HIV developments (EUR 30,000 annually).
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.
●● the Paris School of Economics, which conducts research in the field of economic analysis and modeling in order to improve medium- to long-term forecasting of economic and financial risks. For SCOR, the related cost is EUR 510,000 spread over three years.
SCOR also organizes Actuarial Awards in Europe (Germany, France, Italy, Spain and Portugal, Sweden, Switzerland and the United Kingdom), and in Asia (Singapore). The Group places great importance on the development of actuarial science and each year awards prizes for the best academic papers in the field of actuarial science. These prizes are designed to promote actuarial science, develop and encourage research in this field and contribute to the improvement of risk knowledge and management. The SCOR Actuarial Awards are recognized as a mark of excellence in the insurance and reinsurance industries. The winning papers are selected on the basis of criteria including an excellent command of actuarial concepts, the use of high-quality analysis instruments, and subjects that could have a practical application in the world of risk management.
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 will be “Scientific laws and mathematical models: from physics to actuarial science”.
SCOR’s success relies on the consistent implementation of the four principles on which its strategic plans, “Dynamic Lift”, “Strong Momentum”, “Optimal Dynamics” and now “Vision in Action” are based: a strong franchise, extensive diversification, a controlled risk appetite and a robust capital shield. Success in implementing such a strategy requires that, at regular intervals, the Group assesses whether opportunities which may present themselves relating to the optimization of its business portfolio via acquisitions and disposals and which would be likely to deliver value for its shareholders are in line with this consistent set of principles.
Higher inflation expectations are accompanied by better growth prospects, with risk markets such as credit and equity posting strong performances. Thus, the performance of the US high-yield market stands at 17.4% and that of the European market at 9%, the difference emanating mainly from the US high-yield market’s preference for the energy sector. With regard to equities, Donald Trump’s pro-cyclical and protectionist program has added significant value to US businesses. Thus, over the year, the Dow Jones posted a performance of 16.5%, the S&P of 11.95% and the Russell 2000 of 21.28%, outperforming the European indices such as the Euro Stoxx 50 (+4.83%) and the CAC 40 (+8.81%).
On December 27, 2016, the Insurance Regulatory and Development Authority of India has granted SCOR “R3 authorization”, after having granted SCOR “R2 authorization” on November 8, 2016, allowing the Group to open a Composite Branch office in India to conduct Life and P&C reinsurance business.
On May 24, 2016, SCOR successfully placed a dated subordinated notes issue on the Euro market in the amount of EUR 500 million.
On January 13, 2016, as part of its policy of diversifying its capital protection tools, SCOR sponsored a new catastrophe bond, Atlas IX Series 2016-1, which provides the Group with multi-year risk transfer capacity of USD 300 million to protect itself against named storms in the US and earthquakes in the US and Canada. The risk period for Atlas IX 2016-1 runs from January 13, 2016 to December 31, 2019.
SCOR’s competitors include independent and state-owned reinsurance companies, subsidiaries or affiliates of established worldwide insurance companies, and reinsurance departments of certain primary insurance companies. Among the Group’s major competitors are European reinsurers (for example, Swiss Re, Munich Re and Hannover Re) and US/Bermudian reinsurers (for example, Partner Re, RGA, Chubb, Axis Capital, TransRe, Odyssey Re, GenRe and Everest Re). Also Lloyd’s of London is recognized as a major competitor.
SCOR is characterized by its strategic positioning aimed at diversifying its exposures. To this end, the Group seeks to preserve: ●● the diversification of its business by maintaining a broadly balanced split between its Life and Non-Life reinsurance activities. The business volume split for the year ended December 31, 2016 was approximately 59% for Life reinsurance and 41% for Non-Life reinsurance based on gross written premiums; ●● the geographic diversification of the Group’s business by: – operating in a large number of countries, both mature and emerging,
●● the diversification of underwritten risks by product lines in Life reinsurance (Protection, Financial Solutions, Longevity) and in Non-Life reinsurance (Property and Casualty Treaties, Specialty Treaties, Business Solutions (large corporate accounts underwriting through facultative insurance and reinsurance contracts and occasionally as a direct insurance for industrial groups and services companies) and Business Ventures and Partnerships).
Gross written premiums for the financial year ended December 31, 2016 amounted to EUR 13,826 million, an increase of 3.0% compared to EUR 13,421 million in 2015. At constant exchange rates the growth is 5.3%. The overall increase in gross written premiums of EUR 405 million in 2016 is due to an increase of EUR 489 million for SCOR Global Life, offsetting the decrease of EUR 84 million for SCOR Global P&C.
Gross written premiums for the financial year ended December 31, 2015 amounted to EUR 13,421 million, an increase of 18.6% compared to EUR 11,316 million in 2014. The overall increase in gross written premiums of EUR 2,105 million in 2015 was due to an increase for SCOR Global P&C of EUR 788 million and EUR 1,317 million for SCOR Global Life.
See Section 4.6 – Notes to the consolidated financial statements, Note 4 – Segment information, for further details on the results of the segments.
In 2016, SCOR generated approximately 39% of its gross written premiums in Europe, Middle East and Africa (EMEA) compared to 41% in 2015), with significant market positions in France, Germany, Spain and Italy, 46% of its gross written premiums in the Americas (2015: 43%) and 15% of its gross written premiums in Asia (2015: 16%).
The following table shows the breakdown by gross volume of Life and Non-Life 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 million
(1) In 2015, SCOR Global Life’s individual treaties have been reallocated based on a review of region allocations. The gross written premiums for SCOR Global Life in EMEA, the Americas and Asia Pacific previously reported in the 2014 Registration Document were EUR 2,103 million, EUR 3,498 million and EUR 780 million, respectively for the year ended December 31, 2014,
Gross benefits and claims paid were EUR 9,848 million, EUR 9,499 million and EUR 7,835 million in 2016, 2015 and 2014, respectively. The level of gross benefits and claims paid for SCOR Global P&C increased to EUR 3,164 million during 2016 from EUR 3,135 million in 2015 (2014: EUR 2,788 million). For SCOR Global Life the level of gross benefits and claims paid increased to EUR 6,684 million in 2016 from EUR 6,364 million in 2015 (2014: EUR 5,047 million).
The net results of the Group’s retrocession program were a net cost of EUR 388 million, EUR 336 million and EUR 385 million in 2016, 2015 and 2014, respectively.
(3) The effective tax rate calculation method has been adjusted in 2015 to exclude the share in results of associates from income before tax. The effective tax rate previously reported in the 2014 Registration Document was 24.5% for 2014.
Operating income for the year ended December 31, 2016 amounted to EUR 951 million as compared to EUR 1,048 million in 2015 and EUR 826 million in 2014. The decrease between 2015 and 2016 is notably due to a higher number of natural catastrophes. For the year ended December 31, 2016, the operating segment SCOR Global Life contributed EUR 396 million (EUR 364 million and EUR 285 million in 2015 and 2014, respectively) and SCOR Global P&C EUR 680 million (EUR 808 million and EUR 648 million in 2015 and 2014, respectively) to the operating result. In 2016, 2015 and 2014, EUR (125) million, EUR (124) million and EUR (107) million respectively, related to Group functions.
SCOR generated consolidated net income of EUR 603 million in 2016, compared to EUR 642 million and EUR 512 million respectively for the years ended December 31, 2015 and 2014.
In 2016, SCOR benefited from a strong performance from both operating segments, and an active portfolio management strategy implemented by SCOR Global Investments which safeguarded shareholders’ interests while delivering solid returns. In 2016, the effective tax rate was 21.7%.
(1) The effective tax rate calculation method has been adjusted in 2015 to exclude the share in results of associates from income before tax. The effective tax rate previously reported in the 2014 Registration Document was 24.5% for 2014.
In 2014, SCOR Global P&C actively pursued its P&C treaty business portfolio management strategy by further expanding the proportional property, motor and casualty businesses and by improving geographical diversification in Asia and the Americas.
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 2015, gross written premiums increased by 16% compared to 2014. At constant exchange rates the growth was 4.9%, in line with the forecasts at the beginning of the year.
In 2015 the combined ratio reflected very strong technical results, with a stable net attritional loss ratio 56.9% (versus 56.9% in 2014) despite some significant man-made losses and the lower impact of natural catastrophes compared to 2014. Natural catastrophes had a 2.2% impact on the Group net combined ratio for year end 2015 compared to a 4.2% impact in 2014.
Number of catastrophes occurred during the financial year 18 (3) 11 (5) 8 (6)
Losses and loss adjustment expenses due to catastrophes, gross 323 (4) 117 231 (7)
Losses due to catastrophes, net of retrocession (2) 274 (4) 111 179 (7)
Group net loss ratio excluding catastrophes 54.1% (4) 56.8% 56.9% (7)
Winterstorms, Storm Niklas, US South & Midwest Weather, Chile Earthquake 2015, Typhoon Rainbow/Mujigae, Italy Snow & Windstorm, South Carolina Floods, Chilean Storm & Mudslides and Texas & Oklahoma Heavy Rains.
In 2016, SCOR was affected by the following catastrophes which resulted in total net estimated losses of EUR 307 million as at December 31, 2016: In EUR million Cat losses Date of loss
In 2015, SCOR was affected by the following catastrophes which resulted in total net estimated losses of EUR 111 million as at December 31, 2015: In EUR million Cat losses Date of loss
Other natural catastrophes (less than EUR 10 million) - 34 16
In 2014, SCOR was affected by the following catastrophes which resulted in total net estimated losses of EUR 163 million as at December 31, 2014: In EUR million Cat losses Date of loss
(1) Based on 2016 gross written premiums. (2) At December 31, 2016 exchange rates. (3) Source: 2016 SOA/Munich Re survey of US life reinsurance, published in June 2016.
In 2016, SCOR Global Life continued to grow profitably in a competitive Life reinsurance market. The solid operating profitability of SCOR Global Life was maintained thanks to a robust technical performance across key regions and product lines.
SCOR Global Life has maintained its leadership in the US Life reinsurance market (3), the largest life reinsurance market in the world. After the successful integration of Generali US’s Life reinsurance activities, SCOR Global Life created a common operations platform in North America across multiple sites (Charlotte, Kansas City, Montreal and Toronto). Leveraging this new underwriting platform has led to new account wins, particularly in Canada.
Asia Pacific remains a region with significant growth opportunities both in terms of premiums and profitability. Premiums development in Asia Pacific was driven by higher Protection business volumes in Australia, China and South Korea.
Within the Protection product line, mortality was the main risk underwritten and the main growth driver in 2016: ●● Mortality: more than 60% of SCOR Global Life’s portfolio is traditional mortality reinsurance business, based on 2016 gross written premiums. SCOR Global Life developed a strong position in Mortality in the US, as well as in the major European markets.
●● Disability: SCOR Global Life has established strong market positions in disability in many continental Europe markets and Canada. It has recently selectively entered into the Australian disability market in line with SCOR’s risk appetite, at pricing levels in line with its profitability target, thanks to hardening market conditions.
Through its Global Distribution Solutions (GDS), SCOR Global Life has successfully deployed a number of innovative and tailored client services which aim to help insurers expand and develop their own client bases (ReMark, Velogica, SCOR Telemed and Rehalto). SCOR Global Life has leadership positions in many markets in the EMEA and Asia Pacific regions and achieved strong growth in 2016.
Overall, the Life technical margin in 2016 was 7.0% compared to 7.2% in 2015 and 7.1% in 2014.
Return on invested assets (ROIA as a %) 2.9% 3.1% 2.9%
(1) Realized gains/(losses) on real estate are presented net of EUR 7 million swap termination costs. These are included in financing cost for IFRS presentation purposes.
(2) Realized gains/(losses) on real estate are presented net of EUR 4 million attributable to 3rd parties. These are included in realized capital gains/losses on investments for IFRS presentation purposes.
(4) Real estate financing expenses relate to real estate investments (buildings owned for investment purposes) only. They are not included in the IFRS investment income net of investment management expenses.
SCOR announced its new investment strategy in September 2016, as part of its “Vision in Action” strategic plan. During the next three years, SCOR intends to achieve higher investment returns through a normalization of its asset management policy, consisting in (i) reducing liquidity to 5%, (ii) closing the duration gap by the end of the strategic plan by increasing invested assets’ duration and (iii) providing additional degrees of freedom in the Strategic Asset Allocation.
SCOR’s exposure to loans increased to EUR 718 million as at December 31, 2016 and stands at 4% of invested assets (as at December 31, 2015: EUR 659 million, representing 4% of invested assets).
The real estate portfolio increased to EUR 875 million as at December 31, 2016 and stands at 5% of invested assets (as at December 31, 2015: EUR 793 million, 4% of invested assets).
The following table presents a reconciliation of these figures with the IFRS figures as presented in Section 4 – Consolidated financial statements: As at December 31, 2016
Available-for-sale financial assets - 14,758 968 297 143 264 16,430 - 16,430 123 - 16,553
(1) Including Atlas CAT bonds and foreign exchange derivatives. (2) Other loans and receivables excluded from invested assets are certificates of deposit (CDs) maturing in more than three months and less than twelve months included in short-term investments as well as infrastructure loans and real estate loans. (3) Assets invested by third parties in mutual funds and non-controlling real estate investments fully consolidated by SCOR. (4) Fair value less carrying amount of real estate investments excluding EUR 9 million attributable to third-party investors.
(5) Real estate financing related to real estate investments (buildings owned for investment purposes) excluding EUR 30 million attributable to third-party investors.
SCOR GROup Market and financial review < #1 37/ Document de Référence 2016
IFRS classification Cash Fixed income Loans Equities Real estate Other investments
TOTAL INSURANCE BUSINESS INVESTMENTS AND CASH AND CASH EQUIVALENTS 1,626 14,198 1,222 592 980 745 19,363 9,589 28,952 129 221 29,302
(5) Real estate financing related to real estate investments (buildings owned for investment) excluding EUR 45 million attributable to third-party investors.
The strength of the 2016 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.
After the payment of the 2016 dividend, shareholders’ equity increased from EUR 6,363 million at December 31, 2015 to EUR 6,695 million at December 31, 2016. See Section 4.5 – Consolidated statement of changes in shareholders’ equity for a description of this change.
Book value per share (1) stands at EUR 35.94 at December 31, 2016 compared to EUR 34.03 and EUR 30.60 at December 31, 2015 and 2014, respectively.
The total level of financial liabilities which includes subordinated debt, real estate financing and other financial liabilities decreased to EUR 2,758 million from EUR 3,155 million in 2015 (2014: EUR 2,232 million).
On September 24, 2014, SCOR successfully placed perpetual subordinated notes on the Swiss franc market, with a first call date on October 20, 2020, for an amount of CHF 125 million. On September 25, 2014, SCOR successfully placed perpetual subordinated notes on the Euro market, with a first call date on October 1, 2025, for a total amount of EUR 250 million.
The Group’s liquidity, defined as cash, cash equivalents (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, stood at EUR 2.3 billion at the end of 2016, up from EUR 2.0 billion at the end of 2015 (EUR 0.9 billion at December 31, 2014) supported by very strong operating cash flow generation. The Group has commenced its strategy of redeployment of liquidity as described by the “Vision in Action” asset management policy.
This comprehensive and holistic model was developed internally over the last 10 years, 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 modelling dependencies across risks and using cutting-edge methodologies.
At year-end 2016, SCOR’s solvency ratio stood at 225% (1), marginally above its optimal solvency range of 185%-220% as defined in the “Vision in Action” plan.
For further information on risk management mechanisms, see Section 3 – Risk factors and risk management mechanism and Appendix A – 2 – Internal control and risk management procedures.
