A European Company with share capital of EUR 1,457,885,613.93 Registered Office: 1, avenue du Général de Gaulle, 92800 Puteaux
SCOR SE’s corporate and consolidated financial statements for the financial year ended 31 December 2007 and the report of the statutory auditors regarding said financial statements as presented in SCOR SE’s registration document filed with the AMF on 28 March 2008 under number D.08-0154.
6 Business overview 48 6.1 Primary activities 52 6.1.1 The reinsurance business 52 6.1.2 Breakdown of the Group’s business 53 6.2 Principal markets 57 6.2.1 Breakdown of gross premiums by business segment 57 6.2.2 Distribution by geographic area 57 6.3 Extraordinary events influencing the principal business and markets 57 6.3.1 Non-Life reinsurance 58 6.3.2 Life reinsurance 58 6.4 Dependency of the issuer with respect to patents or licenses, industrial, commercial or financial contracts and new manufacturing processes 58 6.5 Information on SCOR’s competitive position 58 6.5.1 Non-Life reinsurance 59 6.5.2 Life reinsurance 59 7 Organisational structure 61 7.1 Brief description of the Group and of the position of the issuer 66 7.1.1 Group operating companies 66 7.2 List of issuer’s significant subsidiaries 69 8 Property, plant and equipment 70 8.1 Major existing or planned properties, plants and equipment 72 8.2 Environmental issues that may affect the utilisation of properties, plants and equipment 72 9 Operating and financial review 73 9.1 Financial position 75 9.2 Operating results 76 9.2.1 Consolidated operating results 76 9.2.2 SCOR Global P&C 77 9.2.3 SCOR Global Life 79 9.2.4 Retrocession 79 9.2.5 Strategy or factors of governmental, economic, fiscal, monetary or political character which have or could have a material impact on the operations of the SCOR Group 80 10 Capital resources 81 10.1 Capital 83 10.2 Cash flow 83 10.3 Borrowing conditions and financing structure 83 10.4 Restrictions on the use of capital 83 10.5 Sources of financing relating to the future investments by the Company and to its property, plant and equipment 84 11 Research and development, patents and licenses 85 11.1 Research and development activities 87 11.2 Information technologies 88 12 Trend information 90 12.1 Most significant trends in production, sales, inventory, costs, and selling prices since the end of the last financial year 92 12.1.1 Non-Life 92 12.1.2 Life 93 12.2 Known trends, uncertainties, demands, commitments and events reasonably likely to have a material effect on the issuer’s prospects 94 13 Profit forecasts or estimates 95 14 Administrative and management bodies 97 14.1 Information on the members of the Board of Directors and Senior Managers 99 14.1.1 Information concerning the members of the Board of Directors 99 14.1.2 Biographical information on members of the Board of Directors 115 14.1.3 Executive Committee 118 14.1.4 Biographical information on the members of the Executive Committee 121 14.1.5 Negative disclosures about members of the Board of Directors and Senior Management 123 14.2 Administrative, management, and supervisory bodies and Senior Management conflicts of interest 123
21 Additional information 262 21.1 Share capital 264 21.1.1 Amount of issued capital and additional information 264 21.1.2 Existence of non-equity shares 266 21.1.3 Number and value of directly or indirectly held treasury shares 267 21.1.4 Amount of convertible securities, exchangeable securities or securities with subscription warrants 268 21.1.5 Information about and terms of any acquisition rights and/or obligations over authorised but unissued capital or an undertaking to increase the capital 269 21.1.6 Information about any capital of any member of the Group which is under option or agreed conditionally or unconditionally to be put under option and characteristics of such options 269 21.1.7 History of the Company’s share capital for the period covered by the historic financial information 270 21.2 Charter and Bylaws 271 21.2.1 Corporate purpose of the issuer (article 3 of the Bylaws) 271 21.2.2 Summary of the Bylaws and internal regulations of the Company concerning the members of its
I confirm that, to the best of my knowledge, the financial statements have been drawn up in accordance with applicable accounting standards and accurately show the position of the assets and liabilities, the financial position and the profit or loss of the company and of all businesses and firms included within the scope of the consolidated group, and that the management report, mentioned in Appendix E, accurately reflects the evolution of the business, the results and the financial position of the company and of all businesses and firms included within the scope of the consolidated group, and describes the main risks and contingencies which they are faced with.
The historical financial information included in the Registration Document was certified by the auditors. Their reports are reproduced in Section 20.2 and Appendix A of this document, and incorporated by reference for financial years 2008 and 2007, in section 20.2 and Appendix A of the 2008 Registration Document and in Sections 20.3.1.1 and 20.3.1.2 of the 2007 Registration Document. The audit reports on the 2009 Consolidated Financial Statements, 2008 Corporate Financial Statements and 2007 Consolidated Financial Statements include comments.
MAZARS Represented by Mr. Michel Barbet-Massin Tour Exaltis – 61, rue Henri Regnault 92075 La Défense Cedex CRCC of Versailles
3.1 Group key figures (under current consolidation scope) SCOR SE and its consolidated subsidiaries (“SCOR” or the “Group”) is the world’s 5th largest reinsurer (1) serving more than 3,500 clients from its organisational Hubs located in New York, Cologne, London, Paris, Singapore and Zurich.
The 2009 year end results and balance sheet strength demonstrate the effectiveness of SCOR’s strategy which is based on high business and geographical diversification and focuses on traditional reinsurance activity.
Consolidated SCOR Group Gross written premiums 6,379 5,807 4,762 Net earned premiums 5,763 5,281 4,331
4.1 page 17 Risk related to the business environment 4.2 page 33 Market risk 4.3 page 36 Liquidity risk 4.4 page 37 Legal risk 4.5 page 38 Insurance of specific operational risks (excluding reinsurance activity)
The risk factors described below must be considered together with the other information contained in the Registration Document, and specifically with: Appendix B - Report from the Chairman of the Board of Directors on the terms and conditions for preparing and organising the work of the Board of Directors and on internal control procedures in accordance with article L.225-37 of the French Commercial Code - Part II, which describes the internal control procedures set up by the Group to address the risks to which the Group is exposed.
SCOR focuses on monitoring its critical risks through processes and procedures as outlined in its ERM framework. SCOR’s ERM framework is based on the COSO II framework which covers strategic, operational, reporting and compliance aspects of Risk Management. Fundamental parts of SCOR’s ERM framework are a) The Strategic Objectives (Dynamic Lift targets): To secure a ROE of 900 bps above risk free rate over the cycle; To provide an "A+" level of security to Group clients by 2010; To self-finance the current business plan of the Group
For the SCOR Group, the Risk Appetite is articulated in the “Capital Shield” policy. The purpose of the SCOR Group’s Capital Shield policy is to ensure that the Group reconciles its strategic objectives with the protection of its capital. The Capital Shield policy is based on an economic approach in order to protect against all potential losses, some of which are not immediately recognised from a pure accounting view. It is built on the following two concepts: i) Active hedging of peak exposures through retrocession
In addition to the solvency capital required to support the retained (after retrocession) risk profile, SCOR also holds Buffer Capital. This extra economic capital enables the Group to absorb a significant amount of inherent volatility, without having to turn to the market too frequently in order to maintain the Group’s available capital above the required solvency capital.
The reinsurance sector is regulated. The regulator, through prudential rules and principles, contributes to an increased vigilance on the part of companies in this sector thus reinforcing the company’s existing risk management mechanisms. One particularity of the reinsurance sector concerns a non–significant number of balance sheet items which are either based on accounting or model estimations. These estimations depend very much on the underlying assumptions, data used and the appropriateness of the model.
Generally, SCOR's ability to increase its portfolios in the Life and Non-Life reinsurance segments may be subject to external factors such as economic risks and political risks.
Non-Life reinsurance business represents approximately 52% of SCOR's business, compared to 48% for Life reinsurance business based on 2009 gross written premiums.
The main categories of risk for life insurance and reinsurance are biometric, behavioural and catastrophe risks as well as credit risk (see Section 4.1.12 – We are exposed to credit risks), currency risks (See section 4.2.4 -currency risk) and market risks (See section 4.2.3 - We are exposed to other risks arising from our financial instruments).
Mortality risk is the risk of loss due to higher than anticipated death rates (due to higher frequency of claims and/or an increased cost of claims under the insured portfolio) resulting from either a general volatility, an adverse long-term trend or a mortality shock event.
Longevity risk refers to the risk of a loss arising due to the insured or annuitant living longer than expected. This risk exists within reinsured annuity and long-term care covers or within other longevity protection products.
In life reinsurance, a major risk lies in the occurrence of a severe pandemic. In the past century, three major outbreaks of influenza occurred and claimed millions of lives. The occurrence of a similar event could cause large losses to the Group, due to an increased mortality far beyond the usual volatility. Experts closely monitor the current H1N1 influenza virus strain to identify any possible mutations that could make the virus more virulent. A lethal virus strain could lead to a heavy increase in mortality rates which could significantly affect SCOR’s results. Other infectious diseases are equally studied due to their potential for a significant loss development. In general, better means of communication and increased public health measures, combined with progress in vaccine research, make the estimated impact of future pandemics less severe than those of the past.
Aggregate portfolio exposures are continually monitored. Through an accumulation control, risks which exceed SCOR Global Life's retention are identified and retroceded. The retention limits are revised regularly based on SCOR Global Life's risk profile.
In the event of a very large natural catastrophe with many victims, the losses generated in Life and Non-Life could potentially accumulate, with losses on financial assets related to the potential reaction of markets (e.g., interest rates, exchange rates and equity market prices). In the same way a major pandemic event may cause financial market turmoil or business interruptions.
Political risks, which are characterised by social and political instability in certain countries, are particularly significant in emerging markets. These risks could lead to significantly reduced business growth in these markets. In such countries, substantial changes in legislation and regulations, particularly in tax or commercial legislation, are more probable than in more developed markets.
Insurance risk exposure is mitigated by diversification across a large portfolio of insurance and reinsurance contracts as well as geographical areas. The volatility of risks is also reduced by careful business selection, implementation of underwriting guidelines, the use of retrocession and other risk transfer arrangements, proactive claims handling as well as underwriting, claims and administration audits at ceding companies.
In order to mitigate its Property exposure, SCOR retrocedes a portion of the risks it underwrites. Non-Life retrocession is limited to catastrophes and major Property risks. In particular, SCOR has a global retrocession program, which is revised annually, and which provides partial coverage for up to three major catastrophic events, natural or not, within one occurrence year. The retrocession program includes both traditional retrocession as well as the use of capital market solutions (e.g. catastrophe bonds).
Biometric risks, other than pandemic risk, are diversified on a geographic and a product basis with a claims experience following the laws of large numbers. Anti-selection risks are mitigated through careful product design and a well-defined medical and financial underwriting selection process. SCOR mitigates lapse risk through appropriate reinsurance treaty clauses, as well as product, client and market diversification in which the lapse risk exposure is variable.
A significant part of the reinsured premium, in respect of Disability Long-Term Care and Critical Illness products, includes premium adjustment clauses. In the case of Long-Term Care, the premium adjustments are designed to offset
potentially improving longevity. In the case of Critical Illness, premium adjustments mitigate potential negative impacts on future claims patterns due to a general deterioration in health and improved medical diagnosis.
During 2009, the main accumulations tracked were: Northern Europe storms; Japan earthquake,
USA earthquake; And secondary accumulations: Earthquakes : Israel, Turkey, Italy, South Africa, Taiwan, China, Australia; Wind: USA, Caribbean, Mexico.
4.1.3 WE COULD BE SUBJECT TO LOSSES AS A RESULT OF OUR EXPOSURE TO TERRORISM
Refer to Section 20.1.6. - Notes to the consolidated financial statements, Note 28 - Litigation for a description of the situation in the WTC disputes.
After the attack of 11 September 2001, we adopted underwriting rules designed to exclude or limit our exposure to risks related to terrorism in our reinsurance contracts, in particular in those countries and/or for the risks expected to be most exposed to terrorism. However, it has not always been possible to implement these measures, particularly in our principal markets. For example, certain European countries do not permit the exclusion of terrorist risks from insurance policies. Due to these regulatory constraints, we have actively supported the creation of insurance and reinsurance pools involving insurance and reinsurance companies as well as public authorities in order to spread the risks of terrorist activity among the members of these pools. We participate in pools created in certain countries, such as France (GAREAT), Germany (Extremus), the Netherlands (NHT) and Belgium (TRIP), which allow us to have limited and known commitments. In the United States, the Terrorism Risk Insurance Act ("TRIA") passed in November 2002 for a period of
three years, which was extended to 31 December 2007 by the Terrorism Risk Insurance Extension Act ("TRIEA"), was renewed for 7 years, until 31 December 2014 by the Terrorism Risk Insurance Program Reauthorisation Act ("TRIPRA"). It established a federal assistance program to help insurance companies cover claims related to terrorist acts. TRIPRA requires that terrorist acts be covered by insurers. Despite TRIPRA, and the federal aid that it provides, the U.S. insurance market is still exposed to some significant risks in this area. Therefore, the Group monitors very closely its exposure to the US market, primarily because of the insurance obligation created by the law. In addition to the commitments described above, the Group does reinsure, from time to time, terrorist risks, usually limiting, by event and by year of insurance the coverage that ceding companies receive for damage caused by terrorist acts.