Cash flow used in financing activities amounted to EUR 895 million in 2016 (positive cash flow of EUR 417 million in 2015). These amounts principally reflect the dividend payments, the issuance of one subordinated debt in 2016 and two subordinated debts in 2015 as well as the repayment of two existing debts in 2016 and of two other existing debts in 2015.
The table below presents a detailed calculation of book value per share: In EUR million As at 12/31/2016 As at 12/31/2015 As at 12/31/2014
SCOR GROup Market and financial review < #1 1.3.9.2. RETuRN ON INVESTMENTS AND RETuRN ON INVESTED ASSETS
(2) Average invested assets are the quarterly averages of the total invested assets as per the “Invested assets” reconciliation table included in Section 1.3.5.4 – Net investment income and investment income on invested assets.
Total expenses as per profit & loss account (1) (761) (725) (607)
(1) Total expenses are investment management expenses, acquisition and administrative expenses and other current operating expenses as presented in Section 4.2 – Consolidated statement of income.
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 on a pro-rata temporis basis).
The table below presents a detailed calculation of the combined ratio: In EUR million Year ended 12/31/2016
Throughout the period of validity of the Registration Document, the bylaws and any other document required by law may be consulted and are freely available upon request from the registered office of the Company at 5 avenue Kléber, 75016 Paris, France.
The information published by SCOR within the last 12 months from March 4, 2016 to March 3, 2017 is available for downloading from the following sites: ●● Autorité des marchés financiers (AMF): ●● Bulletin des Annonces Légales Obligatoires (BALO): ●● SCOR: ●● L’info financière:
2.1. CORPORATE OFFICERS, EXECUTIVES AND EMPLOYEES 44 2.1.1. Corporate governance principles 44 2.1.2. Board of Directors 45 2.1.3. Board of Directors’ Committees 62 2.1.4. Executive Committee 66 2.1.5. Number of employees 68 2.2. EXECUTIVE COMPENSATION AND SHARE OWNERSHIP 69 2.2.1. Compensation of the executive corporate officer and directors 69 2.2.2. Compensation of Executive Committee members other than the chairman and Chief Executive Officer 80 2.2.3. Stock options and performance shares 82 2.3. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 100 2.3.1. Capital ownership 100 2.3.2. Related party transactions and agreements 108 2.3.3. Special report of the Statutory Auditors on related party agreements and commitments 109
SCOR decided to adapt a provision of the AFEP-MEDEF corporate governance code as follows: ●● Section 9.4 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.
At its meeting on April 18, 2002 and in compliance with Article L. 225-51-1 of the French Commercial Code and Article 16 of SCOR’s bylaws (“Executive Management”), the Board of Directors of the Company decided that the management of the Company would be carried out under its responsibility by the Chairman of the Board of Directors, with the title of Chairman and Chief Executive Officer, who may be assisted by a Deputy Chief Executive Officer.
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, which were particularly useful during the last financial crisis and in the recent acquisitions in the United States in 2011 and 2013.
Moreover, several elements of SCOR’s governance enable it to ensure a good balance of powers.
Thus, in 2016, all of the directors were independent, except the Chairman and Chief Executive Officer, the employee director and Thierry Derez since COVEA crossed the 5% shareholding threshold during the last year.
The Board of Directors of SCOR also has a Lead Independent Director who may include any subject he deems necessary on the agenda of the Board of Directors’ meetings and can convene the Non-Executive Directors’ Session as often as is required.
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 so as to interview them on topics related to the performance of their functions, in the absence of the Chairman and Chief Executive Officer.
During its meeting held on March 4, 2015, the Board of Directors of the Company limited the powers of the Chairman and Chief Executive Officer by stipulating in the Board’s Internal Charter the need for prior Board approval for the following operations: ●● organic growth investments and major internal structuring operations; ●● any significant operation falling outside of the scope of the strategy announced by the Group; ●● any project regarding a sale or acquisition, merger or asset contribution higher than one hundred million euros. In addition, any project regarding a sale, in one or more transactions, concerning at least half of the Company’s assets must be submitted to the Shareholders’ Meeting, as recommended by the AFEP-MEDEF corporate governance code.
Furthermore, in addition to the Chairman and Chief Executive Officer of SCOR SE, two other persons effectively running SCOR SE and the Group have been appointed. Since January 1, 2016, the effective management of the Company and the Group has been overseen by at least two persons, pursuant to the requirements of the Solvency II directive and the French Insurance Code (Code des assurances) (see Section 2.1.4 – Executive Committee).
The demonstrated benefits of combining the duties of Chairman and Chief Executive Officer in terms of the decision-making process within SCOR and the guarantees provided by the Company’s governance rules brought the Board of Directors to suggest that this combination be maintained beyond the 2017 Shareholders’ Meeting.
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 of 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).
Directors are required to comply with applicable law and SCOR SE’s bylaws. Under French law, directors are liable for violations of French legal or regulatory requirements applicable to European Companies, violation of a company’s bylaws or mismanagement (“faute de gestion”). Directors may be held liable for such actions both individually and jointly with other directors.
MAIN pOSITION ●● Chairman and Chief Executive Officer of SCOR SE (France)
pOSITIONS THAT ExpIRED DuRING THE LAST FIVE YEARS ●● Director of Bolloré SA (France)*
French – Age: 71 – GENERALI FRANCE 2 rue Pillet Will 75009 Paris, France
pOSITIONS THAT ExpIRED DuRING THE LAST FIVE YEARS ●● Chairman of the Board of Directors of Generali Vie (France)
●● Chairman of the Board of Directors of Europ Assistance Holding (France)
●● Member of the Supervisory Board of Generali Investments SpA (Italy)
●● Permanent representative of Europ Assistance Holding on the Board of Directors of Europ Assistance (Spain)
French – Age: 58 – SCOR SE 5 avenue Kléber 75795 Paris Cedex 16, France
Date of first appointment: April 30, 2015 Expiration of term: 2017
French – Age: 39 – BPCE 50 avenue Pierre Mendès France 75201 Paris Cedex 13, France
OTHER pOSITIONS ●● Permanent representative of BPCE, director of Natixis (France)*
●● Permanent representative of BPCE, director of Crédit Foncier de France (France)
●● Chairman of the SAS and Chairman of the Board of Directors of ISSORIA (France)
●● Permanent representative of BPCE, Chairman of ISSORIA International Trading (France)
●● Permanent representative of BPCE, member of the Supervisory Board of FLCP (France)
Marguerite Bérard-Andrieu, a French citizen, is a graduate of the Institut d’Études Politiques de Paris, of Princeton University (Woodrow Wilson School of International and Public Affairs), and a former student at the École Nationale d’Administration (ENA). She began her career in 2004 as an auditor at the French Treasury in the Inspection Générale des Finances. From 2007 to 2010, she was an advisor to the President of the French Republic on employment and social affairs. From November 2010 to May 2012, she was the Chief of Staff of the French Minister for social affairs. In July 2012, Marguerite Bérard-Andrieu joined Groupe BPCE, and was appointed Deputy Chief Executive Officer, member of the General Management Committee in charge of Strategy, Legal Affairs, the Group Company Secretary’s Office and Compliance. In the first half of 2015, Marguerite Bérard-Andrieu joined the Steering Committee of Institut Montaigne. In 2016, she was appointed member of the Management Board in charge of the Group finance, strategy, legal Affairs and Group company secretary of BPCE Group.
Date of first appointment: April 25, 2013 Expiration of term: 2017
●● Chairman of the Board of Directors and Chief Executive Officer of MAAF Assurances (France)
●● Chairman of the Board of Directors of Assurances Mutuelles de France (France)
●● Chairman of the Board of Directors of MMA IARD Assurances Mutuelles (France)
●● Chairman of the Board of Directors of MMA Vie (France)
●● Chairman of the Board of Directors of MMA Vie Assurances Mutuelles (France)
pOSITIONS THAT ExpIRED DuRING THE LAST FIVE YEARS ●● Director of GMF Vie (France)
●● Director and Vice-Chairman of Covéa Ré – Société de Réassurance Mutuelle (France)
●● Permanent representative of Assurances Mutuelles de France on the Board of Directors of la Sauvegarde (France)
●● Chairman of the Board of Directors of AME Lux (Luxembourg)
Belgian – Age: 45 – SIMONT BRAUN SCRL Avenue Louise 149/20 1050 Brussels, Belgium
OTHER pOSITIONS ●● Director and member of the Executive Committee of Simont Braun (Belgium)
●● Lecturer and research assistant at the Université libre de Bruxelles (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 managing partner 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 a lecturer at the Université Libre de Bruxelles where she teaches International Financial Law.
Member of the Strategy Committee, Audit Committee, Compensation and Nomination Committee and Crisis Management Committee
pOSITIONS THAT ExpIRED DuRING THE LAST FIVE YEARS ●● Director of Gottex Fund Management Holdings Limited (Guernsey)
●● Director of Compagnie Foncière Macif (Permanent representative of Macif) (France)
●● Member of the Supervisory Board of Inter Mutuelles Assistance (permanent representative of Macif) (France)
●● Ex officio member at the Board of Directors of Campus (GIE), as an observer (France)
●● Member of the Steering Committee of Sipemi (permanent representative of Macif) (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 30, 2015 Expiration of term: 2019
French – Age: 55 – AÉROPORTS DE PARIS 291 boulevard Raspail 75014 Paris, France
MAIN pOSITION ●● Chairman and Chief Executive Officer of Aéroports de Paris (France)*
OTHER pOSITIONS ●● Chairman and Director of Média Aéroports de Paris (France)
●● Director and Vice-Chairman of the Board of Directors of TAV Yatirim Holding A.S. (TAV Investment) (Turkey)
●● Director and Vice-Chairman of the Board of Directors of TAV Tepe Akfen Yatirm Insaat Ve Isletme A.S. (TAV Construction) (Turkey)
●● Chairman of the Board of Directors of Fonds Stratégique d’Investissement (France)
●● Chairman of the Management Board of Fonds de réserve des retraites (France)
●● Permanent representative of Caisse des dépôts et consignations on the Board of Directors of La Poste (France)
●● Permanent representative of Caisse des dépôts et consignations on the Board of Directors of Icade (France)*
French – Age: 65 – GROUPE MALAKOFF MÉDÉRIC 8, rue des Graviers 92200 Neuilly-sur-Seine, France
●● Chairman of the Board of Directors of Viamédis SA (France)
●● Chairman of the Board of Directors of Auxia Assistance SA (France)
●● Sole Chief Executive Officer of SAM Caisse Mutuelle d’Assurances sur la Vie “CMAV” (France)
●● Chairman of the Board of Directors of Fédéris Gestion d’actifs SA (France)
●● Chairman of the Management Board of Malakoff Médéric Epargne SA (France)
●● Chairman of the Board of Directors of Monde Prévoyance SAS (France)
●● Member of the Supervisory Board of Société Éditrice du Monde SA (France)
●● Permanent representative of Malakoff Médéric Prévoyance on the Board of Directors of Korian (France)
Guillaume Sarkozy, a French citizen, is an engineer by training and a graduate of the École Spéciale des Travaux Publics (ESTP). He began his professional career in 1974 at the Office of Public Safety in the Ministry of the Interior, before joining IBM France as a large corporate accounts manager in 1977. From 1979 to 2005, he was a company leader in the textile industry. Up to June 2006, Guillaume Sarkozy exercised a number of positions at the head of professional associations, in particular, the French Textile Industries’ Union (1993-2006), the Industrial Federations Group (2004-2006), CNPF (1994-1998), MEDEF (2000-2006), CNAV (1994-1998), CNAM (2004-2005) and the Conseil Économique et Social (2004-2006). In 2004, he became Vice-President of the MEDEF and of the CNAM (2004-2005). From 2004 to 2013, he was a member of the “Haut Conseil pour l’avenir de l’Assurance Maladie”. Guillaume Sarkozy joined Médéric Group in June 2006 and was appointed Group General Manager on September 1, 2006. He was appointed Group General Manager of Malakoff Médéric Group in July 2008 with the merger of the Médéric and Malakoff groups and non-executive General Manager from January 1, 2016. He is the Chairman of Malakoff Médéric Handicap Foundation.
British – Age: 48 – SCOR SE 5, avenue Kléber 75016 Paris, France
British – Age: 58 – AMERICAN AND LEADERS’ QUEST LTD 204 Lauderdale Mansions Lauderdale Road London W9 1NQ, United Kingdom
●● Non-executive Member of the Board of the Department of Culture, Media and Sports of the UK Government (UK)
Fields Wicker-Miurin, an American and British citizen, studied in France at the Institut d’Études Politiques de Paris and then in the United States and Italy. She graduated from the University of Virginia and Johns Hopkins University. Fields Wicker-Miurin began her career in banking, before joining Strategic Planning Associates (now Oliver Wyman Consulting) as a senior partner where she was the main advisor to Lloyd’s of London. In 1994, she became Chief Financial Officer and Head of Strategy of the London Stock Exchange. She was a member of the Nasdaq Technology Advisory Council and advised the European parliament on financial markets harmonization. In 2002, she was one of the founders of Leaders’ Quest, whose activity involves organizing programs that allow international leaders from all sectors to meet actors from business and civil society in emerging countries and share their experiences. In 2007 she was awarded the OBE (Officer of the British Empire) and in 2011 she was awarded Fellow of King College London. She is also a director of BNP Paribas, of Control Risks International and a non-executive Member of the Board of the Department of Culture, Media and Sports of the UK Government where she chairs the Audit and Risk Committees.
As of December 31, 2016, the membership of the Board of Directors is as follows: ●● 75% are independent directors (83.3% as at December 31, 2015) and 81.8% excluding employee director. The Audit Committee is fully composed of independent directors and the Risk Committee is composed of 83.3% of independent directors and 66.7% (80% excluding employee director) of independent directors for the Compensation and Nomination Committee; ●● 58.3% are directors with past experience in the insurance or reinsurance industry, same as at December 31, 2015. The other directors work in the financial sector, banking, legal advisory services and other services; ●● 33.3% are non-French directors (41.6% as at December 31, 2015) with directors who are American, Belgian, British and Swiss; ●● 41.6% are women (33.3% as at December 31, 2015). The composition of the Board of Directors is therefore compliant with the applicable law.
The Board of Directors determines the Group’s business plan, oversees the implementation of the business plan, and supervises management’s administration. With the exception of powers explicitly reserved to shareholders in Shareholders’ Meetings and within the limits of the corporate purpose, the Board addresses any subject related to the Company’s performance and takes decisions regarding business issues concerning the Company. It takes part in the sound and prudent management of the Company. 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 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.
Marguerite Bérard-Andrieu Yes Yes Yes Yes Yes Yes Yes Yes Yes
Thierry Derez Yes Yes Yes Yes Yes Yes Yes No No
Vanessa Marquette Yes Yes Yes Yes Yes Yes Yes Yes Yes
Bruno Pfister Yes Yes Yes Yes Yes Yes Yes Yes Yes
Jean-Marc Raby Yes Yes Yes Yes Yes Yes Yes Yes Yes
Thierry Derez, Chairman and Chief Executive Officer of Covea (8.19% of SCOR’s capital and 8.53% of its voting rights as of December 31, 2016) is not deemed to be independent due to the exceeding of the 5% threshold presented in criterion 8 above.
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 these three directors can be considered as independent.
He convenes the non-executive directors as often as needed. The Lead Independent Director of the Company chairs the non-executive directors’ session.
Directors undertake to hold no more than four other corporate officer positions in listed companies, including foreign companies, outside of the Group. They are required to consult the Lead Independent Director and the Chairman of the Compensation and Nomination Committee prior to their prospective appointment date as director, Chairman and Chief Executive Officer, Chairman of the Board of Directors, Chief Executive Officer, member of a Supervisory Board or Management Board or Chairman of an Executive Board of other companies, whether the head office of such companies is located in France or abroad, so that the Board of Directors assisted by the Compensation and Nomination Committee, can verify that the directors are in compliance with the legal limits imposed on multiple offices and that any potential conflict of interest has been dispelled.