The reserve amount for these risks in addition to the number and the amount of losses are indicated in Paragraph 20.1.6 – Notes to the consolidated financial statement, Note 16 – Contract liabilities. Data related to the reserves arising from the risks related to asbestos and environmental pollution are also in Paragraph 4.1.5 – If our claims reserves prove to be inadequate, our net income, cash flow and financial position may be adversely affected. As a result of these imprecisions and uncertainties, we cannot exclude the possibility that we could be exposed to significant environmental and asbestos claims, or have to increase our reserving level, which could have an adverse effect on our current and future revenues, net income, cash flow and financial position.
SCOR Global Life inherited from Converium retrocession liabilities with regard to Guaranteed Minimum Death Benefit (GMDB) rider options attached to variable annuity policies written in the U.S. This type of business, which carries during financial crisis a specific economic risk is not within the usual scope of the SCOR Global Life underwriting policy. These treaties are all in run-off and cover in total approximately 0.8 million policies guaranteed by two cedants to exConverium. They were issued mainly in the late 1990's and incorporate various benefit types. Claims occur in the event of death and if the GMDB exceeds the insured’s account balance. Under these circumstances, the difference between the GMDB and the account balance or the GMDB and the cash surrender value becomes due, depending on the definition of the underlying reinsurance agreements.
Our U.S operations include both on-going and run-off portfolios. The latter principally consists of risks arising from various categories of reinsurance and insurance business underwritten from the end of the 1990’s to 2002 inclusive.
In the past, as a result of statutory capital requirements in the U.S, we strengthened the long term capital base of the U.S subsidiaries. In addition, our U.S Non-Life subsidiaries were reorganised in order to optimise capital usage. Finally, our underwriting policies in the U.S were re-vamped and are now aligned with overall Group objectives including the maintenance of a pro-active expense management program.
As a result of our pro-active management policy since 2004, neither CRP and / or our Discontinued Business portfolios today represent a material liability that is any greater than those associated with other entities of the Group. We continue to maintain constant vigilance over our U.S underwriting operations accordingly to “best estimate” rules.
Nevertheless, due to the specific environment in which they operate, there can be no assurance that our U.S. Non-Life Subsidiaries will not face further financial difficulties in the future.
The reserves adequacy is controlled by internal actuaries who make a quarterly review and an annual detailed report, validated by the Group Actuarial department. If necessary, audits of our portfolios are performed. Centrally defined and tightly controlled reserving process, strong portfolio diversification, prudent reserving policy, sound reserving tools and, state of the art actuarial methods used by highly skilled professionals and high level of transparency, both internally and externally, tends to minimise the risk of inadequate reserves.
When a claim is reported to the ceding company, its claims department establishes a reserve corresponding to the estimated amount of the ultimate settlement for the claim. The estimate is based on the cedant’s own methods of evaluation. The ceding company reports the claim and its suggested reserve amount to the Group entity with which it concluded its contract of reinsurance. The Group records the ceding company's suggested reserve and is free to establish greater or smaller reserves based on the review and analysis by the Group's claims division and internal actuaries. Such greater or smaller potential reserves are based upon the consideration of many factors, including the level of the commitments, seriousness of the claims and the Group's assessment of the ceding company's claims' management.
Conforming to applicable regulatory requirements and in accordance with industry practices, the Group maintains in addition to outstanding claims reserves, IBNR Reserves. These reserves represent: the final amount that may be paid by the Group on losses or events that have occurred, but are not yet reported to the ceding company or to the SCOR entity concerned; and the estimated cost variation on claims already reported to the Group.
Reserves for policy claims are established on the basis of the Group’s best estimates of mortality, morbidity, and investment income, with a provision for adverse deviations. In determining its best estimates, the Group takes into consideration its past experience, current internal data, external market indices and benchmarks and other relevant published information. The liabilities for future policy benefits established by the Group with respect to individual risks or classes of business may be greater or less than those established by ceding companies due to the use of different mortality tables or other assumptions. Reserves for policy claims include both claims in the process of settlement and claims that have been incurred but not yet reported. Actual events in a given period may be more costly than projected and, therefore, may adversely affect SCOR's operating results for such period.
A table showing changes in the mathematical reserves in Life reinsurance is provided in Section 20.1.6 - Notes to the consolidated financial statements, Note 16 - Contract liabilities.
As a consequence of the difficulties described above regarding the correct reserving of risks and their annual revision in Life and Non-Life, there can be no assurance that the Group will not have to increase its reserves in the future, which could materially impact its current and future revenues, net income, cash flow and financial position.
Similarly, when we transfer our own operational risks to insurers we are subject to the risk of the insurers not respecting their obligations. (Refer to Section 4.5 - Insurance of specific operational risks (excluding reinsurance activity).
Thus, the non-respect of financial obligations, in particular the payment of premiums, return of funds withheld and payment of claims, of our cedants, retrocessionaires or insurers, could negatively affect our revenues, net income, cash flow and financial situation. We periodically review the financial position of our cedants, retrocessionaires and insurers notably before the conclusion of contracts. This does not preclude the possibility that our cedants, retrocessionaires or insurers may become financially unsound by the time they are called upon to pay amounts due, which may not occur until many years after the contract was executed. Those receivables for which a loss is deemed probable, are discounted in our accounts.
The specific risk linked to the default of the retrocessionaires is provided in Section 4.1.12 – We are exposed to credit risks – (b) Receivables from retrocessionaires 4.1.7 WE OPERATE IN A HIGHLY COMPETITIVE SECTOR
Reinsurance is a highly competitive sector. As is the case for all other reinsurers, our position in the reinsurance market is based on several factors, such as our financial strength as perceived by the rating agencies, our underwriting expertise, reputation and experience in the lines written, the countries in which we operate, the premiums charged, as well as the quality of the proposed reinsurance structures, the services offered and the speed at which claims are paid. Nonetheless, we compete 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 ours, greater financial resources and, in certain cases, higher ratings from the rating agencies. The Group strengthened its competitive position in its strategic markets through the acquisition of Revios in November 2006 and Converium in August 2007, so creating a leading Life and Non Life reinsurer.
Financial ratings are very important to all reinsurance companies, including SCOR, as ceding companies wish to reinsure their risks with companies having a satisfactory financial position. Our Life reinsurance activities and the Business Solutions (facultative) in Non-Life reinsurance are particularly sensitive to the way our existing and prospective clients perceive our financial strength notably through our ratings. This is also true for our reinsurance treaties business in Non-Life in the U.S. and UK markets. Some of our reinsurance treaties contain termination clauses triggered by ratings. (Refer to Section 4.1.9 - A significant portion of our contracts contain provisions relating to financial strength which could have an adverse effect on our portfolio of contracts and our financial position).
In order to keep close control over our ratings and notably to prevent downgrades in our financial ratings and encourage and justify upgrades, we maintain close relationships with the main rating agencies. These relationships take the form of regular contacts during the financial year to present our results and our financial position to them and specific meetings before implementing strategic or financial projects, to assess their potential impact on our rating.
As a result of the above, a downgrade in the rating could, however, significantly impact our revenues, net income, cash flow and financial position.
In 2008 SCOR benefited from a relative improvement to its rating by Moody’s Investment Services (“Moody’s”), Fitch followed by Standard & Poor’s (“S&P”) in 2009. A.M. Best ("AM Best"), revised its outlook to positive in September 2009.
Currently, the ratings granted by S&P, AM Best Moody's and Fitch are as follows: Financial position Standard & Poor’s 13 March 2009
Moreover, some of our facilities contain conditions about our financial situation which, if not met, constitute a default and result in the suspension of the use of current credit facilities and/or a prohibition on obtaining new lines of credit or result in the need to negotiate in adverse conditions new LOC facility, which could in some cases have an adverse effect on our revenues, net income, cash flow and financial position.
4.1.10 OPERATIONAL RISKS, INCLUDING HUMAN ERRORS OR COMPUTER SYSTEM FAILURE, ARE INHERENT IN OUR BUSINESS
We believe our modelling, underwriting, price calculation and information technology and application systems are critical to the correct operation of our business. Moreover, our proprietary technology and applications are an important part of our underwriting and claims management processes and are a contributing factor to our competitiveness. We are, therefore, exposed to a major breakdown in our IT systems, outages, disruptions due to viruses, attacks by hackers and theft of data. Catastrophic scenarios that could affect SCOR's entire operational infrastructure have led to the revision of the business continuity plan ("BCP"). The BCP continues to be reviewed regularly.
A major defect or failure in our internal controls or information technology and application systems could result in a loss of efficiency of our teams, harm to our reputation or increased expense or financial loss. Appropriate procedures to
minimise the occurrence and the impact of the failures and defaults mentioned above are in place and appropriate, or are currently being formalised and deployed.
Some of SCOR’s processes are partly or completely outsourced. Outsourcing can increase operational risk which could cause a significant impact on SCOR’s results and/or reputation. In order to reduce this risk, SCOR is developing an Outsourcing Group Policy which will oblige all entities of the Group to draft a contract, to respect the selection process for service providers and respect reporting and control procedures. SCOR, as for all companies, must comply with laws and regulations. Furthermore, as an international Group, SCOR must take into account international laws and regulations. The level of legal or regulatory requirements depends on the location and the legal structure of the SCOR entity. The risk is that SCOR might not respect the level of required compliance appropriate to each location and legal structure. SCOR’s reputation could be affected. In particular, SCOR writes some direct insurance business primarily on a business-to-business (B2B) basis to cover certain non-life large industrial risks, but also on a business-to-customer (B2C) basis via one of our life subsidiaries - Investors Insurance Corporation (IIC) based in Jacksonville, Florida, USA. For direct business SCOR is subject to the laws, regulations and tax rules governing direct insurance which can create specific compliance risks (i.e. different from those relating to reinsurance business). The business written directly through IIC is subject to USA consumer and product laws and regulations which aim to ensure that only suitable products are sold and policyholders are provided with accurate information about the product at all times. Any violation of such laws and regulations could expose SCOR to legal risks or class actions.
An operational risk failure, in particular the failure of internal control procedures, could have an adverse impact on our activities, current or future revenue, net income, cash flow and financial position.
4.1.11 WE ARE EXPOSED TO RISKS RELATED TO THE RECENT ACQUISITIONS
On 4 December 2009, SCOR Global Life US (SGL U.S.), a wholly-owned subsidiary of the SCOR Group, reached a definitive agreement to acquire XL Re Life America Inc. (XLRLA), a subsidiary of XL Capital Ltd.. In 2008, XLRLA generated EUR 22.1 million in premium income
The integration of recently acquired companies may be more difficult than anticipated and the synergies may eventually be less than those anticipated
SCOR has inherited and is exposed, due to recently acquired companies, to certain litigation matters
Firstly, a deterioration in the financial situation of an issuer (sovereign, public or private) may result in an increase in the relative cost of refinancing and a reduction in the liquidity of the securities issued leading to a reduction in the value of its bonds. Secondly, the borrower’s financial situation can cause it to become insolvent and lead to the partial or total loss of coupons and of the principal invested by SCOR.
There are two aspects of credit risk related to contracts with cedants.
Firstly, we may be exposed to credit risk in relation to amounts deposited with ceding companies in respect of reserves which cover our current or future liabilities. Depositing these amounts does not a priori discharge SCOR of its liability towards its cedants in case SCOR is not able to recover these amounts in the event of default of cedants.
Secondly we are exposed to a credit risk in the event of a payment default by the cedants of the premiums due under SCOR's acceptance of a portion of their risks. In cases where such an event does not lead to termination of the reinsurance contract, any offset between contractual obligations between the two parties is dependent on court decisions and it is possible that SCOR remains liable for paying claims without being able to offset the unpaid premiums.
In order to reduce such risks, SCOR carries out a quarterly examination of exposure and associated risks. Depending on the financial situation of the principal cedants, actions aimed at reducing or limiting exposure or mitigating the risk through guarantees on deposits (for example, via offset clauses) may be carried out. Moreover, should their financial strength deteriorate between the time their financial commitment is made and the time it must be honoured (which may represent several years), an appropriate financial provision is established in SCOR’s accounts corresponding to the liability for which a loss is considered probable.
Thus, the inability of our cedants to fulfil their financial obligations could affect our current and future revenues, net income, cash flow and financial position.