The Board Internal Charter sets out the main recommendations of the market authorities with regard to directors trading in the securities of the Company.
Then, the Board Internal Charter requires directors to register all SCOR shares that they themselves or their minor children hold at the time they enter office or those acquired subsequently. In addition, the Board Internal Charter lays down certain restrictions on trading in SCOR’s securities: ●● first, it is forbidden to trade in SCOR’s securities while in possession of information which, when made public, is likely to have a significant impact on the share price; ●● in addition, it is forbidden to directly or indirectly conduct any transaction with regard to SCOR’s securities during certain sensitive periods that the Group notifies to the directors or during any period preceding an important event affecting SCOR and likely to influence the share price.
Lastly, directors are required to inform the Company of all transactions conducted with regard to its securities, directly or by an intermediary, on their behalf or on behalf of a third party, by their spouse, or by a third party holding a power of attorney.
The Board of Directors of SCOR SE decided, in order to protect the Company’s interests, to implement an internal control program to prevent risks of conflict of interest through: 1. A review by the Audit Committee of related party transactions.
2. An annual review of each director’s situation, in order to analyze his or her independent status and the existence of any potential existing conflicts of interests.
4. The adoption of a Code of Conduct communicated to all employees. This Code establishes reinforced requirements as regards the prevention of situations with risks of conflict of interests. It is completed by a policy defining the alert procedures (“whistleblowing”) available for employees and which are reported to the Audit Committee.
The Company’s Board of Directors held five meetings in 2016 and they lasted on average 2.5 hours.
the 2016 internal model, approval of the 2016 ORSA report, review of the annual report of the actuarial function; ●● governance and human resources matters: review of the Group compensation policy, 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 and follow-up, renewal of the D&O program, annual deliberation on professional gender equality and equal pay, annual review the competence and fitness and properness of directors and the persons effectively running the company; ●● Shareholders’ Meeting: convening of the Shareholders’ Meeting and approval of the related reports; ●● business matters 2016: Investment strategy and introduction to agriculture; ●● other topics: annual review and authorization of related party agreements, approval of the modifications made to the Board Internal Charter, adoption of the new strategic plan “Vision in action”, review of Brexit consequences.
The average attendance rate of the members of the Board was 93.4% (1). The following table displays the attendance of the members of the Board of Directors during 2016: Board members Attendance rate (in %)
Fields Wicker-Miurin 100 * Director appointed by the Shareholders’ Meeting on April 27, 2016. ** Director whose term ended at the Shareholders’ Meeting on April 27, 2016. *** Representing Malakoff Médéric Group, director.
Moreover, two training sessions were organized in 2016 for Board members on the following topics: ●● Governance, organization and strategy of SCOR Global Investments, on February 23, 2016; ●● Evolution and potential impacts of EU audit rules, on October 25, 2016.
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 2016/beginning of 2017.
They noted that several of the changes they had suggested in the course of the 2016 assessment had been taken into consideration. In particular, the outcome is very positive concerning, on one hand, the Board’s enhanced involvement in the strategy definition, and, on the other hand, the Board’s risk awareness and its contribution to the risk management. They also welcomed, consistently with their 2016 suggestion, the reduction of the volume of the Committees and Board meetings’ documents and the systematic addition of an “Executive summary”.
As at the issuance date of the Registration Document, and to SCOR’s knowledge, there are no family relationships between the directors or between a director and a member of the Company’s Executive Committee.
There is no arrangement or agreement concluded with shareholders, clients, suppliers or others pursuant to which any member of the Board of Directors or any member of the Executive Committee of the Company has been appointed.
To our 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.
Fields Wicker-Miurin 100 * Member of the Strategy Committee until April 27, 2016. ** Member of the Strategy Committee from April 27, 2016. *** Representing Malakoff Médéric Group, director.
(1) The attendance rate does not take into account the directors whose term ended on April 27,2016.
The Committee may consult the Chief Financial Officer, the Head of Internal Audit, the Heads of the actuarial and compliance functions and the Statutory Auditors on these issues, including in the absence of SCOR executives. It may also call upon outside experts. During the 2016 financial year, and for each meeting, it met with the Statutory Auditors, the Group Chief Financial Officer (during the review of the financial statements) and the Head of Internal Audit, in the absence of SCOR executives. The review of the financial statements was completed by a presentation made by the Statutory Auditors highlighting the main results of their work and the accounting methods used, as well as by a presentation made by the Group Chief Financial Officer describing risk exposure and material off-balance sheet liabilities.
The Audit Committee met on four occasions in 2016, each meeting lasting approximatively 2.5 hours. The Chairman and Chief Executive Officer attended all the meetings in 2016.
The discussions focused primarily on the following matters: ●● accounting and financial responsibilities: The review of the quarterly, half-year and annual financial statements, the review of the half-year interim report, the hybrid debt issuance, the review of the 2016 budget and operating plan, the embedded value, the review of the Statutory Auditors’ report, the review of the 2015 Registration Document and of the management report, the review of the financial resolutions for the Annual Shareholders’ Meeting; ●● ethical, internal control and compliance responsibilities: The review of the quarterly internal audit reports and of the 2016 internal audit plan, the annual review of the Group Policies (especially those required by Solvency II), the actuarial function report, the annual review of compliance activities, the annual review of related party agreements and of the review of the work of the Audit Committees of the subsidiaries.
The average attendance rate of the Committee Members was 100% (1). The following chart states the attendance of the members of the Risk Committee in 2016: Committee members Attendance rate (in %)
CORpORATE GOVERNANCE AND ExECuTIVE COMpENSATION Corporate officers, executives and employees < #2 2.1.3.4. THE COMpENSATION AND NOMINATION COMMITTEE
The Compensation and Nomination Committee is composed of Claude Tendil (Chairman), Michèle Aronvald (employee director), Thierry Derez, Bruno Pfister, Augustin de Romanet and Fields Wicker-Miurin.
The Committee submits recommendations concerning compensation packages for the executive corporate officer and members of the Executive Committee of the Group, pensions, share allocation plans and stock option plans or stock subscription plans to the Board of Directors 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 Chairman and Chief Executive Officer attends to the works of the Compensation and Nomination Committee meetings relating to appointments and to those relating to the compensation policy of members of the Executive Committee of the Group.
(1) The attendance rate does not take into account the directors whose term ended on April 27, 2016.
The Compensation and Nomination Committee met five times in 2016, each meeting lasting approximately two to three hours.
The Crisis Management Committee is composed of Claude Tendil (Chairman), Denis Kessler, Bruno Pfister, Augustin de Romanet and Kory Sorenson.
It is charged with assisting and advising the Board of Directors and proposing 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.
Depending on the agenda, the Lead Independent Director, who chairs this Committee, may exclude the Chairman and Chief Executive Officer from the discussions of the Crisis Management Committee. The Chairman and Chief Executive Officer must, moreover, be disqualified from such discussions if the crisis is linked to a subject that personally concerns him.
It brings together the non-executive directors so that they can exchange ideas outside the context of the Board of Directors’ meetings. It may be called in case of a conflict of interest between the Board and the management team, a non-adherence to the corporate governance code, an inability of the corporate officer to carry out his duties as a result of an accident or his death or a proven breach of the code of ethics on the part of the corporate officer.
The Chairman and Chief Executive Officer has executive authority to manage the SCOR’s business, subject to the prior authorization of the Board of Directors or the shareholders 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 the actual direction of SCOR must be assured by at least two people. 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.
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, after a short sabbatical period, was appointed Chief Executive Officer of SCOR Global Life.
Benjamin Gentsch, a Swiss citizen, graduated with a degree in management from the University of Saint-Gall where he specialized in insurance and risk management. From 1986 to 1998, he held several positions at Union Reinsurance Company, where from 1990 to 1998 he directed treaty underwriting in Asia and Australia. In 1998, he joined Zürich Re as head of international underwriting responsible for strengthening the company’s position in Asia, Australia, Africa and Latin America. He also supervised the “Global Aviation” reinsurance
Mark Kociancic, a Canadian citizen, 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 progressively 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 CFO in June 2008 and was promoted to Executive Vice-President in July 2010. He was appointed Deputy CFO of SCOR Group in October 2012 and in May 2013 became Group Chief Financial Officer.
Romain Launay, a French citizen, is a graduate of the École Polytechnique, civil engineer of the École des Mines de Paris and graduate of the Centre des Hautes Études de l’Assurance. Having occupied various positions at the French Ministry for the Economy and Finance between 2004 and 2009, he became Technical Advisor to the Prime Minister’s Office in 2009. He joined SCOR in February 2012 as Senior Advisor to the Chairman and Chief Executive Officer, before being appointed Group General Secretary in May 2014. In February 2016, he became Group Chief Operating Officer.
The total number of employees of the Group increased from 2,706 as at December 31, 2015 to 2,802 as at December 31, 2016. The distribution of personnel covers the various geographical areas to meet the strategic principles of the Group.
(1) Each Hub covers a region and may encompass several countries. (2) The Paris/London Hub covers France, Spain, Italy, Belgium, the Netherlands, Russia, South Africa, the United Kingdom, Ireland and Sweden. (3) The Americas Hub covers the United States, Mexico, Brazil, Canada, Chile, Colombia and Argentina. (4) The Zurich/Cologne Hub covers Switzerland, Israel and Germany.
(9) The “Group Functions and Support” division includes the Group’s Finance, Risk and Operations Departments 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, 2016). Due to its specific activity, its business model and its organization, MRM’s human resources are managed independently from the Group.
CORpORATE GOVERNANCE AND ExECuTIVE COMpENSATION Executive compensation and share ownership < #2 2.2. EXECUTIVE COMPENSATION AND SHARE OWNERSHIP
2.2.1.1. pRINCIpLES AND RuLES STATED FOR THE DETERMINATION OF COMpENSATION AND IN-KIND BENEFITS OF THE CHAIRMAN AND CHIEF ExECuTIVE OFFICER
The Board of Directors of SCOR SE decided, during the meeting of December 12, 2008, to apply the AFEP (Association of French Private-sector Companies) and MEDEF (French Business Confederation) recommendations of October 6, 2008 on the compensation of executive corporate officers of listed companies to the compensation of the executive corporate officer considering that these are in line with SCOR corporate governance principles.
In application of 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.
Every year, the conditions of compensation for the executive corporate officer and the directors are made public through the documents released for the Shareholders’ Meeting.
Start date of term of office: 11/04/2002 (1st appointment date) End date of term of office: 2017 X X X X
In the event of termination of the term of office of the Chairman and Chief Executive Officer, a severance pay package is determined depending on the kind of termination.
2.2.1.2. COMpENSATION OF THE CHAIRMAN AND CHIEF ExECuTIVE OFFICER FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2016
(1) The variable annual compensation related to the 2016 financial year has been determined by the Board of Directors for the Chairman and Chief Executive Officer based on a percentage of achievement for the financial objective of 101.6%, and a percentage of achievement for the personal objectives of 135%. This variable annual compensation amount was paid in one instalment in March 2017.
In accordance with the recommendations stated in the AFEPMEDEF corporate governance code (Section 24.3) and pursuant to its implementation guide, the compensation elements due or attributed to the executive corporate officer for the financial year ended December 31, 2016 are presented below.
The benchmark study conducted by Mercer in 2016 on behalf of the Compensation and Nomination Committee concludes that the compensation package of the Chairman and Chief
Following the recommendation of the Compensation and Nomination Committee at its February 9, 2016 and February 22, 2016 meetings, the Board of Directors at its February 23, 2016 meeting decided that the Chairman and Chief Executive Officer would receive a target variable annual compensation of EUR 1,200,000 (100% of his fixed gross annual amount), unchanged from last year.
Moreover, the Group policy states that, for participation 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.
The total variable annual compensation of the Chairman and Chief Executive Officer may not exceed 165% of his target variable annual compensation of EUR 1,200,000, and consequently cannot exceed either 165% of his fixed annual compensation.
For 2016, 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 corresponding to the average over the ROE objectives’ period determined by the strategic plan in effect. Such ROE objectives are: for the first half of 2016, 1,000 bps above the risk-free-rate (“Optimal Dynamics” target), and for the second half of 2016, 800 bps above the 5-year risk-free-rate (“Vision In Action” target).
The Board of Directors determined a percentage of achievement for the financial objective of 101.6%.
●● 50% based on the achievement of personal objectives: preparation and adoption of the 2016-2019 strategic plan “Vision in Action”, maintaining a solvency ratio equal or higher than the lower limit of the optimal range defined in the strategic plans, continued balancing of geographical positions by reinforcing the positions of the Group in Asia and United-States, implementation of the strategic plan of Lloyd’s syndicate (Channel), and broadening and deepening of the Group’s talent pool. These objectives are equally weighted.
Regarding the personal objectives, the Board of Directors determined, on the proposal of the Compensation and Nomination Committee, that the personal objectives were fully achieved, leading to a percentage of achievement of 135%.
The personal objectives, their respective assessment and achievement rate are detailed in the table below.
Strategy Preparation and adoption of the 2016-2019 strategic plan “Vision in Action”
This variable annual compensation is paid in one instalment in March 2017.
Aside from the mandatory conditions (1) and (2), if the observed average solvency ratio (condition (3)) is lower or higher than the “Target Solvency Ratio” *, the options will be acquired according to the progressive scale set out in the table below: Difference between the average solvency ratio and the “Target Solvency Ratio”*
Proportion of the options definitively acquired in line with this criteria
Between 0 and up to -35 percentage points linear degressive scale
* If the strategic plan sets a target or “optimal” interval, the measurement below this interval is considered for calculation purposes as being the Target Solvency Ratio.
The stock options and performance shares granted to the executive corporate officer in 2016 represent 0.117% of the share capital, 8.70% compared to the total allocations in 2016; and 64% compared to his overall compensation.
In addition to the deferred amount, an amount of EUR 84,811 was paid by the Company in 2016 with regard to social security schemes and individual health coverage
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 to cover the risks inherent in the duties of Chairman and Chief Executive Officer of the Company, in an amount equivalent to three years of fixed and variable compensation; the insurance is obtained by the Company.
To this end, an individual insurance 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 whose last version is compliant with the collective and compulsory welfare plan, specific to SCOR, as modified with effect on July 1, 2014, which benefits from now on 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.
Severance pay** No amount is payable in respect of the year ended 12/31/2016
The Ordinary and Extraordinary Shareholders’ Meeting of May 3, 2012, in its fifth 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 for the benefit of the Chairman and Chief Executive Officer: In the event of the departure of the Chairman and Chief Executive Officer during the current financial year: ●● the variable portion of his compensation for the prior year will be payable during the current year as soon as the Company’s financial statements for the prior year are approved by the Board of Directors; ●● in addition, in the case of dismissal, the amount of the variable portion of his compensation for the current year will be (i) determined on the basis of the variable compensation for the prior year and prorated on the basis of the departure date for the current year, and (ii) paid as soon as the Company’s financial statements for the prior year are approved by the Board of Directors.
The performance condition (C_n), approved by the Board of Directors, upon the recommendation of the Compensation and Nomination Committee, will be met for the current year if at least three out of the four criteria below are fulfilled.
This guarantee is calculated according to a revenue of reference 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 the pension, subject to still being in the Company as a corporate officer or an employee of the Company at the time the benefits are granted.
The undertakings made by SCOR concerning the defined benefit supplementary pension schemes of its Chairman and Chief Executive Officer represent, as at December 31, 2016, an estimated annual gross pension amount of EUR 928,141, based on seniority as at December 31, 2016. This amount represents 42,19% of the Chairman and CEO’s gross annual remuneration, which consists of the annual base salary for 2016 (EUR 1,200,000) and the target variable salary component (EUR 1,200,000).
The decrease mainly reflects the evolution of demographic (update on the retirement horizon and mortality table) and financial (update of bonus, technical and discount rates) hypothesis. The remaining part corresponds to the acquisition of an additional year of rights.
The Chairman and Chief Executive Officer did not exercise any options during the 2016 year.
Valuation of shares as per method used in the consolidated financial statements (in EUR) Vesting date
Denis Kessler 125,000 05/03/2012 Requirement of presence at the company as at May 3, 2014 and performance conditions
SCOR Group’s ROE > 300 points above the risk-free rate on average in 2012 et 2013 1,015 bps Yes
Furthermore, The Chairman and Chief Executive Officer acquired some performance shares during the 2016 year. Nevertheless, these shares will become available only from 2018. These performance shares have been granted in the plan of March 4, 2014. Please see Section 2.2.3.2 of this Registration Document for the details of the share award rights granted to the Chairman and to the Executive Committee members. Please see Section 2.2.3.4 of this Registration Document to see the details of the performance conditions attached to the plan and their achievement.
The Shareholders’ Meeting of the Company held on May 6, 2014 resolved that the annual maximum aggregate amount of directors’ fees shall not exceed EUR 1,152,000. Upon the proposal of the Compensation and Nomination Committee and within the limit of this amount, the Board of Directors’ meeting held on July 28, 2015 set the terms and conditions of the allocation so as to encourage the attendance of the directors and in order to be compliant with the AFEP-MEDEF corporate governance code which stipulates that directors’ compensation should include a significant variable portion. In accordance to the AFEP-MEDEF corporate governance, the directors should be shareholder personally and hold a significant number of shares in relation to the directors’ fees. According to the Board’s Internal Charter, the significant number of shares is equal to an amount of EUR 10,000 as directors’s fees.
It was decided to allocate the directors’ fees to each director partly in one fixed sum of EUR 28,000 annually payable at the end of each quarter and partly based on the actual presence of the directors at the meetings of the Board of Directors and of its Committees, in an amount equal to EUR 3,000 per Board or per Committee meeting they attend, except for the Chairmen of the Audit Committee, Risk Committee and Compensation and Nomination Committee, who receive an amount equal to EUR 6,000 for each meeting of the Committee that they chair. Moreover, the individual members of the Board with the exception of the Chairman and Chief Executive Officer and employee officer received on September 8, 2016, EUR 10,000 in SCOR shares.
With the exception of the Chairman and Chief executive Officer and the employee director, the members of the Board are not entitled to Company stock option plans or free share allocation plans, nor any variable compensation other than the directors’s fees attributable to their attendance.
(2) Directors appointed by the Ordinary and Extraordinary Shareholders’ Meeting of April 27,2016. (3) Directors whose appointment ended at the Ordinary and Extraordinary Shareholders’ Meeting of April 27,2016. (4) Directors whose appointment ended at the Ordinary and Extraordinary Shareholders’ Meeting of April 30,2015.
Moreover, certain current SCOR directors are, or have been, members of the Boards of Directors of subsidiaries of the Group and received directors’ fees for 2016 and/or 2015 as follows: SCOR Holding (Switzerland) AG
Directors and Officers Operations made in 2016 for a greater amount than EUR 5,000
Mrs. Marguerite Bérard-Andrieu Acquisition of shares for a total amount of EUR 10,000
Mrs. Vanessa Marquette Acquisition of shares for a total amount of EUR 10,000
Mr. Augustin de Romanet Acquisition of shares for a total amount of EUR 10,000
Mrs. Kory Sorenson Acquisition of shares for a total amount of EUR 33,820
Mr. Claude Tendil Acquisition of shares for a total amount of EUR 10,000
2.2.2.1. pRINCIpLES AND RuLES STATED FOR THE DETERMINATION OF COMpENSATION AND IN-KIND BENEFITS FOR THE ExECuTIVE COMMITTEE MEMBERS (OTHER THAN THE CHAIRMAN AND CHIEF ExECuTIVE OFFICER)
Group for the two financial years prior to his departure, (ii) a cash payment compensating him for his inability to exercise stock options granted prior to his departure date and which he would be unable to exercise due to the vesting period conditions set forth in the applicable stock option plan, in an amount to be determined by an independent expert using the “Black-Scholes” pricing model, and (iii) a cash payment compensating him for the ordinary shares of SCOR SE granted to him for free prior to his departure and which would not vest due to the terms and conditions of the applicable free share allocation plan. The amount of this cash payment is equal to the product of the number of shares concerned multiplied by the average value of the opening prices of the ordinary shares of SCOR SE on the Paris stock exchange during the twenty trading days preceding the date of the change in control.
Like all senior executives employed in France, the members of the Executive Committee who joined SCOR before June 30, 2008 and are employed in France, are entitled to a guaranteed capped pension plan conditional upon a minimum five years of service with the Group, the payment of which is based on their average compensation over the last five years. This pension plan was closed to employees hired after June 30, 2008.
The total commitment of the Group for defined benefit pension plans in France, Germany, the United States and Switzerland for the Executive Committee members (including the Chairman and Chief Executive Officer) amounts to EUR 53 million as at December 31, 2016, i.e. 12% of the total commitment of the Group for pension plans of EUR 435 million.
The following table presents the aggregate gross compensation in respect of financial years 2016, 2015 and 2014 due and paid to the members of the Executive Committee: In EUR
For information on stock options held by members of the Executive Committee, see Section 2.2.3 – Stock options and performance shares.
CORpORATE GOVERNANCE AND ExECuTIVE COMpENSATION #2 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, 2016
CORpORATE GOVERNANCE AND ExECuTIVE COMpENSATION Executive compensation and share ownership < #2
Number of shares underlying stock options granted/stock options subscribed or purchased
Number of shares underlying the stock options of the issuer and of the companies referred to above and exercised during the financial year by the ten employees of the issuer or these companies, whose number of options thus purchased or subscribed is the highest (aggregate information)
For more information on the stock option plans, see Appendix C – 5. Notes to the corporate financial statements, Note 12 – Stock options.
The table below presents the share award rights granted to the Chairman and to the Executive Committee members and the executive corporate officer as at December 31, 2016: Plan Share award rights Price per share
CORpORATE GOVERNANCE AND ExECuTIVE COMpENSATION #2 2.2.3.3. pOTENTIAL VOLuME OF NEW SHARES FROM OuTSTANDING SHARE-BASED COMpENSATION pLANS AS OF DECEMBER 31, 2016
●● of which number of potential new shares from outstanding stock option plans (options allocated but not vested + options vested but not exercised) 6,416,036
(which corresponds to outstanding shares or new shares to be issued) would stand at 18,340,410 at December 31, 2016, due to the addition of (i) outstanding free share allocation plans (shares allocated but not vested at December 31, 2016, i.e. 7,435,824 shares) and, (ii) the unused part of the authorization granted by the Shareholders’ Meeting of April 27, 2016 in its 25th resolution concerning the free allocation of outstanding shares (2,989,300 shares).
If free shares were taken into account in the calculation of the potential volume of new shares from outstanding share-based compensation plans and in the calculation of the fully diluted share capital, this theoretical volume (which corresponds to outstanding shares or new shares to be issued) would stand at 7.22% of the fully diluted share capital at December 31, 2016.
See Section 4.6 – Notes to the consolidated financial statements, Note 17 – Provisions for employee benefits and Appendix C – 5 – Notes to the corporate financial statements, Note 13 – Employee share-ownership plans.
On April 30, 2015, the Shareholders’ Meeting authorized the Company’s Board of Directors, in its twenty-fourth resolution, under the provisions of Articles L. 225-177 to L. 225-186-1 of the Commercial Code, to grant, upon proposal of the Compensation and Nomination Committee, on one or more occasions for the benefit of employees of the Company and companies or groups linked to it in terms of Article L. 225-180 of the Commercial Code, as well as the executive corporate officer, options granting the right to the subscription of new ordinary shares of the Company in issue so as to increase its capital, as well as options granting the right to purchase shares of the Company from acquisitions made by it as provided by 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 30, 2015 and cancelled and replaced, for the unused portion thereof, the previous authorization of May 6, 2014.
On April 27, 2016, the Shareholders’ Meeting authorized the Company’s Board of Directors, in its nineteenth resolution, under the provisions of Articles L. 225-177 to L. 225-186-1 of the Commercial Code, to grant, upon proposal of the Compensation and Nomination Committee, on one or more occasions for the benefit of employees of the Company and companies or groups linked to it in terms of Article L. 225-180 of the Commercial Code, as well as the executive corporate officer, options granting the right to the subscription of new ordinary shares of the Company in issue so as to increase its capital, as well as options granting the right to purchase shares of the Company from acquisitions made by it as provided by 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 27, 2016 and cancelled and replaced, for the unused portion thereof, the previous authorization of April 30, 2015.
Following the authorization by the Shareholders’ Meeting on April 30, 2015, the Company’s Board of Directors’ meeting of February 23, 2016, on the proposal of the Compensation and Nomination Committee meetings of February 9, 2016 and February 22, 2016, decided to allocate, on March 10, 2016, stock options to the Chairman and Chief Executive Officer, to members of the Executive Committee and to the most senior Partners (Executive Global Partners and Senior Global Partners).
Those options can be exercised at the earliest four years after the grant date, if the presence condition (four years) is respected. The exercise price is calculated without a discount, based on the weighted average price of SCOR’s shares on Euronext Paris over the 20 trading days preceding the grant date. The stock options can be exercised on one or more occasions from March 11, 2020 to March 10, 2026 inclusive. From this date, the purchase right shall expire.
The exercise of all of the stock options allocated in 2016 is subject to performance conditions.
The final vesting of half of the options granted is subject to the fulfilment of the following conditions: (1) that the conditions set out in the Plan of March 10, 2016 are fulfilled and in particular that the beneficiary remains employee or Corporate Officer of the SCOR Group until March 10, 2020 inclusive, except as otherwise provided by the Plan; (2) that the beneficiary respects the Group’s ethical principles as described in its Code of Conduct; (3) that the average SCOR ROE over 2 years (from January 1, 2016 to December 31, 2017) is equal to the average SCOR ROE strategic target (the “Target ROE”) over the period.
Aside from the mandatory conditions (1) and (2), if the observed average ROE (condition (3)) is lower or higher than the Target ROE, the options will vest in accordance with the progressive scale set out in the table below: Ratio between the observed average ROE and the Target ROE Proportion of the options finally vested via this criterion
The final vesting of the remaining half of the options is subject to the fulfilment of the following conditions: (1) that the conditions set out in the Plan of March 10, 2016 are fulfilled and in particular that the beneficiary remains employee or Corporate Officer of the SCOR Group until March 10, 2020 inclusive, except as otherwise provided by the Plan; (2) that the beneficiary respects the Group’s ethical principles as described in its Code of Conduct; (3) that the average solvency ratio over two years (from January 1, 2016 to December 31, 2017) is at least equal to the average of the SCOR solvency strategic target over the same period (the “Target Solvency Ratio” (1)).
Aside from the mandatory conditions (1) and (2), if the observed average solvency ratio (condition (3)) is lower or higher than the Target Solvency Ratio, the options will vest in accordance with the progressive scale set out in the table below: Difference between the average solvency ratio and the Target Solvency Ratio
Those options can be exercised four years after the grant date at the earliest, if the presence condition (four years) is respected. The exercise price is calculated without a discount, based on the closing price of SCOR SE’s shares on the day before the grant date. The stock options can be exercised on one or more occasions from December 1, 2020 to December 1, 2026 inclusive. From this date, purchase rights shall expire.
The final vesting of the remaining half of the options is subject to the fulfilment of the following conditions: (1) that the conditions set out in the Plan of December 1, 2016 are fulfilled and in particular that the beneficiary remains employee or Corporate Officer of the SCOR Group until December 1, 2020 inclusive, except as otherwise provided by the Plan; (2) that the beneficiary respects the Group’s ethical principles as described in its Code of Conduct; (3) that the average solvency ratio over 3 years (from January 1, 2016 to December 31, 2018) is at least equal to the average of the SCOR solvency strategic target over the same period (the “Target Solvency Ratio” (1)).
Proportion of the options finally vested in line with this criterion
In 2016, the Compensation and Nomination Committee acknowledged the validation of all the performance conditions attached to the 2014 stock option plans as defined in the 2014 Registration Document, bringing the share acquisition rate to 100%. In addition to the performance conditions described below, the absolute appliance of Group’s ethical principles as described in the Code of Conduct of SCOR Group is required.
Solvency ratio at the end of each quarter ≥ 150% in 2014 and 2015 Ratio above 185% each quarter Yes
ROE SCOR > 1000 points above the risk-free rate on average in 2014 and 2015 1,014.5 bps Yes
This authorization was given for a period of twenty-four months from April 27, 2016, and canceled and replaced the previous authorization of December 18, 2015 for the unused portion thereof.
Moreover, these resolutions set forth that each performance share allocation should have a neutral impact in terms of dilution. To achieve this, performance share allocation plans have to be covered through the allocation of existing shares taken from the treasury shares held by the Company under its share buyback program, and not via the creation of new shares. This, there is no dilution regarding the granting of performance shares.
The Company’s Board of Directors’ meeting of February 23, 2016, on the proposal of the Compensation and Nomination Committee meetings of February 9, 2016 and February 22, 2016, decided to allocate 125,000 performance shares to the Chairman and Chief Executive Officer and 100,000 performance shares to the French tax resident members of the Executive Committee.
The Chairman and Chief Executive Officer, under the authority given by the Board of Directors’ meeting held on February 23, 2016 for the implementation of this plan, allocated on February 23,
CORpORATE GOVERNANCE AND ExECuTIVE COMpENSATION Executive compensation and share ownership < #2 2016, 448,260 performance shares to the other French tax resident Partners and to specific Non Partners (270 beneficiaries).
All the shares awarded to the Chairman and Chief Executive, to the Executive Committee members, to the Executive Global
The final vesting of half of the shares granted to Executive Global Partners or Senior Global Partners and half of 50% of the shares granted for other Partners (below Senior Global Partners) is now subject to the fulfilment of the following conditions: (1) that the conditions set out in the Plan of February 23, 2016 are fulfilled and in particular that the beneficiary remains employee or Corporate Officer of the SCOR Group until February 23, 2019 inclusive, except as otherwise provided by the Plan; (2) that the beneficiary respects the Group’s ethical principles as described in its Code of Conduct; (3) that the average solvency ratio over three years (from January 1, 2016 to December 31, 2018) is at least equal to the average SCOR solvency strategic target over the same period (the “Target Solvency Ratio” (1)).
Following the authorization by the Shareholders’ Meeting on December 18, 2015, the Company’s Board of Directors’ meeting of February 23, 2016, on the proposal of the Compensation and Nomination Committee meeting of February 9, 2016 and February 22, 2016, decided to allocate a SCOR Long Term Incentive Plan (LTIP), to selected managers and executives of the Group in order to ensure the retention of key employees. The performance conditions measurement period of this LTIP is set at six years.
The Company’s Board of Directors’ meeting of February 23, 2016, on the proposal of the Compensation and Nomination Committee meetings of February 9, 2016 and February 22, 2016, decided to allocate 75,000 performance shares to the Chairman and Chief Executive Officer and 40,000 performance shares to a French tax resident member of the Executive Committee.
Refer to the Section 2.2.3.1 of the present Reference Document for the details of the performance shares granted to the member of the Executive Committee.