As part of the management of its investment portfolio, SCOR deposits the securities it owns with a number of approved custodians. In the case of default of a custodian, depending on the local regulation applicable to the custodian, all or part of these securities could become blocked. SCOR pays particular attention to the selection of its custodians.
SCOR is exposed to credit risk through its Credit & Surety portfolio. In effect, by reinsuring the liabilities of its clients, which are credit insurers and insurers issuing sureties, SCOR must indemnify its ceding companies, for the portion that SCOR reinsures, in the event of the default of companies on which its ceding companies are exposed.
SCOR's underwriting policy is particularly prudent in this area. SCOR specifically monitors its main exposures in this sector. In addition, SCOR benefits from the expertise of its specialised cedants in terms of risk prevention, since the cedants continuously adjust their own exposure levels based on changes in the financial strength of the debtors they are insuring.
Credit risk on future profits from Life reinsurance policies arises from two risk factors. First of all, the payment of future profits expected under Life reinsurance contracts necessarily implies that the cedant is solvent: for this reason, SCOR risks a reduction in the value of its portfolio of Life contracts in the event of a deterioration in the financial strength of the cedant. In such a case, it is possible that the VOBA (Value Of Business Acquired) and DAC (Deferred Acquisition Costs) may as a consequence need to be written down and as a consequence, shareholders’ equity is reduced accordingly.
Despite these measures, SCOR has exposure to a credit risk linked to the insolvency and to the image of our cedants, which, if this were to occur, could have an adverse impact upon our income, our net earnings, our cash flow and our financial situation.
The aforementioned risks could accumulate in a single counterparty. SCOR attaches particular importance to the establishment of and respect of counterparty exposure limits. The quarterly examination of our exposures enables us to identify and quantify the risks and, in case of accumulations, formulate appropriate responses.
4.1.13 WE ARE EXPOSED TO THE RISK OF NO LONGER BEING ABLE TO RETROCEDE LIABILITIES ON ACCEPTABLE TERMS AND CONDITIONS
Investments are made, in general, over the medium term and are based on a policy of matching asset and liability durations. As a result, portfolio turnover is rather moderate thus assuring a relatively stable duration of the portfolio and a rapid assessment of interest rate risk.
We are also exposed to credit risks related to our bond investments. (See Section 4.1.12 - We are exposed to credit risks (a) Bond portfolio)
SCOR holds shares of funds or funds of funds in its alternative assets portfolio. Some of these funds have the possibility to restrict temporarily the liquidity of these shares in setting mechanisms: “Side pockets” or “gates”. SCOR mitigates this risk by holding small amounts of these assets.
Equity investments are considered as both a traditional and strategic asset class for the Group. The goal is to develop and manage a diversified portfolio of high-quality stocks that will appreciate over the medium term. We also seek stocks which offer high dividends or that could benefit a revaluation in case of inflation rise. Stock selection is therefore predominantly based on an analysis of the underlying fundamentals.
Our exposure to the equity market results both from direct stock purchases and through certain (re)insurance products including Guaranteed Minimum Death Benefit (GMDB) business. See Section 4.1.4 -We could be subject to losses related to deteriorating results in lines where we are no longer actively writing business.
Because equities are more volatile than bonds, this asset class is closely and regularly monitored. All equity positions (direct positions and mutual funds) are aggregated and valued daily. This approach allows us to monitor changes in the portfolio and to identify investments with higher-than-average volatility as soon as possible, using alert signals. It also facilitates arbitrage or portfolio re-allocation decisions.
The equity risk is controlled and measured: On a Group level, exposure is decided by senior management and reviewed at least quarterly by the Group Investment Committee.
Some financial instruments do not have a sufficient and recurrent number of transactions to allow valuation with reference to a market price and therefore need to be valued using an appropriate model. Two situations exist depending on whether parameters can be determined from observable market data or not. There is a risk that the price provided by the model is noticeably different from the price which would be observed in the event of rapid disposal of the financial instrument, which could have an adverse effect on our financial position. This risk is enforced for non listed assets and structured products.
The rental income of the property portfolio is exposed to the variation of the indices on which the rents are indexed (in France, the Construction Cost Index) as well as risks related to the rental market (changes in supply and demand, changes in vacancy rates, impact on rental values of the sub-rental market or rent renewals) and the default of lessees.
The value of property assets is exposed to changes in the investment market itself (changes in interest rates, liquidity) but potentially also to the risk of regulatory obsolescence of properties (regulatory developments related to the accessibility of buildings for handicapped people, on the reduction of energy consumption and the production of CO2 etc…)
The following types of foreign exchange risk have been identified by SCOR: (a) Transaction risk
We publish our consolidated financial statements in Euros, but a significant part of our income and expenses, as well as our assets and liabilities, are denominated in currencies other than the Euro. Consequently, fluctuations in the exchange rates used to convert these currencies into Euros may have a significant impact on our reported net income and net equity from year to year.
The main foreign entities of our Group are located in Switzerland, North America, Great Britain and Asia. The shareholders' equity of these entities is denominated mainly in Euros, U.S. dollars, or Pounds Sterling.
SCOR has issued debt instruments in currencies other that Euro, currently US Dollars, and to the extent that these are not used as a hedge against foreign currency investments, the Group is similarly exposed to fluctuations in exchange rates.
Acquisition costs, including commissions and underwriting costs, as well as the value of business acquired (“VOBA”) for life reinsurance, and the contractual rights with clients are recognised as assets subject to the profitability of the contracts. They are amortised on the basis of the residual term of the contracts in Non-Life, and on the basis of the pattern of recognition of future margins for Life contracts. As a result, the assumptions considered concerning the recoverable nature of the deferred acquisition costs, are affected by factors such as operating results and market conditions. If the assumptions for recoverability of deferred acquisition costs or VOBA are incorrect, it would then be necessary to accelerate amortisation, which could have a substantial negative effect on our net income and financial position.
Details of intangible assets, related impairment testing policy and recent acquisitions is included in Section 20.1.6 - Notes to the consolidated financial statements, Note 1 - Accounting principles and methods, Note 3 – Acquisitions, Note 4 - Intangible assets and Note 19-Tax.
4.3 Liquidity risk 4.3.1 WE FACE LIQUIDITY REQUIREMENTS IN THE SHORT TO MEDIUM TERM IN ORDER TO COVER, FOR EXAMPLE, CLAIMS PAYMENTS, OPERATIONAL EXPENSES AND DEBT REDEMPTIONS. IN THE CASE OF CATASTROPHE CLAIMS, IN PARTICULAR, WE MAY NEED TO SETTLE AMOUNTS WHICH EXCEED THE AMOUNT OF AVAILABLE LIQUIDITY
The main sources of revenue from our reinsurance operations are premiums, revenues from investment activities, and realised capital gains. The majority of these funds are used to pay out claims and related expenses, together with other operating costs.
Additional information on SCOR’s liquid assets is included in Section 20.1.6-Notes to consolidated financial statements, Note 6 – Insurance business investments.
The total amount of our stand-by letter of credit facilities is USD 3 840 million at 31 December 2009. It should be noted that a syndicated facility of USD 1,075 million will expire on 25 June 2010. SCOR is in the process of replacing this facility.
Furthermore in 2009, and in the beginning of 2010, the Group redeemed the following bonds: Redemption of a BMTN of EUR 10 million by SCOR on 5th May 2009, and
Our other bonds are redeemable only at the discretion of SCOR, and not of their holders (except in the usual events of default applicable to this kind of bonds). Due to these features, these other bonds do not increase our exposure to the risk of short-term or medium-term cash payout. Our bonds are presented in Section 20.1.6 - Notes to the Consolidated Financial Statements, Note 14 - Financial debt.
The operations of the Group and its subsidiaries are subject to regulatory requirements within the jurisdictions where they operate. Such regulations not only prescribe the approval and monitoring of activities, but also impose certain restrictive provisions (e.g. statutory capital adequacy) to meet unforeseen liabilities as these arise, in order to minimise the risk of default and insolvency.
We are involved in legal and arbitration proceedings in certain jurisdictions, particularly in Europe and the United States. Following the acquisition in 2007 of Converium (which became SCOR Holding (Switzerland)), SCOR assumes responsibility for Converium's litigation matters (for more information on this issue, refer to Section 20.1.6 - Notes to the consolidated financial statements, Note 28 - Litigation).
4.4.3 OUR POSITIONS ON TAX ACCOUNTS ARE SUBJECT TO AUDIT AND APPROVAL BY TAX AUTHORITIES
4.5 Insurance of specific operational risks (excluding reinsurance activity) (1) SCOR is exposed to specific operational risks (See Section 4.1.10-Operational risks, including human errors or computer system failure, are inherent in our business), some of which are transferred in whole or in part to direct insurers.
The properties and other assets of SCOR and its subsidiaries are covered locally through property and fire damage and comprehensive IT risk policies. The levels of self-insurance depend on the risks insured (e.g., self-insurance level on the SCOR building in Paris at La Défense, is less than EUR 15,000 deductible per incident).
Nevertheless, these insurance covers could prove insufficient or the insurance company could possibly contest their liability and towards SCOR. This could have a material adverse impact on the revenues, net income, cash flow and financial position of the Group.
4.6 Risks and litigation: Reserving methods Refer to Section 20.1.6 - Notes to the consolidated financial statements, Note 1 - Accounting principles and methods.
5.1 page 41 History and development of the issuer 5.2 page 45 Investments
Following approval of this conversion, SCOR SE is registered with the Nanterre Trade and Companies Register under the corporate name SCOR SE and has taken the form of a European company as of the date of such registration.
The conversion in itself did not have any impact on the value of the SCOR SE shares. The number of shares issued by the Company was not changed as a result of the conversion and the shares of the Company, at this stage, remain listed on the Eurolist market of Euronext Paris, on the SIX Swiss Exchange (formerly SWX Swiss Exchange) in Zurich since 8 August 2007 and tradable over-the-counter on the Frankfurt Stock Exchange. The Company’s ADS which were listed on the New York Stock Exchange since 11 October 1996 were delisted on 14 June 2007 and the Company’s securities were deregistered with SEC on 4 September 2007.
the authorised reinsurers can thus operate in the European Union with free provision of service and in the European Economic Area (“EEA”).
European reinsurance companies are under an obligation to meet the defined regulatory solvency demand, to establish a guarantee fund and to put a permanent internal control policy in place.
the obligation imposed upon reinsurers, to establish an adequate solvency margin, aims to protect the insurance companies, and hence, the consumers, in order to ensure that in the event of a decline in business or in investment income, the reinsurance companies have additional reserves, protecting those interests and consequently, the policy holders, while providing both executives and oversight and regulatory authorities with sufficient time to resolve the problems that have arisen. In Switzerland, the Group subsidiaries apply the federal law dated 17 December 2004, governing the oversight of insurance companies, which also governs reinsurance companies, which stipulates that an insurance company must have sufficient assets, free of any predictable commitment, for all its activities (solvency margin).
reinsurers authorised in France and their branches are monitored by the prudential control authority. The role of this body is to ensure that at any point, these entities are able to conform to the commitments that they have entered into with reinsurance companies and that they fulfil the regulatory solvency margin demands.
SCOR SE was founded in 1970 at the initiative of the French government to create a reinsurance company of international stature. SCOR developed quickly in the various world markets, building up a substantial international portfolio.
In 1989, SCOR SE and UAP Reassurances combined their Property & Casualty and Life reinsurance businesses as part of a restructuring of SCOR SE’s share capital, and listed the Company on the Paris stock exchange. The withdrawal of Compagnie UAP, which held 41% of the share capital, was completed in October 1996 via an international public offering at the time of SCOR SE’s listing on the New York Stock Exchange.
In 1999, SCOR SE purchased the 35% state held by Western General Insurance in the Bermudan company Commercial Risk Partners (CRP), thus raising its stake in this subsidiary to 100%.
In 2001, SCOR SE acquired SOREMA S.A. and SOREMA North America in order to increase its market share and take full advantage of the cyclical upturn in Property & Casualty reinsurance.
In June 2005, SCOR SE acquired the minority interests of IRP, following the termination of the quota share treaties between IRP, SCOR SE and some subsidiaries of the Group effective 31 December 2004. All liabilities, rights and obligations of IRP under the quota share treaties were novated in favour of SCOR SE in October 2005. In 2007, IRP became SCOR Global P&C Ireland Ltd and co-reinsures especially in British businesses, underwritten by Non-Life entities.
(for additional information on this takeover, refer to Section 5.2.1.1 - Public offer upon the Converium shares). In the context of this Offer, SCOR SE also listed its shares to trading in Swiss Francs on the SWX Swiss Exchange (which became the SIX Swiss Exchange) in Zurich, thereby enabling Converium shareholders who having brought their Converium shares to SCOR SE to keep their assets in the same currency and on the same stock exchange.