The Chairman and Chief Executive Officer, under the authority given by the Board of Directors’ meeting held on February 23, 2016 for the implementation of this plan, allocated on February 23, 2016, 66,060 performance shares to 22 French tax resident Partners of the Company.
In agreement with the Board of Directors, the Chairman and Chief Executive Officer granted, under a non-qualified “LTIP” plan, on February 23, 2016, 76,672 performance shares to the 34 non-French tax resident Partners of the Group.
All the shares under the LTIP are subject to the satisfaction of a presence condition and of performance conditions. The performance conditions are defined as follows.
The conditions of the LTIP provide for a vesting period of six years for all beneficiaries. There is no obligation to hold the shares after the vesting period.
In agreement with the Board of Directors, the Chairman and Chief Executive Officer has granted, under a non-qualified plan, on December 1, 2016 23,364 performance shares to 18 non-French tax resident Partners of the Group.
All the shares awarded to the Executive Global Partners and Senior Global Partners and half of the allocations awarded to the other Partners (below Senior Global Partners), are subject to the satisfaction of performance conditions (for the description of performance conditions, refer to Section 2.2.3.4.2 – February 23, 2016 Performance Shares).
SCOR Global P&C’s combined ratio ≤ 100% on average in 2014 and 2015 91.25% Yes
ROE SCOR > 600/1000 points above the risk-free rate on average in 2014 and 2015 (1000 points for Senior Global Partners and Executive Global Partners or 600 points for Associate partners and Global Partners) 1,014.5 bps Yes
The following table shows the free shares plans currently in force within the Group. It should be noted that the source of shares to be allocated to these plans is treasury stock.
(1) The acquisition of these shares is subject to performance conditions. The performance shares granted before the Extraordinary Shareholders’ meeting of December 18, 2015 are subject, for half of the grant or all of the grant, depending on the employee’s level within the organization, to performance conditions relating to the solvency ratio, the combined ratio of SCOR SE, the technical margin of SCOR Global life and the ROE. Since the Extraordinary Shareholders’ meeting of December 18, 2015, the performance conditions relate to the ROE and the Solvency Ratio. All the performance shares granted since 2011 as part of LTIP plans are subject to ROE and Solvency ratio performance conditions. The performance conditions are assessed after a 2-year vesting period for performance shares granted before the Extraordinary Shareholders’ meeting of December 18, 2015, after a 3-year vesting period for performance shares granted as of the Extraordinary Shareholders’ meeting of December 18, 2015, and after a 6-year vesting period for all LTIP performance shares. The acquisition rates for performance shares definitively acquired as at December 31, 2016 are 100%.
During 2016, the rights vested by the ten employees of the Company and of any company included in the scope of consolidation with the highest number of shares thus obtained represent 321,010 shares. Those rights concerned, for tax residents of France, the free share allocation plans of March 4, 2014 and July 30, 2014 whose transfer occurred on March 5, 2016 and July 31, 2016, and for non-French tax residents, and the free share allocation plan of March 19, 2012 whose transfer occurred on March 20, 2016.
For the number of stock options of the issuer and of the companies referred to previously and exercised during the financial year by the ten employees of the issuer or these companies, with the highest number of shares thus purchased or subscribed, as well as 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 with the highest number of stock options thus granted, see the table in Section 2.2.3.1 – Stock options held by the executive corporate officer and the members of the Executive Committee as at December 31, 2016.
On April 27, 2016, the Ordinary and Extraordinary Shareholders’ Meeting of the Company, in its twenty-first resolution, delegated its authority to the Company’s Board of Directors in order to increase the share capital by issuing shares reserved for employees of the Company and of French and foreign companies affiliated with it pursuant to Article L. 225-180 of the French Commercial Code, who are participants in savings plans and/or mutual funds. This new authorization replaces the authorization granted by the Shareholders’ Meeting of April 30, 2015.
As at the date of the Registration Document, the Company’s Board of Directors has not exercised this delegation of authority. This authorization was granted for a period of eighteen months as from the date of the Ordinary and Extraordinary Shareholders’ Meeting of April 27, 2016.
Every quarter, SCOR conducts “TPI” (“Titres aux Porteurs Identifiables”) searches to find out the number and identity of its bearer shareholders.
of the capital and 5.71% of the voting rights. (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.
CORpORATE GOVERNANCE AND ExECuTIVE COMpENSATION Major shareholders and related party transactions < #2
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 (“Titres aux Porteurs Identifiables” – “TPI”) conducted by the Company as at December 31, 2015: As at 12/31/2015 Number of shares % of capital % voting rights (1)
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, 2016, December 31, 2015 and December 31, 2014. According to the Nasdaq share analysis on December 31, 2016, December 31, 2015 and December 31, 2014, some of these companies are, in addition, shareholders via mutual funds and other investment funds.
To SCOR’s knowledge, the percentage of share capital and voting rights held by its directors and Executive Committee members was 4.07% as at December 31, 2016 (December 31, 2015: 3.91%).
On December 19, 2016, Norges Bank declared that it had exceeded the statutory threshold of 2.5% of the capital in SCOR SE and that it held 4,832,929 shares or 2.51% of the capital in SCOR SE.
On June 29, 2016, Tweedy, Browne Company LLC declared that it had exceeded the statutory threshold of 5% of the capital in SCOR SE and that it held 9,680,714 shares and 9,407,899 voting rights in SCOR SE.
On April 11, 2016, Groupe Covéa declared that it had exceeded the statutory thresholds of 2.5% and 5% of the capital and voting rights in SCOR SE and that it held 14,767,803 shares or 7.67% of the capital and 14,767,803 voting rights or 7.94% of the voting rights in SCOR SE. Groupe Covéa also declared that it will not, directly or indirectly, exceed the threshold of 10% of SCOR’s share capital over the three coming years, except in case of significant change in SCOR’s strategy or shareholding structure which could be detrimental to its interests, or in case of change in SCOR’s governance bodies.
Pursuant to Article 8 of the bylaws (“Rights attached to each share”), amended by the Company’s Ordinary and Extraordinary Shareholders’ Meeting on April 30, 2015 in its twenty-eighth resolution, each share entitles its holder to one vote at General Shareholders’ Meetings and the voting rights attached to shares of the Company are in direct proportion to the proportion of the capital thereby represented and no double voting rights, as described by Article L. 225-123 of the French Commercial Code, can be allocated or attached, in any manner whatsoever, to any share. Therefore, the shareholders of the Company do not currently have different voting rights.
According to the decisions of the Extraordinary Shareholders’ Meetings of the Company on (i) May 18, 2004, in its fourth resolution, (ii) May 31, 2005 in its sixth resolution, (iii) May 16, 2006 in its fifth resolution, (iv) May 24, 2007 in its 21st resolution, (v) May 7, 2008 in its 19th resolution and (vi) April 15, 2009 in its 22nd resolution to authorize the Board to grant to executives and employees options to subscribe for or purchase shares and to acknowledge, if necessary, at its first meeting following the year end of the Company, the number and amount of new shares issued during that period following the exercise of options, the Board of Directors of SCOR SE acknowledged, on March 4, 2014, the capital increase of EUR 6,123,983.62 by the creation of 777,454 shares with a par value of EUR 7.8769723 each.
According to the decision of the Ordinary and Extraordinary Shareholders’ Meeting of the Company on April 25, 2013 in its 21st resolution, the Board of Directors of the Company decided on March 4, 2014, to carry out a share capital reduction of EUR 6,123,983.62 by the cancellation of 777,454 treasury shares, reducing the share capital from EUR 1,518,348,725.55 to EUR 1,512,224,741.93, divided into 191,980,457 ordinary shares. The reason for the capital reduction was to avoid any dilutive effect of the exercise of stock options on the share capital.
According to the decisions of the Extraordinary Shareholders’ Meetings of the Company on (i) May 18, 2004, in its fourth resolution, (ii) May 31, 2005 in its sixth resolution, (iii) May 16, 2006 in its fifth resolution, (iv) May 24, 2007 in its 21st resolution, (v) May 7, 2008 in its 19th resolution and (vi) April 15, 2009 in its 22nd resolution to authorize the Board to grant to executives and employees options to subscribe for or purchase shares and to acknowledge, if necessary, at its first meeting following the year-end of the Company, the number and amount of new shares issued during that period following the exercise of options, the Board of Directors of SCOR SE acknowledged, on March 4, 2015, the capital increase of EUR 5,600,700.60 by the creation of 711,022 shares with a par value of EUR 7.8769723 each.
According to the decisions of the Extraordinary Shareholders’ Meetings of the Company on (i) May 18, 2004, in its fourth resolution, (ii) May 31, 2005 in its sixth resolution, (iii) May 16, 2006 in its fifth resolution, (iv) May 24, 2007 in its 21st resolution, (v) May 7, 2008 in its 19th resolution, (vi) April 15, 2009 in its 22nd resolution and (vii) April 28, 2010 in its 19th resolution to authorize the Board to grant to executives and employees options to subscribe for or purchase shares and to acknowledge, if necessary, at its first meeting following the year end of the Company, the number and amount of new shares issued during that period following the exercise of options, the Board of Directors of SCOR SE acknowledged, on April 30, 2015, the capital increase of EUR 4,326,073 by the creation of 549,205 shares with a par value of EUR 7.8769723 each.
According to the decisions of the Extraordinary Shareholders’ Meetings of the Company on (i) May 31, 2005 in its sixth resolution, (ii) May 16, 2006 in its fifth resolution, (iii) May 24, 2007 in its 21st resolution, (iv) May 7, 2008 in its 19th resolution, (v) April 15, 2009 in its 22nd resolution, (vi) April 28, 2010 in its 19th resolution and (vii) May 4, 2011 in its 28th resolution to authorize the Board to grant to executives and employees options to subscribe for or purchase shares and to acknowledge, if necessary, at its first meeting following the year end of the Company, the number and amount of new shares issued during that period following the exercise of options, the Board of Directors of SCOR SE acknowledged, on February 23, 2016, the capital increase of EUR 5,298,350.89 by the creation of 672,638 shares with a par value of EUR 7.8769723 each.
As a result, on December 31, 2016, the share capital of SCOR SE was EUR 1,516,589,466.80 divided into 192,534,569 shares with a par value of EUR 7.8769723 each.
Number of shares initially authorized at date of the Shareholders’ Meeting and number of outstanding shares authorized at the date of the Registration Document
Number of shares initially authorized at the date of the shareholders’ meeting of April 27, 2016
Number of shares initially authorized at the date of the Registration Document 10th resolution (Delegation of authority granted to the Board of Directors for the purpose of deciding upon the incorporation of profits, reserves or premiums into the share capital) 25,390,466 shares 25,390,466 shares 11th resolution (Delegation of authority granted to the Board of Directors for the purpose of deciding on the issuance of shares and/or of securities granting access to the capital or giving entitlement to debt instruments, with pre-emptive subscription rights) 77,061,238 shares 77,061,238 shares 12th resolution (Delegation of authority granted to the Board of Directors for the purpose of deciding on the issuance, in the context of a public offering, of shares and/or of securities granting access to the capital or giving entitlement to debt instruments, without pre-emptive subscription rights) 19,265,309 shares 19,265,309 shares 13th resolution (Delegation of authority granted to the Board of Directors for the purpose of deciding on the issuance, in the context of an offer referred to in paragraph II of Article L. 411-2 of the French Monetary and Financial Code, of shares and/or of securities granting access to the capital or entitling the holder to debt instruments, without pre-emptive subscription rights) 19,265,309 shares 19,265,309 shares 14th resolution (Delegation of authority granted to the Board of Directors for the purpose of deciding on the issuance of shares and/or securities granting access to the capital or entitling the holder to debt instruments, as compensation for shares contributed to the Company in the context of any public exchange offer launched by the Company, without pre-emptive subscription rights) 19,265,309 shares 19,265,309 shares 15th resolution (Delegation of authority granted to the Board of Directors for the purpose of issuing shares and/or securities granting access to the capital or entitling the holder to debt instruments, as compensation for shares contributed to the Company in the context of contributions in kind within a limit of 10% of the share capital, without pre-emptive subscription rights) 19,265,309 shares 19,265,309 shares 17th resolution (Delegation of authority granted to the Board of Directors for the purpose of issuing securities granting access to the capital without pre-emptive subscription rights of the shareholders in favor of a class of persons insuring the underwriting of the Company's equity securities without pre-emptive subscription rights) 19,265,309 shares 67,265 shares 21st resolution (Delegation of authority granted to the Board of Directors in order to issue shares reserved for the members of savings plans (plans d’épargne), without pre-emptive subscription rights) 3,000,000 shares 3,000,000 shares
Authorizations granted by the Extraordinary Shareholders’ Meeting of April 27, 2016 16th resolution (Authorization granted to the Board of Directors for the purpose of increasing the number of shares issued in accordance with the 11th, 12th and 13th resolutions in the event of over-subscription to the share capital increase, with or without cancellation of pre-emptive subscription rights)
The description of the stock buyback program implemented under the 18th resolution of the Annual General Meeting of April 27, 2016 was published by the Company on April 26, 2016. The report of the Board of Directors of the Company to the Annual Shareholders’ Meeting to be held in the first half of 2017 on the use of the 8th resolution will be made available to SCOR shareholders under the conditions set forth by law.
In the context of the abovementioned buyback program, SCOR carried out, between January 1, 2016 and December 31, 2016: ●● the purchase of 6,586,034 treasury shares; ●● the sale of 3,085,948 treasury shares; ●● the transfer of 1,809,205 treasury shares; ●● the cancellation of 554,112 treasury shares.
In the context of a contingent capital facility program, SCOR issued 12,695,233 share warrants on December 20, 2013 to UBS, each warrant committing UBS to subscribe for two new SCOR shares (up to a maximum amount of EUR 200 million, including an available issuance premium per tranche of EUR 100 million, including issuance premium) when the total amount of the estimated ultimate net losses resulting from eligible natural catastrophes or extreme Life events incurred by the Group (in its capacity as an insurer/reinsurer) reaches certain contractual thresholds in any given calendar year between January 1, 2014 and December 31, 2016 or if no drawdown already took place in the context of the agreement and SCOR’s share price drops below EUR 10.
As part of the implementation of a contingent capital facility program, SCOR issued, on December 16, 2016, 9,599,022 Warrants for the benefit of BNP Paribas, each allowing BNP Paribas to subscribe, as from January 1, 2017 and no later than May 1, 2020, to two new SCOR shares (within the limit of an aggregate amount of subscription of EUR 300 million – issuing premiums included, without exceeding 10% of SCOR’s share capital) when the aggregated amount of (i) the estimated ultimate net losses resulting from eligible natural catastrophes incurred by the Group (in its capacity as an insurer / reinsurer) between January 1, 2017 and December 31, 2019 or (ii) the ultimate net claims amount recorded by SCOR group Life segment (in its capacity as an insurer/ reinsurer) over two consecutive semesters over the period from July 1, 2016 and December 31, 2019 reaches certain contractual thresholds. In addition, subject to no drawdown having already been conducted under the facility, if SCOR’s daily volume-weighted average share price falls below EUR 10 an individual tranche of EUR 150 million will be drawn down out of the EUR 300 million facility.
See: ●● Section 2.2.3 – Stock options and performance shares; ●● Section 2.3.1.5 – Share capital; ●● Section 4.6 – Notes to the consolidated financial statements, Note 12 – Information on share capital, capital management, regulatory framework and consolidated reserves; ●● Section 4.6 – Notes to the consolidated financial statements, Note 14 – Provisions for employee benefits; ●● Section 4.6 – Notes to the consolidated financial statements, Note 16 – Stock options and share allocations; ●● Appendix C – 5 – Notes to the corporate financial statements, Note 12 – Stock options; and
●● Appendix C – 5 – Notes to the corporate financial statements, Note 12 – Stock options.
Regulated agreements and commitments within the meaning of Articles L. 225-38 et seq. of the French Commercial Code appear in the Statutory Auditors’ special report in Section 2.3.3 – Special report of the Statutory Auditors on related party agreements and commitments.
The annual review of the regulated agreements was made by the Company’s Board of Directors on February 23, 2016. The Board of Directors of SCOR SE decided on October 26, 2016 to requalify the following regulated agreements with BNP Paribas into “agreements relating to current operations concluded under arms-length conditions”: ●● subscription agreement for the issuance and the placement of subordinated notes (known as “Bugatti”); ●● subscription agreement for the issuance and the placement of subordinated notes (known as “Bugatti II”); ●● cash-pooling contract with BNP Paribas; ●● contract between your Company and BNP Paribas participating in the notional cash-pooling agreement; ●● Master Trust Agreement with BNP Paribas and/or one of its subsidiaries (trustee), SCOR SE and SCOR Global Life SE (grantors, jointly and severally liable) and Transamerica Corp. (beneficiary); ●● Stand-By Letter of Credit Facility Agreement with BNP Paribas dated December 23, 2008, as amended by 6 successive amendments (“Multicurrency Revolving Letter of Credit Facility Agreement”); ●● subscription agreement for the issuance and the placement of subordinated notes (Project “Serenity”); ●● subscription agreement with BNP Paribas with BNP Paribas with BNP Paribas for the issuance and placement of subordinated notes for a maximum amount of EUR 500.000.000; ●● Amendment n°7 of Multicurrency Revolving Letter of Credit Facility Agreement with BNP Paribas.
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.
We inform you that we have not been advised of any related party agreement authorized during the past financial year to be submitted for the approval of the general meeting of shareholders in accordance with the articles L. 225-38 of the French commercial code (Code de commerce) and R. 322-7 of the French insurance code (Code des assurances).
In accordance with Article R. 225-30 of the French Commercial Code (Code de commerce), we have been advised that the implementation of the following agreements and commitments which were approved in prior years by the General Meeting of shareholders in prior years continued during the year.
1. Commitments for the benefit of Mr. Denis Kessler, Chairman and Chief Executive Office of your Company in case of his forced departure
In the event that the Chairman and Chief Executive officer is dismissed for fault or following a manifestly negative performance of the Company (the non-realization of the performance condition (C_n) defined below for at least two of the three preceding years), no indemnity will be paid to the Chairman and Chief Executive Officer.
The performance condition (C_n) established by the Board of Directors on the recommendation of the Compensations and Nominations Committee will be achieved for the year n if at least three of the four conditions below are satisfied: (A) SCOR’s financial rating by S&P must be maintained to a minimum “A” on average in the years n-1 and n-2; (B) SCOR Global P&C’s net combined ratio must be less than or equal to 102% on average in the years n-1 and n-2; (C) SCOR Global Life’s technical margin must be higher than or equal to 3% on average in the years n-1 and n-2; (D) the SCOR group’s return on equity “ROE” must be higher by 300 base points than the risk-free rate on average in the years n-1 and n-2.
On July 27, 2011, the Board of Directors of the Company approved an amendment to the additional pension scheme concerning the condition of age and retirement rate (62 years minimum or full retirement vs 60 previously).
●● the progressive increase in beneficiaries’ rights at 5% of the reference salary per year, as required by the AFEP-MEDEF code.
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), and considers that no other significant risk than those disclosed in the section below exists. 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.
All risks described in Section 3 are managed through a variety of mechanisms in SCOR’s ERM (Enterprise Risk Management) Framework, whose main ones are also described below.
SCOR’s ERM framework is further described in Appendix A – Report of the Chairman on the internal control which contains a description of the Group risk management procedures as well as the role and function of each administrative and management body and team involved in risk management and related control functions.
Although risk management mechanisms have been designed and rolled out across the Group in order to prevent all risks from having a significant impact, there is no guarantee that these mechanisms achieve their intended objective. Many of SCOR’s methods for managing risks and exposures are based on observed historical market behavior, statistics based on historical models, or expert judgment. As a result, these methods may not fully predict future exposures, which may be significantly greater than estimated, particularly in unstable or volatile markets and environments. Other risk management methods depend upon the evaluation of information regarding markets, clients, natural catastrophes or other matters that is publicly available or otherwise accessible to SCOR. This information may not always be accurate, complete, up -to-date or properly evaluated.
Therefore, the Group cannot exclude the possibility of exceeding SCOR’s risk tolerance limits due to an incorrect estimation of its risks and exposures. This may have an adverse impact on SCOR’s business, present and future revenues, net income, cash flows, financial position, and potentially, on SCOR’s share price.
Strategic risk 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.
The Group’s operating result could be materially affected by the economic and financial situations in France and other countries in continental Europe, the United Kingdom, the United States of America and elsewhere around the world, particularly in Latin America and Asia Pacific. Any continued deterioration in macroeconomic trends could have an adverse effect on SCOR’s business and operating result, even more so as the global economy is still in convalescence since the 2008 financial crisis and remains vulnerable to negative economic, financial and geo-political shocks fueled by ongoing tensions or open conflicts in several global regions. In particular, the growing debt of governments in advanced economies and of private companies in emerging countries could generate significant adjustments if the main central banks were to raise interest rates. As a result, financial markets could enter a period of high volatility, which could lead to adverse consequences such as waves of company defaults, or a major liquidity crisis. The financial situation in many Eurozone countries remains unstable and downgrades of some states’ financial ratings have occurred. SCOR cannot predict whether any of the other government securities that it holds in its investment portfolio will be adversely affected in the future by ratings downgrades, the continuing debt crisis or other developments. For further information on investments, see Section 1.3.5.4 – Net investment income and investment income on invested assets and Section 4.6 – Notes to the consolidated financial statements, Note 7 – Insurance business investments.
This difficult environment and the continuing market upheavals may have an adverse effect on SCOR, from both an investment and reinsurance business viewpoint. Furthermore, the economic uncertainty might be compounded by recent political changes such as the results of the Brexit referendum, the outcome of the elections in the USA, Germany and France.
See Section 4.6 – Notes to the consolidated financial statements, Note 7 – Insurance business investments, which includes analyses of unrealized and realized investment losses.
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 risk.
SCOR is also dependent upon customer behavior and premium growth. The Group’s premiums are likely to decline in such circumstances and its profit margins could erode. In an economic downturn characterized by higher unemployment, lower household income, lower corporate earnings, lower business investment and lower consumer spending, 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 Group may 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.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS #3 3.2.1.2. SCOR IS ExpOSED TO SIGNIFICANT AND pROTRACTED DEVIATIONS OF THE GENERAL pRICE LEVEL FROM ITS TREND
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 – Report of the Chairman of the Board of Directors.
3.2.2.1. SCOR OpERATES IN A HIGHLY COMpETITIVE SECTOR AND WOuLD BE ADVERSELY AFFECTED BY LOSING COMpETITIVE ADVANTAGE OR IF ADVERSE EVENTS HAD AN IMpACT ON THE REINSuRANCE INDuSTRY
Reinsurance is a highly competitive sector. As is the case for all other reinsurers, SCOR’s position in the reinsurance market is based on several factors, such as its financial strength as assessed by the rating agencies, its underwriting expertise, reputation and experience in the lines written, the countries in which it operates, the premiums charged, as well as the quality of the proposed reinsurance products and services offered, particularly in terms of claims payment. The Group competes for business in the European, American, Asian and other international markets with numerous international and domestic reinsurance companies, some of which have a larger market share than SCOR, greater financial resources, state backing, and, in certain cases, higher ratings from the rating agencies.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS Strategic risk < #3 3.2.2.2. CONSOLIDATION IN THE INSuRANCE AND REINSuRANCE INDuSTRIES COuLD ADVERSELY IMpACT SCOR
As for risks related to the macro-economic environment, risks related to the competitive environment 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. For more details on risk reporting mechanisms and roles and responsibilities of SCOR’s main governance bodies, see Appendix A – Report of the Chairman of the Board of Directors.
SCOR is subject to comprehensive and detailed regulations and to the supervision of the insurance and reinsurance regulatory authorities in all countries in which it operates. Some of these authorities, especially in non-European countries, are considering or may in the future consider enhanced or new regulatory requirements intended to prevent future crises or otherwise assure the stability of institutions under their supervision and submit them to reinforced measures of control and higher capital requirements. These changes could affect the calculation of the local solvency ratio and have a material adverse impact on the Group. Insurance and reinsurance supervisory authorities have broad administrative power over many aspects of the reinsurance industry and SCOR cannot predict the timing or form of any future regulatory initiatives.
Furthermore, supervisory and regulatory authorities could make the protection of policyholders and financial stability prevail over shareholders or creditors of a reinsurer when designing new regulations, especially in developing countries. These new regulations may then increase solvency margin obligations, thereby restricting SCOR’s underwriting capacity.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS #3 3.2.3.2. OTHER LEGAL AND REGuLATORY DEVELOpMENTS
The reinsurance sector has been exposed in the past, and may be exposed in the future, to involvement in legal proceedings, regulatory inquiries and actions by various administrative and regulatory authorities, as well as to regulation concerning certain practices used in the insurance sector.
More generally, adverse changes in laws or regulations or an adverse outcome of any legal proceeding could have an adverse impact on SCOR. For further details on SCOR’s current litigations, see Section 4.6 – Notes to the consolidated financial statements, Note 25 – Litigation.
The Group’s Life reinsurance activities and the Business Solutions (large corporate accounts underwritten essentially on a facultative basis and occasionally as direct insurance) business area in P&C reinsurance are particularly sensitive to the way its existing and prospective clients perceive its financial strength, notably through its ratings.
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 risk.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS Strategic risk < #3 3.2.4.2. MANAGEMENT OF DOWNGRADE RISK
3.2.5.1. RISKS RELATED TO THE VALuATION OF SCOR’S INTANGIBLE ASSETS AND DEFERRED TAx ASSETS
For further information on changes in the macro-economic environment that could impact SCOR, refer to Section 3.2.1 – Risks related to the macro-economic environment affecting SCOR’s strategy.
SCOR manages efficiently its capital allocation and fungibility among subsidiaries based on legal and regulatory constraints. SCOR is continuously leveraging, in its day-to-day activity, on various tools that are core to the reinsurance activity (such as intra-group retrocession, intra-group financing, portfolio transfer, capital transfer or collateral posting).
SCOR has made a number of acquisitions around the world. Acquisitions involve risks that could adversely affect its operating results, including the substantial amount of management time that may be diverted from operations to pursue and complete acquisitions. Acquisitions could also result in additional indebtedness, costs, contingent liabilities, and impairment and amortization expenses related to goodwill and other intangible assets. In addition, acquisitions may expose SCOR to operational challenges and various risks.
A failure to successfully manage such operational challenges could adversely affect the Group.
Certain risks relating to acquired companies may not yet be known
SCOR retains outside legal, accounting, tax, actuarial, regulatory and financial counsel for its due diligence, valuation and integration assessments and execution, led by experienced employees in various multi-jurisdictional disciplines, including but not limited to underwriting, structuring, valuation, accounting, tax, actuarial, risk management, legal, audit, strategy, claims management, regulatory, rating agencies, and asset management. SCOR’s governance is overseen by a Group Steering Committee, chaired by its Chief Executive Officer and including various members of SCOR’s Executive Committee. All progress, assessments and any offers made to third parties are generally presented and approved by the Strategy Committee of SCOR’s Board of Directors.
All planned acquisitions that may have an impact on SCOR’s risk profile are reviewed in collaboration with SCOR’s risk management teams. Integration of acquired businesses typically begins during the due diligence phase and is carefully planned between SCOR and the personnel of the acquired companies. SCOR integration plans typically take into account all systems, procedures, commitments and constraints, as well as employees, clients, suppliers and contractual third parties, and focuses on pre-closing, closing day and post-closing objectives. While SCOR has experience in managing acquisitions and takes care in planning and executing such operations, the outcomes may not always meet expectations.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS #3 3.3. UNDERWRITING RISK RELATED TO THE P&C AND LIFE REINSURANCE BUSINESS
SCOR writes direct insurance, primarily on a business-to-business basis to cover large corporate risks through the Business Solutions domain of SCOR Global P&C and through the participation in Lloyd’s syndicates including Channel 2015, for which SCOR is the sole capital provider as well as through some participations in business ventures and partnerships.
For SCOR’s casualty business, the frequency and severity of claims and the related amounts of indemnity paid can be affected by several factors. The most significant factors are the changing legal and regulatory environment, including changes in civil liability law and jurisprudence.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS Underwriting risk related to the P&C and life reinsurance business < #3 3.3.1.2. NATuRAL AND MAN-MADE CATASTROpHES
SCOR’s property business underwritten by SCOR Global P&C is exposed to multiple insured losses arising from single or multiple events, which can be catastrophic, being either caused by nature (e.g. hurricane, typhoon, windstorm, flood, hail, severe winter storm, earthquake) or man-made (e.g. explosion, fire at a major industrial facility, act of terrorism). Any such catastrophic event can generate insured losses in one or several of SCOR’s lines of business.
For further information on management of underwriting risks within the P&C division, refer to Section 3.3.1.5 – Management of underwriting risks related to the P&C business. For further information on SCOR’s retrocession and other risk mitigation techniques, refer to Section 3.3.5 – Retrocession and other risk mitigation techniques.
> Underwriting risk related to the P&C and life reinsurance business
RISK FACTORS AND RISK MANAGEMENT MECHANISMS #3 3.3.1.3. OTHER RISK CONSIDERATIONS
In addition to the two main risks of SCOR’s P&C underwriting risk as listed above, other factors could have an adverse impact, such as systemic crisis, cyclicality of the business and concentration risks related to its broker business.
Historically, reinsurers have experienced significant fluctuations in operating income due to volatile and unpredictable developments, many of which are beyond the control of the reinsurer including general economic conditions, levels of capacity offered by the market, and the level of competition with regards to pricing. In particular some SCOR’s lines of business which are directly linked to financial activities are more exposed to global economic recessions (e.g. systemic crisis post Lehman Brothers): as an example specialty lines such as credit and surety or liability risk such as Errors & Omissions and Directors & Officers Liability.
Beyond the general trends, the premium rate cycle affects certain geographic markets and/or certain lines of business in different ways and different levels, independently of each other.
●● Most of the business underwritten is renewed on agreed dates. This enables SCOR to establish annual underwriting plans, both qualitative (description of the environment) and quantitative (activity budget). These plans are approved by the Executive Committee.
●● The Property and Casualty Treaty underwriters manage client relationships and offer reinsurance support after a careful review and assessment of the cedents’ underwriting policies, portfolio profiles, exposures and management procedures. They are responsible for writing treaty business as well as associated support on small and medium-size facultative risks in their respective territories within the limits of their individually delegated underwriting authority and the scope of underwriting guidelines.
●● The underwriting teams are supported by the SCOR Global P&C Underwriting Management function located in Paris and represented in the four Hubs. This function provides worldwide treaty and facultative underwriting guidelines, policies regarding the delegation of capacity, underwriting support to specific lines of business or individual risks when required, ceding company portfolio analysis and risk surveys and is responsible for monitoring and referral of non-standard business and for authorizing exceptions to the underwriting guidelines.
●● Business opportunities going beyond the stipulations of the guidelines thus defined are subject to special referral procedures at two levels: (1) by the Underwriting Management function; and, where applicable, by the Legal Department and/or the Finance department; (2) and for cases which may have a significant impact on the balance sheet (thresholds and/or conditions defined in a procedure or specific guidelines) by the Group Risk Management Department and the Chief Executive Officer of SCOR Global P&C.