Following this acquisition, the Group became the world’s fifth-ranking global multi-line reinsurer with leading positions in selected areas such as Life reinsurance, specialty lines, industrial high risk, according to the classifications appearing in Global Reinsurance Highlights 2009 of Standard & Poor’s, in terms of pro forma gross written premiums issued in 2008 by the Group’s entities.
On 27 October 2008, SCOR Global Life SE incorporated in Spain SCOR Telemed, a wholly owned subsidiary. The corporate purpose of this company is the carrying of medical interviews by phone in the aim of Life insurance teleunderwriting. The activities of this company have been launched on 18 November 2009 to provide clients with valueadded services in the field of tele-underwriting. The company uses IT software to conduct tele-interviews and has a specialised automated underwriting system to deal with cases ranging from the standard to the most complicated ones. Severely substandard cases will be handled using SCOR’s web-based underwriting manual. The advantages of SCOR Telemed for clients are manifold and include enhanced customer satisfaction, speed of service, increased disclosure and strong operational savings. The reduced level of administration also means that the sales team can focus on their core activity.
On 29 October 2008, the Group announced its decision to create SCOR Global Investments SE, its portfolio management company and third operational entity within the Group along with SCOR Global P&C and SCOR Global Life. This new structure, incorporated on 2 February 2009, is planned to carry the asset management of the whole
investments portfolio of all the Group companies and is planned to implement the investment strategy as determined by the Group’s Investment Committee chaired by Denis Kessler, Group Chairman and Chief Executive Officer. SCOR Global Investments SE has been approved by the AMF as a portfolio management company with effect from 15 May 2009.
On 19 May 2009, SCOR announced the acquisition of ESG Direct Asia by SCOR Global Life SE’s wholly-owned subsidiary ReMark. ESG Direct Marketing has been active in Direct Marketing in Asia since 1998, in particular in Malaysia, Thailand, Indonesia, Hong Kong and China.
On 8 October 2009, SCOR Global Life SE opened a Life branch office in The Netherlands to further strengthen its presence and position in the market and fully seize business opportunities.
On 26 February 2007, the Company published a pre-announcement of a mixed public offer in Switzerland (the “Offer”) for all of the publicly-held registered shares comprising Converium’s share capital, with a nominal value of 5 Swiss Francs per share, including all shares that may be issued prior to the expiration of the offer period (including all additional delays for accepting the Offer) and excluding those shares held by Converium or acquired in the future by Converium or its subsidiaries, as well as those Converium shares admitted to trading on the New York Stock Exchange (NYSE) through an American Depositary Shares program (the “Converium Shares”). The total number of Converium shares able to be contributed to the Offer was set at 106,369,112. Under the terms of the Offer, the company offered Converium shareholders, in exchange for each share of Converium, (i) 0.5 share of SCOR SE; (ii) 5.50 Swiss francs and (iii) 0.40 euro in cash, equal to 50% of the amount of the per share dividend for financial year 2006 paid out by SCOR SE share and converted into Swiss francs on the basis of the euro/Swiss franc exchange rate in effect on the day the Offer is executed (the “Counterpart of the Offer”). The terms and conditions of the Offer are detailed in the Offer Prospectus which was published and filed with the Swiss takeover board (“TOB”) as of 5 April 2007 as amended on 12
June 2007 (the “Offer Prospectus”). The TOB then released a recommendation (the “IV Recommendation”) pursuant to which the Offer was compliant with the Swiss laws and regulations upon takeovers.
SCOR SE’s Extraordinary General Shareholders’ Meeting of 26 April 2007, approved the sixth resolution, regarding the decision to proceed with a capital increase by issuing (without preferential subscription rights) new shares of SCOR SE, attributed to Converium shareholders who have tendered their shares the Offer. The terms and conditions of this issue are described in the issue and eligibility prospectus approved by the AMF on 10 April 2007 under number 07-115, as amended by the first amendment approved by the AMF on 23 April 2007 under number 07-131 and by the second amendment approved by the AMF on 12 June 2007 under number 07-183 (the “Issue and Eligibility Prospectus”).
A request for cancellation of the 2,840,816 shares of SCOR Holding (Switzerland) was filed on 25 October 2007 with the Business Court of the canton of Zurich (Handelsgericht des Kantons Zürich), the counterpart in cash and shares offered within the context of this cancellation proceedings being identical to the Counterpart of the Offer.
On 31 July 2008, SCOR SE entered into an agreement with the Malakoff Médéric Group, the leading Group in the French social protection market, to acquire 100 % of the share capital and voting rights of Prévoyance et Réassurance, i.e., 1,650,000 shares and voting rights, and its Life and Health reinsurance subsidiary Prévoyance Ré, i.e., 850,000 shares and voting rights.
Such acquisition has been completed on 24 October 2008, by transfer of:
As of the date of this Registration Document, no significant investment is in progress.
In connection with its business activities, and in strict compliance with the criteria defined for the implementation of its strategy, SCOR SE remains committed to exploring acquisition opportunities which may present themselves and which would be likely to deliver value for its shareholders.
The “Back on Track” plan met its four major objectives by the end of 2004: strengthen the Group’s reserves to the "best estimate" as of this date; restore its equity through two share capital increases of EUR 380 millions and EUR 750 million; streamline the Group by reducing premiums underwritten in the Non-Life sector and the implementation of a new underwriting policy focused on short-tail activities and on less exposed markets, to the detriment of underwritings carried out in the United States, specifically with respect to general legal liability and industrial/occupational injuries treaties; and restructure the Group, particularly by appointing a new Board of Directors, new management and new procedures.
The combination of SCOR and Converium created a group organised as a network based on six platforms (“hubs”) worldwide. Four hubs have been created in Europe (Paris, Zurich, Cologne and London), one in the USA (New York) and one for Asia- Pacific (in Singapore).
With the acquisition of XL Re Life America, a subsidiary of XL Capital Ltd., SCOR has further complemented its Life and Health business and U.S. offering. The transaction was signed on 18 July 2009 and was closed on 4 December 2009. The total consideration of the transaction amounts to EUR 31.7 million, being settled in cash, and entirely self-financed. The business acquired shows a strong compatibility with SCOR’s Life strategy that is rooted in focusing on traditional protection business that is not correlated with economic risks.
SCOR Global Investments is regulated by the French Autorité des Marchés Financiers (AMF) and received its authorisation on 15 May 2009. It currently manages the investments of SCOR SE, SCOR Global P&C SE and SCOR Global Life SE and their European branches and monitors the global investment portfolio for all Group entities.
Reinsurance is a contract under which a company, the reinsurer, agrees to indemnify an insurance company, the ceding company, against all or part of the primary insurance risks underwritten by the ceding company under one or more insurance contracts. Reinsurance differs from insurance, primarily because of its inherent complexity linked to the broader range of activities and its international nature. Reinsurance can provide a ceding company with several benefits, including a reduction in net liability on individual risks and catastrophe protection from large or multiple losses. Reinsurance also provides ceding companies with the necessary capacity to increase their underwriting capabilities both in terms of the number and size of risks. Reinsurance however, does not discharge the ceding company from its liability to policyholders. Reinsurers themselves may feel the need to transfer some of the risks concerned to other reinsurers (known as retrocessionaires).
Reinsurance provides three essential functions: it offers the direct insurer greater security for its equity and solvency, as well as stable results when unusual and major events occur, by covering the direct insurer above certain ceilings or against accumulated individual commitments; it allows insurers to increase their available capacity – i.e. the maximum amount they can insure for a given loss or category of losses, by enabling them to underwrite policies covering a larger number of risks, or larger risks, without excessively raising their administrative costs and their need to cover their solvency margin and, therefore, their shareholder’s equity; it makes substantial liquid assets available to insurers in the event of exceptional losses.
reinsurance treaties, for amounts in excess of the monetary limits of their reinsurance treaties and 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 to more accurately reflect the risks involved.
Although the losses under a quota share reinsurance treaty are greater in number than under an excess of loss contract, it is generally simpler to predict these losses on a quota share basis and the terms and conditions of the contract can be drafted to limit the total coverage offered under the contract. A quota share reinsurance treaty therefore does not necessarily require that a reinsurance company assume greater risk exposure than on an excess of loss contract. In addition, the predictability of the loss experience may better enable underwriters and actuaries to price such business accurately in light of the risk assumed, therefore reducing the volatility of results.
Excess of loss reinsurance are often written in layers. One or a group of reinsurers accepts the risk just above the ceding company’s retention up to a specified amount, at which point another reinsurer or a group of reinsurers accepts the excess liability up to a higher specified amount or such liability reverts to the ceding company. The reinsurer taking on the risk just above the ceding company’s retention layer is said to write working layer or low layer excess of loss reinsurance. A loss that reaches just beyond the ceding company’s retention will create a loss for the lower layer reinsurer, but not for the reinsurers on the higher layers. Loss activity in lower layer reinsurance tends to be more predictable than that in higher layers due to a greater historical frequency, and therefore, like quota share reinsurance, enables underwriters and actuaries to more accurately price the underlying risks.
Premiums payable by the ceding company to a reinsurer for excess of loss reinsurance are not directly proportional to the premiums that the ceding company receives because the reinsurer does not assume a directly proportionate risk. In contrast, premiums paid by the ceding company to the reinsurer under a quota share contract are strictly proportional to the premiums received by the ceding company, and correspond to its share of the risk coverage. In addition, in a quota share reinsurance treaty, the reinsurer generally pays the ceding company a ceding commission. The ceding commission is usually based on the ceding company’s cost of acquiring the business being reinsured (commissions, premium taxes, assessments and miscellaneous administrative expense) and also may include a profit ratio.
Our operations are organised into the following two business segments: Non-Life reinsurance and Life reinsurance. We underwrite different types of risks for each segment. Responsibilities and reporting within the Group are established on the basis of this structure, and our consolidated financial statements reflect the activities of each segment.
The Non-Life segment is divided into four operational sub-segments: P&C Treaties; Specialty Treaties; Business Solutions (facultative); and
In order to address the increased risk and the coverage needs associated with agriculture, SCOR has been strengthening its agricultural risks underwriting teams since 2006 to provide reinsurance solutions in the field of multiple peril crop insurance, aquaculture insurance, forestry insurance and livestock insurance.
The main other classes of Life business currently underwritten are: Financing
Long-term care (LTC) insurance covers policyholders unable to perform predefined activities of daily living, and as a result, needs the constant assistance of another person on every occasion of daily life. The loss of autonomy is permanent and irreversible. SCOR Global Life has been pioneering Long-term Care reinsurance solutions on the French market for about twenty years and has acquired sound practical experience in dealing with problems related to underwriting and managing risks. The two main private LTC insurance markets are the United States, representing over six million insured lives and France which has established itself as the most dynamic market with over two million lives. On the French market SCOR Global Life enjoys a far leading position, while in the US, it recently launched and
enhanced care rider. At the forefront of industry development, SCOR Global Life is now expanding its geographical scope in LTC by introducing it to several markets. It already enjoys strong positions in Korea and Israel.
Critical Illness (CI) insurance pays a lump sum benefit, to be used at discretion, if the insured person suffers a serious condition and survives a defined period. The use and effectiveness of CI covers varies considerably between countries. SCOR Global Life is a market leader in Critical Illness in the UK. It leverages experience and expertise from the UK to cross-sell into selected markets, such as Taiwan, Korea and Sweden.
By business sub-segment Non-Life (**) Treaties 1,724 53% 1,612 52% 1,260 54.10% Business Solutions (facultative) 405 12% 408 13% 361 15.50% Specialty Treaties 708 22% 684 22% 514 22.07% Joint Ventures & Partnerships 424 13% 402 13% 194 8.33% TOTAL NON-LIFE 3,261 100% 3,106 100% 2,329 100%
management, and anticipated improvement in risk adjusted capitalisation supported by profitable growth in its main lines of business.
The acquisition of XL Life Re in December 2009 allowed SCOR Global Life to further strengthen its franchise. Furthermore, the acquisition of ESG Direct Marketing in Asia through ReMark, contributed to further enhance the SCOR Global Life franchise.
6.5 Information on SCOR’s competitive position Among the major reinsurance groups, SCOR pertains to the “traditional” or “continental” reinsurers as opposed to the socalled “Bermudan” model. The latter are characterised by the fact that they give priority to the underwriting of a type of risk and/or a geographic region – generally highly volatile natural catastrophe risks and to the American region. Conversely, SCOR is characterised by its strategic positioning aimed at underwriting risks so as to diversify exposure. To this end, the Group seeks to preserve: (i) The diversification of its business by maintaining a balanced business segment split between Life and Non-Life reinsurance. The portfolio business volume split at the end of 2008 was approximately 49% for Life reinsurance and 51% for Non-Life reinsurance.
In the Non-Life business, the relative importance of SCOR’s Specialty Treaties activities and its historic positions in developing economies and emerging markets, give the Group a solid background for pursuing a profitable expansion, despite modest growth in reinsurable matters and reinsurance premiums on mature markets.
Active portfolio management with a stable business volume in P&C Treaties and changes to the portfolio composition designed to provide greater profitability (shift towards more non-proportional business and movements in the geographical spread) and a selective growth mostly driven by new business in the lines of the Specialty Treaties.
Strict underwriting discipline with 17% of total premiums up for renewal cancelled and successfully replaced by more profitable new business from existing and new clients.
Strong April P&C renewals in the Asia Pacific region with prices up 4.1% (vs. 3.3% at 1 January) further demonstrated SCOR’s capacity to benefit from improving reinsurance market conditions. 12% of all treaty business was up for renewal and a 7% increase compared to 2008 was achieved thanks also to new opportunities that followed the S&P upgrade in March.
SCOR Global Life benefits from an established competitive position, strengthened by the acquisition in 2006 of Revios and in 2007 of Converium. Thanks to these two transactions, SCOR Global Life assured its strong presence in leading markets such as France, Italy, Spain and Portugal, and strengthened the position in Germany, Scandinavia and the United Kingdom.
SCOR Global Life offers its clients full product and actuarial support, backed by advanced research centres. Its market development can build on four research centres. In 2008 the international Research and Development centre for Selection and Claims was launched, which adds to the Longevity and Mortality centres, the Long-Term Care centres and the Disability, Critical Illness and Unemployment centres.
Branches of SCOR Global Life SE: Spain, Italy, The Netherlands, United
Regulated companies of reinsurance or insurance Services companies or branches or not having a reinsurance activity Reinsurance branches Representative offices Real estate companies
SCOR Global Life US Re Insurance Company Escritório de Representação no Brasil
SCOR SE is the Group company which stock is listed on the Euronext Paris regulated market.
The Group’s Non-Life reinsurance activities are coordinated by SCOR Global P&C SE. SCOR Global P&C SE carries out its operations via the European and American subsidiaries and through its branches in Germany, in Italy, in Spain, in Australia and in China, each of them operating primarily in its regional or national market. The Group’s Swiss and American Non-Life reinsurance subsidiaries, the shares of which are totally or partially held by SCOR SE, report to SCOR Global P&C SE for their operations.
The Group’s Life, accident, disability, health, unemployment, and long-term care operations are conducted by SCOR Global Life SE (formerly SCOR VIE). SCOR Global Life SE carries out its operations through its branches in Germany, Italy, Spain, and Canada, and through SCOR Global Life U.S. Re Insurance Company in the U.S., SCOR Rückversicherung (Deutschland) in Germany, SCOR Global Life Rückversicherung Schweiz in Switzerland and SCOR Global Life Reinsurance Ireland in Ireland.
SCOR Global Life SE is organised around four operating units with geographic responsibilities, based in France (Paris), Germany (Cologne), the United States (Texas, Florida and Delaware) and the UK (London). Each of these operating structures exercises its authority within a territory that may exceed its local market. Accordingly, the French unit controls underwriting in the Benelux countries, Southern Europe and Asia. The cross functions cover (i) actuarial technical functions, research and development and risk selection, (ii) risk management, and (iii) financial and accounting functions.
The Group’s subsidiaries and offices are connected through a backbone network, applications and data exchange platforms, which allow local access to centralised risk analysis, underwriting or pricing databases and also give access to information on local market conditions, to be shared among the Group’s subsidiaries and offices. In addition, through regular exchanges of personnel between the Group’s head offices in Paris and its non-French subsidiaries and branch offices, the Group encourages professional development and training across its various geographic markets and business lines.
The Group launched and completed several major restructuring projects in 2005, 2006, 2007, 2008 and 2009. This reorganisation was made in order to simplify the legal structure of the Group and clearly differentiate between the
operations of subsidiaries that are dedicated respectively to Life reinsurance and Non-Life reinsurance, with a view towards optimal annual allocation of capital between the operations.
In connection with the implementation of the New SCOR project, which was announced in June 2005, SCOR transferred, by way of spin-off, all of its Non-Life reinsurance business in Europe, including Property & Casualty Treaties (Specialty Treaties, Business Solutions (facultative)) and Major Corporate Accounts to Société Putéolienne de Participations (the corporate name of which was changed to SCOR Global P&C), a French subsidiary wholly owned by SCOR. This contribution was approved on 16 May 2006, by the Combined Shareholders’ Meeting of the Company, effective retroactively on 1 January 2006.
In connection with the second phase of the New SCOR project, SCOR announced on 4 July 2006, the conversion of SCOR into a Societas Europaea and the formation of a Societas Europaea at the level of SCOR Global P&C, through the merger by absorption of SCOR Deutschland Rückversicherung AG and SCOR Italia Riassicurazioni SpA by SCOR Global P&C. At the same time, SCOR Vie became SCOR Global Life SE through the merger with SCOR Global Life Rückversicherung AG (formerly Revios Rückversicherung AG) by SCOR VIE. SCOR SE so became the first publicly traded French company to adopt the Societas Europaea form. Since the completion of the merger, SCOR Global P&C SE conducts its operations in Italy, in Spain, in Switzerland and in Germany through its branches, as SCOR Global Life SE does. SCOR Global P&C SE has been the first company in Europe to complete a tripartite merger involving three different jurisdictions in the formation of a Societas Europaea.
The Societas Europaea statute enables SCOR to strengthen its European and transnational identity, facilitate acquisitions in Europe, improve flexibility in financial matters and capital allocation, simplify regulatory controls by using the possibilities offered by the Reinsurance Directive on the control of reinsurance companies, and reduce its local structures, by giving preference to the use of branches, rather than local subsidiaries. The Group is thereby demonstrating its ambition to be a company with European roots and global reach. This legal flexibility is today demonstrated by the speed of the integration process for the European entities of Converium, which became SCOR Holding (Switzerland), in SCOR’s European companies. SCOR Global Investments SE has also been incorporated as a Societas Europaea.
On 18 July 2006, the Group announced that it had consolidated its real estate investments within a single real-estate company, SCOR Auber, a wholly owned subsidiary of SCOR SE. This consolidation enables these investments to be more dynamically managed, simplifies the legal structures of the Group’s real estate asset management, and reduces the management expenses, related to these investments. As at the date of this Registration Document, SCOR Auber holds 14 investment real estate properties, for offices purposes in their great majority, in Paris and in the Ile-de-France region (suburbs adjacent to Paris) , with a market value of approximately EUR 365 million as at 31 December 2009.
In 2009, three Group Non-Life run-off companies based in the Americas – namely GSNIC, Commercial Risk Partners Ltd and Commercial Risk Re-Insurance Company have been consolidated. The process required an amalgamation of Commercial Risk Partners Ltd and Commercial Risk Re-Insurance Company with GSNIC. The assets, liabilities and surplus of Commercial Risk Partners Ltd and Commercial Risk Re-Insurance Company have been added to GSNIC in their entirety.
7.2 List of Issuer’s significant subsidiaries Refer to: Section 7 - Organisational structure chart; Appendix A – Notes to the Corporate Financial Statements – Note 2.3: Subsidiaries and Affiliates; Section 20.1.6 – Notes to the Consolidated Financial Statements – Note 25: Related party transactions; Section 25 – Information on Holdings; Section 7.1.1 – Group operating companies as concerns the role of SCOR towards its subsidiaries; Section 20.1.6 – Notes to the Consolidated Financial Statements – Note 3: Acquisitions as concerns the financial equation of the acquisitions of entities in 2009; Section 20.1.6 – Notes to the Consolidated Financial Statements – Note 3: Acquisitions as concerns the share of the entities acquired in 2009 income included in the Group’s consolidated income; Section 14 – Administrative and management bodies as concerns the duties carried out in the subsidiaries by the Managers of the issuer; Section 7.1 – Brief description of the Group and of the position of the issuer as concerns the economic organisation of the Group; Section 19.3 – Special report of the Auditors on related party agreements and commitments with regards to the financial flows between the issuer and its subsidiaries and their nature; and
Section 20.1.6 – Notes to the Consolidated Financial Statements – Note 3: Acquisitions for a description of the operations, of the relevant interim management balances and of the strategic economic assets of the main subsidiaries.
8.2 Environmental issues that may affect the utilisation of properties, plants and equipment Refer to the environmental report in Appendix C.
Refer also to Section 20.1.6 – Notes to the consolidated financial statements, Note 1 – Accounting principles and methods and Note 27 – Insurance and financial risks.
In a challenging financial market environment, SCOR maintained its conservative asset management policy although executing a prudent inflection program directed to improve the return of its invested assets whilst keeping a strong focus on liquidity management. The Group’s short term liquidity position, which is well diversified across a limited number of banks and placed primarily in government securities and short-term investments with maturity less than 12 months, stands at EUR 1.7 billion at the end of 2009 down from EUR 3.7 billion at the end of 2008 (EUR 2 billion at 31 December 2007).
The Group has a leverage position of 14.6% at 31 December 2009, (10.9 % after consideration of the Océane repayment occurring 1 January 2010), as compared to 18.7% at 31 December 2008, and has no current refinancing needs. The Océane debt of EUR 184 million, excluding accrued interest and net of amounts converted to shares, matured 1 January 2010. Refer to Section 20.1.6 – Notes to the consolidated financial statements, Note 14 – Financial debt.
Book value per share stands at EUR 21.80 at 31 December 2009 as compared to EUR 19.01 and EUR 20.11 at 31 December 2008 and 2007, respectively.
Investment income for the year ended 31 December 2009 amounted to EUR 503 million as compared to EUR 467 million and EUR 727 million for the years ended 31 December 2008 and 2007, respectively.
The net results of the Group’s retrocession programs were EUR (136) million EUR (140) million and EUR (169) million in 2009, 2008 and 2007, respectively.
The Group cost ratio, calculated as the total of all management expenses less certain non controllable expenses (e.g. bad debts), one time expenses (e.g. Highfields litigation in 2009) and amortisation, divided by gross written premium, reduced from 6.0% at 31 December 2008 to 5.5% for the year ended 31 December 2009 due to increased productivity on overall stable management expenses. The total expense base for the years ended 31 December 2009 and 31 December 2008 respectively was EUR 389 million and EUR 374 million.
SCOR generated net income of EUR 370 million in 2009, compared to EUR 315 million and EUR 407 million for the years ended 31 December 2008 and 2007, despite a challenging financial market environment. The results benefited from a positive operating performance of SCOR Global P&C and SCOR Global Life as well as from a prudent asset management policy which safeguarded shareholders’ interests during the crisis whilst delivering solid returns.
The 2009 gross written premium of EUR 3,261 million represents an increase of 5.0 % compared with the 2008 published gross written premium of EUR 3,106 million. The increase in premium was primarily driven by strong January and April renewals coupled with overall increases in prices, which demonstrates SCOR’s ability to benefit from improving reinsurance market conditions.
In 2008, the gross premiums for SCOR Global P&C increased 33.3% compared with 2007 published gross written premium of EUR 2,329 million due primarily to the inclusion of Converium within the 2008 consolidated financial results for the entire year. In 2007, Converium was included in the consolidated results from 8 August, 2007, the date of acquisition. The 2008 gross written premiums demonstrate the successful “post SCOR/Converium merger” renewals campaign and strong complementary franchise of the merged portfolios. The gross premiums earned closely follow the evolution of the gross written premiums.
The 96.8% net combined ratio in 2009 excludes non-recurring costs of the Highfields settlement and related legal expenses (pre tax, EUR 12 million, net of expected recoveries), certain other expenses as disclosed in the 2008 Reference Document and the exceptional impact of the outcome of the arbitration with Allianz in respect of the World Trade Center (EUR 39 million after tax). The 2009 net combined ratio, including the outcome of the World Trade Center arbitration, is 98.8%. The decrease in the combined ratio from 98.6% in 2008 to 96.8% in 2009, after excluding the impact of the World Trade Center arbitration, is due primarily to a 1.5% improvement in the catastrophe ratio from 6.6% in 2008 to 5.1% in 2009 which is the result of less frequent and less severe catastrophes in 2009. The decrease also reflects the active portfolio management and the benefit of a stronger competitive position both of which led to a slight reduction in the attritional loss ratio.
The arbitration panel decided that Allianz had not exceeded its rights and obligations. SCOR and its retrocessionnaires will assume, to the extent of their respective commitments, their share in the indemnification obligations relating to the World Trade Center claim.
Hail storms (July 2009) in Switzerland and Austria for which the loss is estimated at EUR 23.3 million at 31 December 2009.