●● SCOR Global P&C Actuarial Pricing Department is responsible for the pricing of the reinsurance business which is done by individual treaty. Guidelines, methods and tools are set and maintained at the global level which are used by the pricing team across the SCOR offices. Delegation authorities specify criteria under which the underwriters may price certain contracts still subject to the use of the Pricing Guidelines and tools. Pricing results quantify expected underwriting statistics (such as loss and expense ratios), volatility measures, and profitability measures (such as NPV, RORAC, and Profit Excess Targets).The results are also used as criteria for referrals within Underwriting Departments. Pricing actuaries, team up with underwriters and modelers by market or by lines of business.
at various levels of probability for each peril and geographic location. The overall aggregate annual PML per peril, allowing for potential multiple events, provides the information required to determine the level of retrocession and other alternative risk transfer solutions (e.g. catastrophe bonds) that are needed to ensure that the net aggregate exposure is optimized for the Group’s risk appetite and remains within predefined tolerance limits.
●● In order to mitigate its property exposure, the Group retrocedes a portion of the risks it underwrites. See 3.3.5 – Retrocession and other risk mitigation techniques for further information on how these instruments are managed.
●● A quarterly review of technical results is performed by business area (Property and Casualty Treaties, Specialty Lines, Business Solutions (Facultative), business ventures and partnerships) and region. The review enables the analysis of technical results by underwriting year, by nature and by line of business.
The main underwriting risks for SCOR’s life division are described below.
Longevity risk refers to the risk of a negative deviation from expected results due to the insured or annuitant living longer than assumed in the pricing or reserves. This risk could have an impact on longevity swaps, annuity and long-term care covers and on other longevity protection products.
SCOR Global Life is also exposed to risks related to policyholder behavior, including risks such as lapsation and anti-selection at policy issue.
Lapses refer to either non-payment of premiums by the policyholder or to policies which are terminated by the policyholder before the maturity date of the policy. Depending upon the product design, higher or lower policyholder lapses than assumed in the pricing or reserving may reduce SCOR Global Life’s expected future income.
Anti-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. The risk to the (re)insurer is of policyholders deliberately deciding among other things to: ●● take out a policy in the knowledge that either their chance of claiming is high or higher than average; ●● terminate a policy in the knowledge that their chance of claiming is low or lower than average, or; ●● choose and exercise a policy option which increases the policyholder’s expected benefit.
Products such as critical illness, short-term and long-term disability and long-term care, which all contain morbidity risk, are subject to the risk of negative trends in health, as well as to the consequences of improved medical diagnoses capabilities which increase the number of claims due to conditions that otherwise would possibly have remained undetected. Medical progress may in the future enable better treatment, resulting in higher claims, since certain diseases would have otherwise led to a much shorter life expectancy of the insured. Products providing cover for medical expenses are in particular subject to the risk of higher than expected incidence and inflation of medical costs.
In addition to the main underwriting risks of SCOR Global Life as listed above, other factors could have an adverse impact, whether related to policyholder behavior such as resale or purchase of policies by third parties with no insurable interest, or other risk factors such as risks related to product guarantees.
●● Anti-selection risks are mitigated through careful product design and a well-defined medical and financial underwriting selection process.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS Underwriting risk related to the P&C and life reinsurance business < #3
●● Guidelines and other documents defined by SCOR Global Life 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 SCOR Global Life 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.
●● Accumulations of risk particularly exposed to catastrophes in the Life business are regularly assessed in “footprint” scenarios and local CAT scenarios. Specific tools are used to monitor known Group cover accumulation in selected geographical areas. Specifically designed retrocession programs aim at protecting the Life reinsurance business. One program protects assumed catastrophe excess of loss acceptances; another one protects the net retained lines in respect of proportional and per risk acceptances. SCOR is making use of the RMS model for infectious diseases in order to assess the potential exposure to risk arising from global pandemics.
●● The Life division’s claims handling is performed by local claims teams that handle and monitor claims. Claims exceeding a predefined threshold are reviewed by CREDISS, SCOR Global Life’s global medical underwriting and claims research center. In addition, where deemed appropriate, audits are conducted on claims or specific lines of business at the ceding companies’ offices.
●● The adequacy of SGL reserves is monitored based on specific procedures. For further information on how risks related to reserves are managed, see Section 3.3.4.2 – Management of reserving risk.
●● Risks specific to the management of contracts are mitigated by specific controls supported by SCOR’s IT Systems which include numerous automatic controls and additional tools.
●● SCOR Global Life’s Risk Management Department organizes quarterly meetings of the Life Risk Committee which is responsible for reviewing the main risks to which the Life division is exposed.
3.3.3.1. OVERVIEW OF THE MAIN INTERDEpENDENCE AND ACCuMuLATION RISKS BETWEEN SCOR’S AREAS OF BuSINESS
P&C and Life reinsurance activities take place in two different market environments. They are subject to a range of external constraints, which generally benefit from a high diversification effect. The overall balance between the two business areas within the Group therefore provides stability. However, in some cases, changes in the P&C and Life activities are linked to each other as well as to those of the financial markets. This exposes SCOR to possible accumulation of risks between its lines of business and/or asset classes.
In addition, depending on the frequency and nature of losses, the speed with which claims are made and the terms of the policies affected, it may be required to make large claim payments within a short period. SCOR may be forced to fund those obligations by liquidating investments in distressed market conditions, or by raising funds under unfavorable conditions. For further information on such risks, see Section 3.6 – Liquidity risk.
3.3.3.2. MANAGEMENT OF INTERDEpENDENCE AND ACCuMuLATION RISKS BETWEEN SCOR’S AREAS OF BuSINESS
RISK FACTORS AND RISK MANAGEMENT MECHANISMS Underwriting risk related to the P&C and life reinsurance business < #3 3.3.4. RISK RELATED TO RESERVES
See Section 3.3.1.1 – P&C long-tail reserve deterioration for further details.
External consulting firms can also be mandated to review the P&C reserves. Life reserving assumptions have been reviewed by an external firm as part of the embedded value calculation. If necessary, internal audits of its portfolios are performed.
SCOR regularly reviews its methods for determining outstanding claims reserves and IBNR reserves. However, it is difficult to accurately value the amount of reserves required, especially in view of changes in the legal environment, which could have an impact on reserve development.
The Group continues to pursue the active commutations policy of its portfolios initiated in 2003, the main goals being to reduce the volatility of claims reserves and administrative costs, particularly of the oldest reserves, and to allow the reallocation of capital. This policy will be continued by focusing efforts on the US run-off activities and on some treaties written by the former Converium company acquired by SCOR in 2007.
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. This analysis is performed by the SCOR Global Life reserving actuaries and reviewed by the Group Actuarial Department which performs as well its own full analysis. These analyses are recorded in an annual actuarial report; ●● regular external reviews of SCOR Global Life division reserves adequacy are performed including those required by local regulators.
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 SCOR Global Life to determine the Life 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 risk related to the P&C and life reinsurance business < #3 3.3.5. RETROCESSION AND OTHER RISK MITIGATION TECHNIQuES
Reinsurers typically purchase reinsurance to cover their own risk exposures. Reinsurance of a reinsurer’s business is called retrocession. SCOR remains primarily liable to the direct insurer on all risks reinsured although the retrocessionaire is liable to the Group to the extent of the cover limits purchased.
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 and extreme mortality bonds, sidecars); ●● 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.
The availability and efficiency of SCOR’s retrocession and risk mitigation program is monitored at Group level on a regular basis in order to ensure that the Group’s overall exposure remains within pre-defined risk tolerances.
For further information on how counterparty default risk related to retrocessionaires is managed, see Section 3.5 – Credit risk.
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, 2016 and 2015 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 to through its investments. It also includes credit spread risk on these invested assets exposed to changes in spread due to general changes in market conditions as well as default risk arising from insolvency of an issuer or a counterparty. For further information on credit risk (counterparty default), see Section 3.5 – Credit risk.
Interest rates are very sensitive to a number of external factors, including monetary and budgetary policies, the national and international economic and political environment, and the risk aversion of economic actors.
Currency risk is the risk of loss arising due to adverse changes in or volatility of foreign exchange rates. This would impact the value of SCOR’s assets (e.g. through direct investments in assets denominated in various currencies) and liabilities (e.g. reinsurance treaties with liabilities denominated in specific currencies).
SCOR’s main non-French legal entities are located in Ireland, Switzerland, North America, the UK and Asia. The shareholders’ equity of these entities is denominated mainly in Euros, US dollars, British pounds and Canadian dollars.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS Market risk < #3 debts issued in different currencies, see Section 4.6 – Notes to the consolidated financial statements, Note 13 – Financial liabilities.
Some events, such as catastrophes, can have an impact on the matching of assets and liabilities in a currency, which can generate a temporary unmatched position which is not covered by currency contracts or hedges.
For further information on the sensitivity of the Group’s consolidated income and consolidated equity to currency risk, see Section 3.4.3 – Sensitivity analysis to market risk.
Real estate risk, either for properties owned directly or through funds, are risks arising from a variation in the real estate market valuation or a change in rental market conditions, the two being closely linked.
Rental income from the property portfolio is exposed to the variation in the indices on which the rents are indexed (for instance, the Construction Cost Index in France) as well as risks related to the rental market (changes in supply and demand, changes in vacancy rates, impact on market rental values or rent renewals) and lessee default. On the other hand the indexation may provide an attractive hedge against inflation.
The investment strategy complies with the prudent person principle. It is defined given the Risk Appetite and Risk Tolerance and takes into account the economic and market environment in line with a strong ALM process.
Investment Guidelines at Group and local levels outline the investment universe and limits, including concentration ones, in line with the objectives of the strategic plan. They are approved by the Group Board/local Board or top management.
In addition, SCOR has entered into interest rates swaps to cover its exposure to financial liabilities with variable interest rates. For further details on these swaps, see Section 4.6 – Notes to the consolidated financial statements, Note 9 – Derivative instruments.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS #3 3.4.2.2. MANAGEMENT OF CuRRENCY RISK
SCOR has a balance sheet hedging approach whereby there is an objective to match monetary assets and liabilities in each foreign currency so that the fluctuation in the exchange rate has no material impact on the reported net income. The policy is to closely monitor the net monetary currency positions and, where appropriate, execute either cash arbitrages or forward hedges.
With regards to equity, the Group’s objective is to develop and manage a high-quality diversified portfolio.
(2) The reduction in equity represents the estimated net asset impact including the additional impairment recognized in the income statement. (3) Net of tax at an estimated average rate of 27% in 2016 (21% in 2015 and 24% in 2014).
The Group recognized a net foreign exchange gain of EUR 11 million for the year ended December 31, 2016 (2015: gain of EUR 16 million and 2014: gain of EUR 11 million).
Credit risk is the risk of incurring a loss as a result of a change in the financial situation of a counterparty.
This includes counterparty default risk which is the risk that one party to a financial instrument or other asset will cause a financial loss to the other party by failing to discharge an obligation. Credit risk also includes migration risk, which is the risk of a potential loss in the value of assets due to changes in the credit quality of our counterparties.
SCOR is mainly exposed to the following credit risks or the accumulation of such risks in a single counterparty, in the same sector of activity or the same country: from bond and loan portfolios, liabilities retroceded also called share of retrocessionaires in contract liabilities, deposits with cedents, future cash-flows from Life reinsurance treaties, cash deposits at banks and default of members of pools which SCOR is a member of. SCOR may also be exposed to credit risk through its Credit and Surety reinsurance portfolio.
SCOR may be exposed to credit risk in relation to amounts deposited with ceding companies in respect of reinsurance reserves which cover its liabilities. 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.
SCOR is exposed to the risk of losing all or part of any cash deposited with a retail bank in the event such a bank is no longer able, due to insolvency, to honor its commitments (e.g. following liquidation). The current main risk for the Group is the significant concentration of deposits in a small number of banks. This risk is a direct result of the selection of the most stable banks.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS Credit risk < #3 3.5.1.6. OTHER CREDIT RISKS
3.5.2.1. MANAGEMENT OF CREDIT RISK RELATED TO BOND AND LOAN pORTFOLIOS
SCOR selects retrocessionaires carefully, taking into account their financial strength, and regularly monitors the Group’s exposure to retrocessionaires taking into account all relevant accounting balances (estimated and actual claims, premiums, reserves, deposits and pledges) and provides a summary reports to the Divisional and Group Risk Committees on a regular basis. SCOR typically requires that unrated retrocessionaires pledge assets or provide other forms of collateral (cash deposits or letters of credit) to the value of their maximum potential contract liability, even though the actual retrocessionaire liability to SCOR in the balance sheet is lower.
SCOR favors deposit arrangements with the ability to offset liabilities against deposits with high legal certainty.
3.5.2.4. MANAGEMENT OF CREDIT RISK RELATED TO FuTuRE CASH FLOWS FROM LIFE REINSuRANCE TREATIES
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 – VOBA.
For further information on how risks related to invested assets are managed, see Section 3.4.2 – Management of market risk.
This risk may be increased due to the characteristics of certain assets held by SCOR, whose liquidity may be limited due to contractual or regulatory constraints (e.g. investments in corporate, real estate or infrastructure loans).
The availability of additional financing will depend on a variety of factors. These notably include market conditions, the general availability of credit, the volume of trading activities, the overall availability of credit to the financial services industry, SCOR’s credit ratings and credit capacity, as well as the possibility that customers or lenders could develop a negative perception of SCOR’s long- or short-term financial prospects if the Group incurs large investment losses or if the level of SCOR’s business activity decreases due to a market downturn. Similarly, access to funds may be impaired if regulatory authorities or rating agencies take negative action that could penalize SCOR. The liquidity of several asset classes owned by SCOR may also be negatively impacted by changes to regulations or by non-conventional monetary policies. If so, these factors could prevent SCOR from successfully obtaining additional financing on favorable terms, if any.
SCOR assesses liquidity risks arising from both short-term and long-term liquidity needs. SCOR manages these risks via different mechanisms which consider: ●● actions to be taken by the insurance or reinsurance business areas to take into account both short term and long term liquidity risk (see maturity profiles in Section 3.6.3 – Maturity profiles); and
Details on financial liabilities are presented in Section 4.6 – Notes to the consolidated financial statements, Note 13 – Financial liabilities.
SCOR’s risk management policies, procedures and controls may not be appropriate or sufficient. In particular, any additional workload to the planned activities could reduce the effectiveness of some processes and controls. For example, the creation of a new entity or development of a new Line of Business may lead to an accumulation of operational risks.
In addition, SCOR may be involved in legal and arbitration proceedings due to non-protective terms of a contract, denounced either by third parties or internally which could lead to an unfavorable outcome. There are no governmental, judicial or arbitration proceedings, including any proceedings SCOR would be aware of, pending or which SCOR could be threatened with, likely to have or having a significant impact on SCOR’s financial situation or profitability over the last 12 months. For information on this issue, see Section 4.6 – Notes to the consolidated financial statements, Note 25 – Litigation.
Some of SCOR’s and SCOR’s subsidiaries’ processes are partially or fully outsourced. Failed outsourced processes could lead to direct losses and other operational incidents.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS Operational risk < #3 3.7.1.4. RISKS RELATED TO ExTERNAL EVENTS
SCOR may be exposed to an unfavorable business environment such as evolving or additional regulatory constraints potentially hindering its business model.
SCOR is also exposed to external fraud which is characterized by the fraudulent misappropriation of certain SCOR assets by third
Some of the above operational risks are transferred in whole or in part to direct insurers (1)as follows: ●● the properties and other assets of SCOR and its subsidiaries are covered locally through property and fire damage as well as IT risk policies; ●● liability risks are mostly covered at Group level and 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.