In 2008, SCOR was affected by the following catastrophes which resulted in estimated losses greater than EUR 10 million as at 31 December 2008.
Australian floods occurred in January and February 2008. As at 31 December 2008 the estimated loss was USD 40 million (EUR 26.1 million). The revised estimated loss at 31 December 2009 is USD 40.7 million (EUR 29.2 million).
An earthquake occurred in China’s Sichuan province on 12 May 2008. As at 31 December 2008 the estimated loss was EUR 10 million. The revised estimated loss at 31 December 2009 is EUR 2.9 million.
The Maiunwetter Storm occurred in Germany in May 2008. As at 31 December 2008 the estimated loss was EUR 12.5 million. The revised estimated loss at 31 December 2009 is EUR 14.1 million.
The remaining impact, of other various less significant natural catastrophe losses (below EUR 10 million) which occurred during 2008 is estimated at EUR 24.6 million as at 31 December 2008
In addition, other significant non catastrophe losses were incurred during 2008 which were assessed at 31 December 2008 as follows: for the Eurotunnel fire, for EUR 27.7million net of retrocession, and the Apache incident EUR 14.4 million.
In a competitive life reinsurance market SCOR Global Life kept on growing profitably in 2009. It successfully further strengthened its long-term business relationships with existing clients, gained new business partners and additionally improved its proposition in the mortality-protection field by reinforcing its position in the USA with the acquisition of XL Re Life America. Operations in our core markets have again been overall successful. In Europe SCOR Global Life has maintained its strong market position. In Asia, and the Middle East, SCOR Global Life has continued its outstanding performance. These non-European markets accounted for a large proportion of the growth during 2009.
Overall, the purchase of collateralised solutions (Atlas IV, V, VI and the Mortality Swap), improves the credit exposure of the Group vis à vis its retrocessionnaires.
In 2008 the Group renewed its retrocession program post acquisition of Converium in line with the strategy determined in 2007. The increased needs and potentially volatile retrocession market lead to continued diversification strategy as evidenced by the Atlas III and IV structures and the mortality swap. The 2009 retrocession coverage was implemented at cost which was below initial budgeted amounts.
In 2007, the planned 2007 retrocession program was implemented in a retrocession market that had stabilised but still considered expensive. The overall retrocession coverage costs were practically identical to those of 2006 which had increase significantly following the hurricanes of 2005.
As at 31 December 2009, the Group’s financial leverage was 14.6% as compared to 18.7% at 31 December 2008. This ratio is calculated as the percentage of debt securities issued and subordinated debt to total shareholders’ equity. The improvement in 2009 is due to the improvement in net income, net of dividends paid and other movements directly recorded in shareholders’ equity. After the conversion and repayment of the OCEANE, the Group’s financial leverage is now of 10.9%.
Refer to Section 20.1.6 – Notes to the consolidated financial Statements – Note 14 - Financial debts for a description of the subordinated loans and bonds issued by SCOR, including any reimbursements and conversion that occurred during the year.
The total liquidity of the Group of EUR 1.65 billion (comprised of cash and cash equivalents and short term investments) and the low financial leverage ratio reflects the Group’s treasury and financing strategy to remain very liquid.
8% of the OCEANE has been converted and 92% repaid on due date.
On 26 June 2007, the Swiss Federal Office of Private Insurance (“FOPI”) (now known as Swiss Financial Market Supervisory Authority FINMA) approved the indirect acquisition of more than 50% (and up to 100%) of the capital and voting rights of Converium by SCOR. This authorisation was granted under the condition that all transactions having an
10.5 Sources of financing relating to the future investments by the company and to its property, plant and equipment As at the date of this Registration Document, no material investment is contemplated and the property, plants and equipments described in Section 8.1 do not require additional financing.
11.1 page 87 Research and development activities 11.2 page 88 Information technologies
CIRDAD (R&D Centre for Long-Term Care Insurance): providing support in the development of LTC products (definitions, pricing, guidelines) and the monitoring of LTC portfolios.
CREDISS (R&D Centre for Underwriting and Claims Management): evaluating the consequences for insurance of the new medical advances for both known pathologies and most recent ones; advising clients in the pricing of substandard risks.
Development research helps the Group to understand better its environment and to take decisions. Therefore SCOR supports the research through: Geneva association, composed by insurers and reinsurers, which aims at supporting research related to risks in insurance and reinsurance environment; Education via Master 218 of Paris Dauphine and new MBA of ENASS
Finance convention, in cooperation with Jean-Jacques Laffont foundation based in Toulouse, deals with risk management, long term investment, company governance and asset management strategy. For SCOR, the cost is EUR 1.5 million divided into five payments of EUR 300,000.
Its central back-office system is a custom software package known as Omega. Omega was designed to allow the tracking of clients and policyholders within the Group, grant online authorisations throughout the world, track claims, analyse the technical profitability of contracts, and perform quarterly closings based on the latest estimated results. In 2009, the Omega database has reflected the new organisation of SCOR Global P&C worldwide portfolio. The same operation is ongoing for the SCOR Global Life portfolio.
The focus in 2009 has mainly been to strengthening the front office applications to improve risk selection, anticipation and reactivity in markets and products, and simulations of results. A lot of projects have already been started these last years, and the objective will be reinforced over the two years coming. The monitoring system is modernising and expanding in order to strengthen visibility on the development of product lines and markets. Accounting forecasts are developed from underwriting plans and comparative analysis is produced in standard reports. All the components of this planning system are progressively integrated in the market software solution SAP BPC, expenses and P&C planning have already been, and Life reinsurance and corporate plan will follow in 2010. New reserving and financial modelling tools are implemented. Non-Life pricing is closely managed using both Matrix and Mars tools, now feeding the same single Infocentre reporting facility. They integrate pricing based on standardised models, profitability analysis and full traceability of proportional and non-proportional business, on a fully global basis. Control of exposure to natural catastrophes has also been improved by implementing a datawarehouse of all liabilities and accumulations, after modelling with market solutions RMS, AIR and EQECAT. In the Life business, several projects have been finalised, especially for accumulation identification and calculation of retrocession. Others are underway for harmonising and reinforcing substandard risks underwriting, and calculating embedded value. Finally, the SCOR Group works for extending and industrialising its Asset and Liability Management (ALM) tool. The first module for P&C risks modelling is now in place, and the same is ongoing for Life.
The SCOR IT is playing a key role in implementing the “Green SCOR” policy decided by the Group, and drives a number of actions in the frame of a multi-year plan, which includes especially datacenter consolidation, server virtualisation, PC replacement by new low-energy machines, printing reduction, or the implementation of telepresence systems leading to less travels.
Mobility is covered by ongoing developments in line with changing business needs more and more demanding a permanent connexion with the company, and in compliance with security standards.
The January 2010 renewal results are a further demonstration that SCOR executes its strategy.
The key takeaways of this year’s renewals are as follows: 7% rise in business volume at constant exchange rates to EUR 1,787 million, while applying an underwriting policy geared towards increased expected technical profitability; An actively continued portfolio management but at a lower rate of cancellation than last year, which is no surprise: 7% of total premiums up for renewal cancelled and more than adequately replaced by increased shares and new business showing better profitability expectancy, from existing and new clients; A positive weighted average price increase of 2% across the portfolio with non-proportional continuing to behave better than proportional; Reaffirmation of the strength and depth of SCOR’s business franchise, with minimal cedant attrition of less than 1% and increased shares and new business from existing and new clients.
The positive price impact, notably on non-proportional business (slightly above 3%), leads to an increase in premium volume of EUR 32 million.
(a) Geographic rebalancing of Treaty P&C portfolio towards the Americas and Asia-Pacific
In Germany and the UK, business declines by 14% and 29% to EUR 174 million and EUR 65 million respectively. The main reasons for this shift are voluntary reductions in German Property and Motor Proportional business and in British Motor Non-Proportional business, partly offset in Germany by some increases in Property Non-Proportional business.
Significant increases are also recorded in the Americas (+15%), concentrated in the US regional clients target segment. Canada and Central America renew within an unchanged positive profitability environment, whilst a careful stance is taken in the Caribbean and South American markets.
In Asia-Pacific, SCOR Global P&C experiences significant growth thanks to our re-established local presence in Australia and new developments in Pakistan. Underwriting in China remains very selective. Bearing in mind that in this region only around 27% of Treaty P&C premiums are up for renewal at 1 January 2010, since Japan, Korea and India will renew their programmes on 1 April 2010, volume increases by 19% to EUR 67 million.
SCOR’s franchise is once again fully affirmed and Specialty Treaty business has grown significantly, with premiums up by 20% to EUR 472 million from EUR 394 million up for renewal (62% of annual volume). SCOR’s teams thoroughly compensate for 4% or EUR 17 million of business cancelled, by writing EUR 34 million of additional business with existing clients and EUR 11 million with new clients. New shares on existing programmes increase premium volume by EUR 28 million. Improved prices and market conditions lead to an increase in premium income of EUR 7 million.
Continued selective growth in Specialty Treaty business, leveraging on franchise, network and global approach synergies with Treaty P&C
SCOR exercises very active cycle management with regard to Specialty Treaty business, taking advantage of the diversification benefits offered by this business segment.
Credit & Surety business grows strongly from EUR 105 million to EUR 135 million, representing an increase of 29%. This segment is marked by double-digit price increases in Credit combined with a further reduction in acquisition costs. With premiums written in 2010 amounting to EUR 102 million, Engineering records an increase of 23%, driven by continued development in a stable pricing environment, albeit at a more challenging time in view of the worldwide investment slowdown. Transport & Marine and Agriculture lines also record strong premium volume increases (+20% and +18% respectively) to reach EUR 71 million each.
On its European markets, SCOR has maintained its positions thanks to its range of services and its strong presence and commercial activity.
14.1 Information on the members of the Board of Directors and Senior Managers 14.1.1 INFORMATION CONCERNING THE MEMBERS OF THE BOARD OF DIRECTORS
Registration Document Offices held during the last five years: Denis KESSLER (1) Chairman and Chief Executive Officer
Chairman of the Supervisory Board: - SCOR Global Investments SE (France) Director: - SCOR SE (France) - SCOR Global P&C SE (France) - SCOR Global Life SE (France) - SCOR Global Life U.S. Re Insurance Company (U.S.) - SCOR Reinsurance Company (U.S.) - SCOR U.S. Corporation (U.S.) - SCOR Holding (Switzerland) AG (Switzerland) - SCOR Global Life Re Insurance company of Texas (U.S.) - SCOR Canada Reinsurance Company (Canada) - SCOR Global Life Rückversicherung Schweiz AG (Switzerland) - SCOR Switzerland AG (Switzerland) - SCOR Global Life Reinsurance Company of America (U.S.)
Director: - BNP Paribas S.A. (France)* - Bolloré (France)* - Dassault Aviation (France)* - Invesco Ltd (U.S.)* - Fonds Stratégique d’Investissement (France)
Member of the Supervisory Board: COGEDIM SAS (France) SCOR Deutschland (Germany) SCOR Global Life Rückversicherung AG (Germany)
Other offices and positions held in any company in France and abroad as at the date of the Registration Document Offices held during the last five years: Carlo ACUTIS (1) Director
Director: - Yura International B.V. (formerly Yura International Holding B.V.) (The Netherlands) - Pirelli & C. S.p.A. (Italy)* - Ergo Italia S.p.A. (Italy) - Ergo Assicurazioni S.p.A (Italy) - Ergo Previdenza S.p.A. (Italy)* - IFI S.p.A. (Italy)* - Association de Genève (Switzerland)
Vice-Chairman: - Banca Passadore S.p.A. (Italy) - Chairman's Council of the CEA Comité Européen des Assurances, the European insurance and reinsurance federation (Belgium) - Fondazione Piemontese per la ricerca sul cancro (Italy) - A.N.I.A. Associazione Italiana fra le Imprese di Assicurazione (Italy)
Other offices and positions held in any company in France and abroad as at the date of the Registration Document Offices held during the last five years: Gérard ANDRECK (1) Director
Other positions: France Chairman of the Board of Directors: - SOCRAM Banque - MACIF SGAM - MACIF - CEMM SAS
Director: - Atlantis Seguros (Spain) - Atlantis Vida (Spain) - Compagnie Foncière de la MACIF
- MSACM - MACIFIMO - OFIVALMO - MACIF Participations - Caisse Centrale de Réassurance
Abroad: Chairman: - American Friends of the Claude Pompidou Foundation (U.S.)
Director: - SCOR Reinsurance Company (U.S.) - General Security National Insurance Company - French-American Foundation (U.S.) - CIFG Holding (Bermudes) - CIFG Guaranty
Abroad: Director: - Interbrew SA (Belgium) - CALFP (U.K.) - SCOR U.S. Corporation; - General Security Indemnity Company (U.S.) - General Security Property and Casualty Company (U.S.) - InBev (Belgium)
Document Offices held during the last five years: Peter ECKERT (1) (2) Director
Director: - Deliciel AG (Switzerland) - Zurich Vida, Companhia de Seguros SA (Portugal) - SCOR UK Company Ltd (UK) - SCOR Switzerland AG (Suisse)- SCOR Holding (Switzerland) AG (Switzerland) - SCOR Global Life Rückversicherung Schweiz AG (Switzerland)
Director: - Sal. Oppenheim (Schweiz) AG (Switzerland) - Zurich Vie (Switzerland) - Zurich American Ins. Co. (US)
Principal position: Chairman – Chief Executive Officer of MATMUT (Mutuelle Assurance des Travailleurs Mutualistes)
Director: - OFIVALMO - SCOR Vie - FNMI - MTG XV - OFIMALLIANCE - MDA
Chairman of the Supervisory Board: - OFIVALMO - MUTRE and Vice-Chairman - ADI
Permanent Representative of: - SMAC to the Board of Directors of OFIMA TRESOR - MATMUT to the Supervisory Board of OFI Palmarès - SMAC on the Board of Directors of OFI Convertibles - SMAC on the Board of Directors
Others - non-voting member at the Management Board of EURESA - Member of the Board of ICMIF - Chairman of the Board of POLITAS
Other: - Vice-Chairman of CEGES - Member of the staff of the Fédération Nationale de la Mutualité Interprofessionnelle (FNMI) - Chairman of the Comité National des Réalisations Sanitaires et Sociales - Prévadies’representative to the Conseil des Mutuelles Santé (Council of Mutual Health Insurance Companies)
(1) Member of the Strategic Committee. (2) Member of the Risk Committee (3) Member of the Audit Committee (4) Member of the Compensation and Nominating Committee * Companies which shares are listed on a regulated or organised market
Other offices and positions held in any company in France and abroad as at the date of the Registration Document Offices held during the last five years: Birth Date: 4 May 1943
Chairman: - Institut du Développement Durable et des Relations Internationales (IDDRI) (association) (France) - Transparence-International France (France) - Observatoire de la Responsabilité Sociétale de l’Entreprise (ORSE) (France)
Principal position: Délégué général of Group Malakoff Médéric (France) Other positions: Chairman and CEO: - Médéric Assurances SA (France) - Tissage de Picardie – Tissage Rinet SA (France) Chairman: - Holding FGA SAS (France) - Holding Fondateurs SAS (France) - Le Monde Prévoyance SAS (France) - Médéric Innovation SAS (France) Chairman of the Board of Directors: - Médéric Epargne SA (France) - Viamédis SA (France) Director: - AUXIA SA (France) - ADESLAS (Spain) Member of the Supervisory Board: - Société Editrice du Monde SA (France) Manager: - SCI Saint Léger (France) Non voting Director: - QUATREM SA (France) - Fédéris Gestion d’actifs SA (France) Member of the Supervisory Committee: - Holding Fondateurs SAS (France) - Holding Accueil Mutuelles SAS (France) Permanent Representative: - of Malakoff Médéric Assurances to the Board of Directors of MMA IARD Assurances Mutuelles SAM (France) - of Malakoff Médéric Assurances to the Board of Directors of MMA IARD SA (France) - of Malakoff Médéric Assurances to the Board of Directors of MMA VIE Assurances Mutuelles SAM (France) - of Malakoff Médéric Assurances to the Board of Directors of MMA VIE SA (France) - of Malakoff Médéric Assurances to the Board of Directors of MMA Coopérations SA (France) - of Médéric Prévoyance to the Board of Directors of DAS SA (France) - of Médéric Prévoyance to the Board of Directors of DAS Assurances Mutuelles SAM (France) Member of the Executive Commission: ADESLAS (Spain)
Chairman of the Management Board: - Malakoff Médéric Assurances SA (France)
Other offices and positions held in any company in France and abroad as at the date of the Registration Document Offices held during the last five years: Luc ROUGE Director
Principal position: Chairman of the Management Board: - Austria Versicherungsverein auf Gegenseitigkeit Privastiftung (Holding) (Austria)
Professional address: MAAF ASSURANCES, MMA & COVEA 7, place des 5 martyrs du Lycée Buffon 75015 Paris
Director: OFIGEST (subsidiary of OFIVALMO) - GOBTP - OFIMALLIANCE S.AS (subsidiary of OFIVALMO) - OFI Asset Management (subsidiary of OFIVALMO) - Institut Sup. Métiers
Director: - Covéa Lux (Luxemburg) - Eurapco (Switzerland) - IMA Iberica Seguros (Spain)
Chief Executive Officer: - Generali France Holding - Generali Assurances Vie
Chairman of the Board of Directors: - Assurance France Generali - Generali Assurances Iard - La Fédération Continentale - GPA Vie - GPA Iard
Director: - L’Equité - Continent Holding - Continent IARD - SCOR VIE - Unibail Holding
Permanent Representative: - of Technip : Technip France (until 27 April 2007)
Chairman: - Compagnie d'Investissement de Paris S.A.S. - Financière BNP Paribas S.A.S. both subsidiaries of BNP Paribas
Gérard Andreck, a French citizen, has been Chairman of the MACIF Group since June 2006. Andreck has a deep interest in the mutual company and insurance sector, and he served as President of CJDES (Centre des Jeunes Dirigeants de l’Economie Sociale) from 1991 to 1993. In June 1997, he became Chief Executive Officer of Macif and second-in-command to Jean Simonnet, who was Chairman at that time. Gérard Andreck was instrumental in the development of the close partnership between Caisses d'Epargne, Macif and Maif in October 2004, and he was appointed Chairman of the Management Board of the holding company that formalised this partnership in November 2005. On1 July 2008, he has been appointed Chairman of the Groupement des Entreprises Mututelles d’Assurances (GEMA) for three years.
Antonio Borges, a Portuguese citizen, was Vice Chairman of Goldman Sachs International in London. He is a member of the Board of Directors of CNP Assurances and a member of the Tax Committee of Banco Santander Portugal. Antonio Borges was also Dean of the INSEAD business school. He is now the Chairman of the Hedge Fund Standards Board and Chairman of the European Corporate Governance Institute – ECGI.
Peter Eckert, a Swiss citizen, has a broad international experience in Risk Management, General and Life Insurance, Asset Management, Banking and IT. He was member of the Management Board (1991-2007) and Chief Operating Officer (2002-2007) of Zurich Financial Services, member of the Board of the Swiss Federal Banking Commission EBK since 1 July 2007 until 31 December 2008 and Deputy Chairman of the Board of the new Swiss Financial Market Supervising Authority (FINMA) from 1 January 2008 to 31 December 2008. Since 1 January 2009, he is Chairman of Bank Clariden Leu.
Daniel Havis, a French citizen, joined the Mutuelle Assurance des Travailleurs Mutualistes (MATMUT) as a claims examiner in 1980. As at today, he is Chairman and Chief Executive Officer MATMUT since 1994. From 1983 to 1988, Daniel Havis was an Executive Assistant and then a Director at the Mutualité Française de Seine-Maritime, where he would serve as CEO from 1988 to 1994. He also holds a number of different mandates within the companies that, along with AMF Assurances, make up the Matmut Group. These include Chairman of Matmut Mutualité and Chairman of the Supervisory Boards of Matmut Assurances, Matmut Entreprises, Matmut-Vie and Matmut Protection Juridique. Since 8 December 2009, Daniel Havis has also been Vice Chairman of Sferen, the Mutual Insurance Group created with the MACIF and the MAIF and was Chairman of GEMA until June 2008. He is also Chairman of MutRé since 1 January 2009.
Daniel Lebègue, a French citizen, has been Chairman of the French National Treasury, Chief Executive Officer of BNP and Caisse des Dépôts et Consignations, Chairman of the Supervisory Board of CDC IXIS and Chairman of Eulia. He currently serves on the Boards of Directors for various companies and is the Chairman of the French Institute of Directors (Institut Français des Administrateurs – IFA).
André Lévy-Lang, a French citizen, a former student of the Ecole Polytechnique (1956) and a Ph.D. in Business Administration from the University of Stanford, began his career in 1960 as a physicist at the French Atomic Energy Commission. From 1962 to 1974 he held various different technical and managerial positions at the Schlumberger group, both in France and the United States. He joined the Paribas group in 1974 and in 1982 was appointed Chairman of the Board of Directors of the Compagnie Bancaire, a specialised financing subsidiary of Paribas, before becoming Chairman of the Board of Directors of the Paribas group in 1990. He held these positions until the merger with BNP in 1999. André Lévy Lang is an associate professor emeritus at the University of Paris-Dauphine, Chairman of the Supervisory Board of Les Echos, Vice Chairman of the Supervisory Board of Paris-Orléans, Chairman of both the Risk Foundation and the Louis Bachelier Institute, and Vice Chairman of the Europlace Finance Institute. He is also a member of the boards of the Institut des Hautes Etudes Scientifiques, the American Hospital in Paris and the French Institute for International Relations.
From 1997 to 2000, Herbert Schimetschek, an Austrian citizen, was Chairman of the Comité Européen des Assurances, then until June 2000, Vice Chairman of the Austrian Insurance Companies Association, and from 1999 to 2001, Chairman of the Management Board and Chief Executive Officer of UNIQA Versicherung A.G.
Claude Tendil, a French citizen, began his career at UAP in 1972. He joined the Drouot Group in 1980 as Chief Operating Officer; he was promoted in 1987 to Chief Executive Officer, and then was appointed Chairman and Chief Executive Officer of Présence assurances, a subsidiary of the Axa Group. In 1989, he was appointed Director and Chief Executive Officer of Axa-Midi assurances, Chief Executive Officer of Axa from 1991 to 2000, then Vice-chairman of the management board of the Axa Group until November 2001. During this same period, he is also Chairman and Chief Executive Officer of the Axa Group’s French insurance and assistance companies. Claude Tendil was appointed Chairman and Chief Executive Officer of the Generali Group in France in April 2002 and Chairman of the Europ Assistance Group in March 2003.
Georges Chodron de Courcel, a French citizen, is Chief Operating Officer of BNP Paribas and holds various positions as Director in subsidiaries of the BNP Paribas Group.
2002 Refer to Section 14.1.1--Information on the Members of the Board of Directors.
Benjamin Gentsch 49 Deputy Chief Executive Officer of SCOR Global P&C SE Chief Executive Officer of SCOR Switzerland.
Director: SCOR Insurance (UK) Ltd (UK) SCOR Holding (UK) Ltd (UK) SCOR UK Group Ltd (UK) SCOR UK Company Ltd (UK) Chairman of the Supervisory Board: SCOR Rückversicherung (Deutschland) AG (Germany)
Permanent Representative: of SCOR Global Life SE at MUTRE’s Board (France) of SCOR SE with the French Federation of Insurance Companies (France)
2004 Director: SCOR UK Company Ltd. (U.K) SCOR UK Group Ltd. (U.K) SCOR Channel Ltd. (Guernsey) Arisis Ltd. (Guernsey) General Security Indemnity Company of Arizona (U.S.); General Security National Insurance Company (U.S.); SCOR Reinsurance Company (U.S.); SCOR Canada Reinsurance Company (Canada) SCOR Reinsurance Asia-Pacific Pte Ltd Singapore Finimo Realty Pte Ltd (Singapore) SCOR Reinsurance Company (Asia) Ltd (Hong Kong) SCOR Services International Ltd (Hong Kong) Arope Insurance SAL (Lebanon) SCOR Holding (Switzerland) AG (Switzerland) Commercial Risk Re-Insurance Company (U.S.) SCOR Global Life Rückversicherung Schweiz AG (Switzerland) SCOR Switzerland AG (Switzerland)
Member of the Supervisory Board : SCOR Global Investments SE (France) SCOR Rückversicherung (Deutschland) AG (Germany)
2008 Chairman of the Board of Directors Investors Insurance Corporation (US)
François de Varenne 43 Chief Executive Officer of SCOR Global investments SE
Denis Kessler, 57, Chairman of the Board of Directors and Chief Executive Officer of SCOR SE
Julien Carmona, a French citizen, is a graduate of the Ecole Normale Supérieure and has an advanced degree in history. He is also a former student of the Ecole Nationale d'Administration and a former French Treasury Auditor. After beginning his career at the French Finance Ministry, he joined BNP Paribas in 2001. From 2004 to 2007, he acted as Financial Adviser to the President of the Republic. He was Executive Finance Director at the Caisse Nationale des Caisses d'Epargne (CNCE) from June 2007 until it merged with the federal Bank of Banques Populaires in July 2009.