4.1. CONSOLIDATED BALANCE SHEET 144 4.2. CONSOLIDATED STATEMENT OF INCOME 145 4.3. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 146 4.4. CONSOLIDATED STATEMENT OF CASH FLOWS 147 4.5. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY 148 4.6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 151 4.7. INFORMATION ON HOLDINGS 221 4.8. STATUTORY AUDITORS 222 4.8.1. Principal auditors 222 4.8.2. Alternative auditors 222 4.8.3. Resignation or non-renewal of auditors 222 4.8.4. Fees paid by the group to the auditors 222 4.9. AUDITING OF HISTORICAL CONSOLIDATED FINANCIAL INFORMATION 223
In application of Article 28 of the EC Commission Regulation No. 809/2004, the following information is incorporated by reference in this Registration Document: ●● The consolidated financial statements as at December 31, 2015 are included from pages 153 to 231 and the Statutory Auditors’ report on these consolidated financial statements as at December 31, 2015 is included from pages 232 to 233 of the Registration Document filed with the AMF on March 4, 2016 under Number D.16-0108 (and from pages 143 to 219 and from pages 220 to 221, respectively, of the free translation into English of the above mentioned Registration Document. The translation is available on SCOR’s website www.scor.com).
Shareholders’ equity – Group share Note 12 6,661 6,330 Share capital 1,517 1,518 Additional paid-in capital 833 838 Revaluation reserves 134 112 Consolidated reserves 3,761 3,350 Treasury shares (224) (172) Net income for the year 603 642 Share-based payments 37 42 Non-controlling interests 34 33 TOTAL SHAREHOLDERS' EQUITY 6,695 6,363 Financial liabilities Note 13 2,757 3,155 Subordinated debt 2,256 2,613 Real estate financing 491 534 Other financial liabilities 10 8 Employee benefits and other provisions Note 14 262 300 Contract liabilities Note 15 28,715 27,839 Insurance contract liabilities 28,513 27,733 Investment and financial reinsurance contract liabilities 202 106 Other liabilities 4,864 3,948 Deferred tax liabilities Note 17 354 366 Derivative instruments Note 7 90 89 Accounts payables on assumed insurance and reinsurance transactions Note 8 792 484 Accounts payable on ceded reinsurance transactions Note 8 1,306 1,195 Tax payables 129 102 Other liabilities 2,193 1,712 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 43,293 41,605
CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of income < #4 4.2. CONSOLIDATED STATEMENT OF INCOME
Items that will not be reclassified subsequently to income (30) (5) (36)
Items that will be reclassified subsequently to income 114 287 518
Change in scope of consolidation (cash and cash equivalents of acquired/disposed companies) - - -
Cash used to redeem financial liabilities Note 13 (899) (7) (181) (193)
Net cash flows provided by/(used in) investing activities (368) (533) (1,397)
(1) In 2016, includes a EUR 301 million one-off cash in-flow from the repayment of a cedent’s fund withheld. (2) In 2014, mainly related to the acquisition of two private equity investments, accounted for using the equity method. (3) Partial disposal of Asefa for EUR 8 million. (4) 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.
(5) Of which EUR 2 million of dividends paid by MRM to non-controlling interests (EUR 2 million paid in 2015). (6) Cash generated by issuance of financial liabilities includes net proceeds from subordinated notes issuance of EUR 497 million. See Note 13 – Financial liabitilties.
EUR 856 million. See Note 13 – Financial liabitilties. (8) Cash paid in respect of margin calls received in 2015 and linked to cross-currency swaps (EUR 88 million) following the CHF 650 million perpetual debt redemption.
CONSOLIDATED FINANCIAL STATEMENTS #4 4.5. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Allocation of prior year net income - - - 549 - (549) - - -
Effect of changes in foreign exchange rates - - - 361 - - - - 361
Taxes recorded directly in equity - - (47) 16 - - - - (31)
Remeasurements of post-employment benefits - - - (43) - - - - (43)
Comprehensive income net of tax - - 153 329 - 512 - (3) 991
(1) Movements presented above relate to the issuance of shares related to the exercise of stock options for EUR 12 million (EUR 6 million in share capital and EUR 6 million in additional paid-in capital). This resulted in the creation of 711,022 new shares during the year ended December 31, 2014. These movements were offset by a reduction in Group capital through the cancellation of treasury shares for EUR 13 million (EUR 6 million in share capital and EUR 7 million in additional paid-in capital).
Allocation of prior year net income - - - 512 - (512) - - -
Revaluation – Assets available for sale - - (112) - - - - - (112)
Net gains/(losses) on cash flow hedge - - - 35 - - - - 35
(1) Movements presented above relate to the issuance of shares related to the exercise of stock options for EUR 21 million (EUR 10 million in share capital and EUR 11 million in additional paid-in capital). This resulted in the creation of 1,221,843 new shares during the year ended December 31, 2015. These movements were offset by a reduction in Group capital through the cancellation of treasury shares for EUR 24 million (EUR 10 million in share capital and EUR 14 million in additional paid-in capital).
Remeasurements of post-employment benefits - - - (38) - - - - (38)
(1) Relates to the partial sale of ASEFA. (2) Movements presented above relate to the issuance of shares related to the exercise of stock options for EUR 10 million (EUR 4 million in share capital and
SCOR SE (“the Company”) is a European Company (Societas Europaea) domiciled in France and governed by the provisions of French law relating to European Companies as well as by the French corporate law provisions applicable to joint stock companies (sociétés anonymes) where this is not contrary to the specific provisions applicable to European Companies. SCOR’s shares are publicly traded on the Eurolist by Euronext Paris stock market and on the SIX Swiss Exchange. The principal activities of the Company and its subsidiaries (“the Group” or “SCOR”) are Life and Non-Life reinsurance.
The consolidated financial statements as at and for the year ended December 31, 2016 will be presented for approval at the 2017 Annual General Meeting.
Other intangible assets and tangible assets have been grouped together with “miscellaneous assets” on the face of the consolidated balance sheet with further details included in Note 9 – Miscellaneous assets.
The preparation of the consolidated financial statements requires management to make certain judgments, assumptions and estimates. These may affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent assets and liabilities at the reporting date. Management reviews these estimates and assumptions periodically, based on past experience and other factors. The actual outcome and results could differ substantially from estimates and assumptions made. The main material financial statement captions for which the Group uses estimates and assumptions are reinsurance reserves, accounts receivable from and accounts payable on reinsurance transactions, the fair value and impairment of financial instruments, intangible assets, retirement and other defined post-employment benefits and deferred taxes, in particular with respect to the recognition of deferred tax assets and the availability of future taxable income against which tax loss carryforwards can be used.
The Group’s consolidated financial statements are presented in euros (EUR) and all values are rounded to the nearest EUR million except where stated otherwise. 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: In EUR per foreign currency unit Closing rate
Non-Life gross premiums (both written and earned) are based upon reports received from ceding companies, supplemented by the Group’s own estimates of premiums (both written and earned) for which ceding companies’ reports have not yet been received. Differences between such estimates and actual amounts are recorded in the period in which the estimates are changed or the actual amounts are determined. The difference between ultimate estimated premiums, net of commissions, and premiums reported by ceding companies, is recorded under accounts receivable from or accounts payable on assumed reinsurance transactions. Premiums are earned on a basis that is consistent with the risks covered under the terms of the reinsurance contracts, which is generally one to two years. For certain US and Japanese catastrophe risks, agriculture risks in Brazil and certain other risks, premiums are earned commensurate with the seasonality of the underlying exposure.
The amended International Financial Reporting Standards and Interpretations as adopted by the European Union applicable for the first time for annual periods beginning January 1, 2016, did no materially impact SCOR’s consolidated financial statements.
The Group’s investments in associates are recorded using the equity method. Associates are companies in which the Group exercises significant influence but no control or joint control. Significant influence generally occurs when the Group owns, directly or indirectly, between 20% and 50% of the outstanding voting rights. For certain associates accounted for under the equity method the Group consistently uses provisional financial year-end information and makes adjustments, if necessary, in the following reporting period.
The Group, through SCOR Investment Partners, acts as a fund manager for various investment funds. Funds for which SCOR acts as principal, even if the Group holds less than 50% of the voting rights are consolidated.
When determining whether the Group is an agent or principal with respect to investment funds, the power to direct the relevant fund activities, i.e. the scope of the Group’s decisionmaking 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.
Certain mutual funds that the Group manages and controls are open to external investors. When certain conditions are met, these funds are consolidated under a “short-cut method” under which the total assets of the fund are recognized as investments at fair value through income on the line “Insurance business investments”, and the elimination of the third-party share is presented as “Other liabilities”.
The Group sponsors a number of mortality or catastrophe bond (“Cat bond”) notes issued by Atlas special purpose vehicles (SPVs). These vehicles are not consolidated by the Group as SCOR does not control them, is not liable for any residual risk or benefit of ownership and has no ability to affect their returns.
Revios Canada Holding Corp. Ltd. Canada 100 100 100 100 Full
SCOR Life Reassurance Company (SLRC) US 100 100 100 100 Full
SCOR Asia House Limited Partnership UK 100 100 100 100 Full
Aggregate amount of the reporting entity’s share of net income/(loss) 6 (4)
The table above is based on 2016 and 2015 provisional financial information.
In 2016, the Group partially sold its participation in ASEFA (interest rate decreased from 39.97% to 19.97%), but retained its significant influence.
Depending on the design of the risk transfer agreement with the SPV, the transaction is classified as either a derivative or as an insurance contract. Derivatives are accounted for as at fair value through income and are included 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”.
Atlas X is an Irish-domiciled special purpose reinsurance vehicle. Atlas X and SCOR Global P&C SE have entered into a quota share retrocession agreement, effective January 1, 2014, under which Atlas X reinsures a proportionate share of SCOR’s diversified catastrophe portfolios in specific countries. This agreement is accounted for as a reinsurance contract.
Business combinations are accounted for using the purchase method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. If the business combination is achieved in stages, the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through income.
Management reviews the operating results of the SCOR Global P&C and SCOR Global Life segments individually for the purpose of assessing the operational performance of the business and to allocate resources. The amount of inter-segment transactions, primarily in relation to gross written premiums, is not significant. Hub shared service costs are allocated to the divisions using a headcount allocation key.
Group Functions is not an operating segment and does not generate revenues. Costs relating to Group Functions are not directly attributable to either the Non-Life or Life segments. Group Functions is the corporate cost center which includes the costs of departments fulfilling duties for the benefit of the whole Group, such as the costs for Group Internal Audit, Group Finance Departments (Group Tax, Group Accounting, Group Consolidation and Reporting, Financial Communication, Treasury and Capital Management, Financial Planning and Analysis), Group Chief Operation Departments (Group Legal, Group Communication, Group Human Resources, Information Technology) and Group Chief Risk Officer functions (Actuarial, Risk Management, Prudential Affairs, Internal Modeling, Embedded Value).
Change in unearned premiums reserves (15) (86) - - (101) 21 (143) - - (122) (18) (160) - - (178)
Gross benefits and claims paid (6,684) (3,164) - - (9,848) (6,364) (3,135) - - (9,499) (5,047) (2,788) - - (7,835)
Change in ceded unearned premiums reserves (2) (12) - - (14) 1 28 - - 29 1 30 - - 31
Change in fair value of investments 1 5 - - 6 1 11 - - 12 - 8 - - 8
OPERATING RESULT (BEFORE IMPACT OF ACQUISITIONS) 396 680 (125) - 951 364 808 (124) - 1,048 285 648 (107) - 826
Other income and expense excl. revenues associated with financial reinsurance contracts (3) (56) - - (59) (2) (63) - - (65) (1) (52) - - (53)
Change in impairment and amortization of investments (2) (29) - - (31) (3) (40) - - (43) (1) (30) - - (31)
For the Non-Life segment, contract liabilities, allocated on the same basis as gross written premiums, and share of retrocessionaires in contract liabilities, based on the location of the retrocessionaire, are as follows: In EUR million
Share of retrocessionaires in insurance and investment contract liabilities 535 827 1,362 437 821 1,258
Assets and liabilities by geographic region are based on the location of the entities and can be broken down as follows: In EUR million
Share of retrocessionaires in insurance and investment contract liabilities 1,065 265 32 1,362 989 231 38 1,258
Cash flows, by segment, are presented as follows: En EUR millions
Cash and cash equivalents at January 1 861 765 1,626 655 205 860 885 629 1,514
Net cash flows provided by/(used in) investing activities (259) (109) (368) 141 (674) (533) (233) (1,164) (1,397)
Net cash flows provided by/(used in) financing activities (158) (737) (895) (222) 639 417 (355) 120 (235)
At least annually, goodwill is tested for impairment. For the purposes of impairment testing, goodwill acquired in a business combination is allocated by SCOR to the groups of cash generating units that are expected to benefit from the profitability and synergies of the business combination. As part of the impairment testing, SCOR assesses whether the recoverable amount of operating units is at least equal to the total carrying amount of operating units (including goodwill). If it is determined that an impairment exists, the total carrying amount is adjusted to the recoverable amount. Any impairment loss is recorded in income in the period in which it arises.
The carrying amount of goodwill allocated to SCOR Global P&C and SCOR Global Life is disclosed in Note 4 – Segment information.
SCOR groups its cash-generating units (CGUs) by operating segment, i.e. SCOR Global P&C and SCOR Global Life. This is consistent with the way SCOR manages and monitors its business and cash flow.
For SCOR Global Life, goodwill is tested for impairment with reference to the inputs and methodology that SCOR applies in calculating the embedded value of the segment. Market consistent embedded value (MCEV) is a measure of the consolidated value of shareholders’ interests in the covered business. The MCEV represents the present value of shareholders’ interests in the earnings distributable from assets allocated to the covered business after sufficient allowance for aggregated risks in the covered business. The allowance for risk is calibrated to match the market price where reliably observable. The MCEV consists of the shareholder net worth (market value basis of equity), and value of in-force covered business (VIF). The VIF comprises the present value of future profits, projected over the life of the portfolio and based on contractual cash flows. Key assumptions are morbidity, mortality and lapse experience. Mortality and morbidity are based on external tables, adjusted based on internal past experience. Lapses are also based on internal past experience. SCOR calculates and publishes a MCEV in line with the principles of the CFO Forum. The 2015 reference rates are those published by EIOPA for Solvency II, with the exception of some minor currencies.
The IFRS 4 liability adequacy testing, which includes VOBA recoverability, showed no indicators of impairment for the years ended December 31, 2016, 2015 and 2014.
The Group classifies its financial assets in the following categories: available-for-sale, fair value through income, loans and receivables, derivative instruments and cash and cash equivalents. Currently no assets are classified as held-to-maturity. Sales and purchases of assets are recognized on the trade date. Once a financial asset has been recorded, it is measured according to its asset category, determined according to the methods set forth below. Financial assets are derecognized when the contractual rights to the cash flow of the financial asset expire or are transferred, and the Group has transferred substantially the risks and rewards incidental to the ownership of the financial asset.
Interest on debt instruments is calculated in accordance with the effective interest rate method, which includes the amortization of any premiums or discounts and is recognized as investment income. Dividends on equity instruments are recognized as investment income on the ex-dividend date.
Upon the derecognition of an available-for-sale financial asset, the accumulated unrealized gains and losses included in shareholders’ equity are transferred to realized capital gains/ (losses) on investments, net of any amounts previously recorded in income.
Investments at fair value through income 812 278 534 - -
Cash and cash equivalents Note 11 1,688 1,688 - - -
Investments at fair value through income 744 288 456 - -
Cash and cash equivalents Note 11 1,626 1,626 - - -