Benjamin Gentsch, 49, Deputy Chief Executive Officer of SCOR Global P&C SE and Chief Executive Officer of SCOR Switzerland
Benjamin Gentsch, a Swiss citizen, graduated with a degree in management from the University of St. Gallen, where he specialised 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 served as head of the “Global Aviation” reinsurance department and developed the “Global Marine” department. In September 2002, Benjamin Gentsch was appointed Chief Executive Officer of Converium Zürich, then Executive Vice President in charge of Specialty Treaties. In September 2007, he was appointed Chief Executive Officer of SCOR Switzerland and Deputy Chief Executive Officer of SCOR Global P&C SE.
Gilles Meyer, 52, Chief Executive Officer of SCOR Global Life SE
Norbert Pyhel, 59, Deputy Chief Executive Officer of SCOR Global Life SE
14.2 Administrative, management, and supervisory bodies and senior management conflicts of interest No loans or guarantees have been granted or established in favor of the Directors by SCOR or by any other Group company.
Also refer to Sections 14.1.5 - Negative disclosures about members of the Board of Directors and senior management, 16.4 – Corporate Governance regime and 19 – Related parties transactions.
4 In connection with the Crédit Lyonnais/Executive Life case, Jean-Claude Seys entered into a transaction with the California State Prosecutor under the terms of which he is subject to five years probation, during which he may not go to the United States without special authorisation.
Fees paid to directors for 2009 and 2008 are broken down as follows: In EUR 2009 2008
Moreover, certain SCOR directors participate, or have participated, on the Boards of Directors of the Group’s subsidiaries and received directors’ fees in 2009 and 2008 as follows: SCOR Reinsurance Company Allan Chapin USD 24,000 USD 27,000
The Board of Directors of SCOR has decided to apply the AFEP (Association of French Private-sector Companies) and MEDEF (French Business Confederation) recommendations of 6 October 2008 on the compensation of Corporate Executive Officers of listed companies to the compensation of the Executive Corporate Officer considering that those are in line with SCOR corporate governance principles.
The approved principles and rules for setting compensation and benefits granted to the Chairman and Chief Executive Officer and the Chief Operating Officer for 2009 are provided in Appendix B - Report of the Chairman of the Board of Directors on the terms and conditions for preparing and organising the work of the Board of Directors and on internal control procedures.
The following table presents a summary of the total compensation including gross compensation, shares and stock options granted to the Executive and Corporate Officer for fiscal years 2009, 2008 and 2007: Summary table of the gross compensation, shares and stock options granted to the Executive and Corporate Officer
(*) In 2008, 50% of shares and stock options granted are submitted to performance conditions. In 2009, it is the case of 100% of shares and stock options granted. The value is calculated according to the same assumption as those used for the Group accounts (IFRS2 standard). For further details, see note 18 of section 20.
The following table presents the summary of gross compensation paid to the Executive and Corporate Officer during fiscal years 2009, 2008 and 2007: Summary table of gross compensation paid to the Executive and Corporate Officer
In EUR Fixed compensation Variable compensation Director’s fees Gross compensation * The gross fixed compensation paid to Denis Kessler in 2009 includes (i) EUR 200,000 corresponding to arrears for fiscal year 2008, the payment of which had been decided in 2008 but which had not been paid at such time and (ii) EUR 1 200 000 for fiscal year 2009. As shown in the above summary table of the gross compensation owed to the Executive and Corporate Officer, the gross fixed compensation of Denis Kessler remained unchanged between 2008 and 2009.
Denis Kessler 16 March 2009 125,000 1,426,250 16 March 2011 16 March 2013
Members of the Executive Committee - Gross Compensation 2009 2008 2007
Julien Carmona is member of the COMEX since 1 January 2010 as Group Chief Operating Officer. He has not been included in the tables which relates to the past years. He joined the Group on 20 October 2009 as Advisor to the Group Chairman.
In EUR Fixed compensation Variable compensation Premiums/Allo wances Gross compensation Fixed compensation Variable compensation Jean-Luc Besson 280,000 201,600 4,298 N/A 280,000 174,882 Benjamin Gentsch (*) 381,538 282,338 26,873**** N/A 386,112 230,863 Paolo De Martin (*) 536,256 418,280 23,699**** N/A 431,848 301,102
In EUR Fixed compensation Variable compensation Premiums/Allo wances Gross compensation Fixed compensation Variable compensation Jean-Luc Besson 280,000 174,882 4,298 459,181 280,000 212,800 Benjamin Gentsch(*) 381,538 230,863 26,873****** 639,274 386,112 259,446 Paolo de Martin(*) 536,256 301,102 23,699****** 861,057 431,848 314,223
The members of the Executive Committee also benefit from the use of a vehicle for business purposes; the Chairman and Chief Executive Officer has a company car with driver.
The members of the Executive Committee do not receive directors’ fees for their directorships in companies in which SCOR holds more than 20% of the share capital. They are reimbursed for justified business expenses. Executives under a Swiss contract receive a flat allowance covering business expenses of small unit amounts.
The total commitment of the Group for defined benefits retirement plans for the COMEX members in France, Germany and Switzerland amounts at EUR 23 million as of 31 December 2009, the total commitment of the Group being for pension plans EUR 178 million.
16.1 page 135 Date of expiration of the current term of office 16.2 page 135 Information on service contracts of members of Administrative and Management bodies 16.3 page 135 Information on the Audit Committee and the compensation and Appointment Committee 16.4 page 136 Corporate governance regime
Carlo Acutis Director 2011 (*) 15 May 2003 NA Gérard Andreck Director 2011 (*) 18 March 2008 (10) NA Antonio Borgès Director 2011 (*) 15 May 2003 NA Allan Chapin Director 2011 (*) 12 May 1997 NA Peter Eckert Director 2011 (*) 15 April 2009 NA Daniel Havis Director 2011 (*) 18 November 1996 (11) NA Daniel Lebègue Director 2011 (*) 15 May 2003 NA André Lévy-Lang Director 2011 (*) 15 May 2003 NA Médéric Prévoyance Director 2011 (*) 15 April 2009 NA Luc Rougé Director 2011 (*) 24 May 2007 NA Herbert Schimetschek Director 2011 (*) 15 May 2003 NA Jean-Claude Seys Director 2011 (*) 15 May 2003 NA Claude Tendil Director 2011 (*) 15 May 2003 NA Daniel Valot Director 2011 (*) 15 May 2003 NA
16.3 Information on the audit committee and the compensation and appointment committee The information on these two committees can be found in the report from the Chairman of the Board of Directors in Appendix B (part I of the Report from the Chairman of the Board of Directors on the conditions for preparation and organisation of the work of the Board of Directors).
16.4 Corporate governance regime Since SCOR SE’s shares are listed on the Euronext, the provisions relating to corporate governance applicable to SCOR SE include French legal provisions, as well as rules dictated by its market authorities. SCOR SE believes that its application of corporate governance principles is appropriate and is in compliance with the best practices of corporate governance in effect in France in consideration with AMF and AFEP rules.
The Board considered that these recommendations are in line with the corporate governance principles of SCOR and has decided to apply them to the compensation of the Executive Corporate Officer and decided that in application of 3 July 2008 Act implementing the European Union Directive 2006/46/CE of 14 June 2006, SCOR shall thus refer to the AFEP-MEDEF governance code relating to listed companies in preparing the report to be issued in accordance with article L. 225-37 of the French commercial Code.
SCOR Global Life 510 517 469 SCOR Global Investments(2) 25 - Group Support Functions(3) 171 194 206
(3) It covers the departments of finance, human resources, information technology, legal, budget, audit, risk management.
(5) Employees of former Converium are fully integrated in the Group during fiscal year 2008.
Article 10 (“Administration”) of SCOR’s bylaws requires that Directors own at least one share of the Company during the term of their directorship.
Non voting Director Mr. Georges Chodron de Courcel 3,489 TOTAL 305,606 9 Médéric Prévoyance holds, as at the date of this Registration Document, 3,913,178 SCOR shares.
The following table presents the stock option plans and stock purchase plans which benefit members of COMEX and company executives as of December 31, 2009.
The allocations of stock options in 2008 and 2009 are submitted to performance conditions. Thus, a third of the number of options awarded on the 22 May 2008 Plan and half of the option awarded on the 23 March 2009 Plan are submitted to the achievement of performance conditions; and this is for all the beneficiaries except for the Corporate Officer whose options allocated in 2009 are all submitted to the same performance conditions (Refer to 17.3.1 for the performance conditions).
Number of stock options underlying shares held on the issuer and on the companies referred to previously 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)
17.2.3 FREE ALLOCATION OF SHARES TO COMEX MEMBERS AND OTHER COMPANY OFFICERS AS OF 31 DECEMBER 2009
Denis Kessler 2004 Plan - Tranche A 18,750 14.40 270,000 01/10/2005 2004 Plan – Tranche B - - 11/10/2005 2004 Plan – Forfeiture - redistribution 26,250 17.97 471,713 09/01/2007 2005 Plan 45,000 17.97 808,650 09/01/2007 2006 Plan 55,000 14.88 818,400 11/08/2008 2007 Plan 80,000 15.17 1,213,600 05/24/2009 2008 Plan 75,000 - - 05/07/2010 2009 Plan 125,000 - - 03/16/2011 TOTAL 425,000 Jean-Luc Besson 2004 Plan - Tranche A 7,500 14.40 108,000 01/10/2005 2004 Plan – Tranche B 7,500 16.90 126,750 11/10/2005 2004 Plan – Forfeiture - redistribution - - 09/01/2007 2005 Plan 18,000 17.97 323,460 09/01/2007 2006 Plan 25,000 14.88 372,000 11/08/2008 2007 Plan 20,000 15.17 303,400 05/24/2009 2008 Plan 24,000 - - 05/08/2010 2009 Plan 30,000 - - 03/16/2011 TOTAL 132,000 Benjamin Gentsch 2007 Plan 50,000 15.17 758,500 05/24/2009 2008 Plan 24,000 - - 05/07/2012 2009 Plan 32,000 - - 03/16/2013 TOTAL 106,000 Paolo de Martin 2007 Plan 50,000 15.17 758,500 05/24/2011 2008 Plan 36,000 - - 05/07/2012 2009 Plan 48,000 - - 03/16/2013 TOTAL 134,000 Gilles Meyer 2006 Plan 12,000 14.88 178,560 11/08/2008 2007 Plan 30,000 15.17 455,100 05/24/2009 2008 Plan 36,000 - - 05/08/2010 2009 Plan 48,000 - - 03/16/2011 TOTAL 126,000 Victor Peignet 2004 Plan - Tranche A 7,500 14.40 108,000 01/10/2005 2004 Plan – Tranche B - - 11/10/2005 2004 Plan – Forfeiture - redistribution 10,500 17.97 188,685 09/01/2007 2005 Plan 20,000 17.97 359,400 09/01/2007 2006 Plan 25,000 14.88 372,000 11/08/2008 2007 Plan 35,000 15.17 530,950 05/24/2009 2008 Plan 36,000 - - 05/08/2010 2009 Plan 48,000 - - 03/16/2011 TOTAL 182,000 Norbert Pyhel 2006 Plan 50,000 14.79 739,500 11/22/2008 2007 Plan 20,000 15.17 303,400 05/24/2011 2008 Plan 24,000 - - 05/08/2012 2009 Plan 32,000 - - 03/16/2013 TOTAL 126,000
François de Varenne 2005 Plan 7,000 17.97 125,790 09/01/2007 2006 Plan 15,000 14.88 223,200 11/08/2008 2007 Plan 20,000 15.17 303,400 05/24/2009 2008 Plan 24,000 - - 05/08/2010 2009 Plan 32,000 - - 03/16/2011 TOTAL 98,000 GENERAL TOTAL 1,329,000
The allocations of free shares in 2008 and 2009 are submitted to performance conditions. Thus, a third of the number of free shares awarded on the 22 May 2008 Plan and half of the free shares awarded on the 23 March 2009 Plan are submitted to the achievement of performance conditions; and this is for all the beneficiaries except for the Corporate Officer whose free shares allocated in 2009 are all submitted to the same performance conditions (Refer to 17.3.1 for the performance conditions).
17.3 Plans providing employee participation in Company Refer to Section 20.1.6 - Notes to the Consolidated Financial Statements, Note 17 - Provisions for employee benefits and Appendix A – Corporate financial statements, Note 13 - Employee shares ownership plans.
This authorisation was replaced on 15 April 2009 by a new authorisation of the General Shareholder’s meeting of the Company the same day, in its twenty second resolution, that authorises the Board of Directors under the provisions of Articles L.225-177 to L.225-185 of the Commercial Code, to grant on the proposal of the Compensation and Nominations Committee, on one or more occasions for the benefit of members of staff and the corporate officers, of the Company and companies or groups linked to it in terms of Article L.225-180 of the Commercial Code, options entitling to the subscription of new ordinary shares of the Company in issue as to increase its capital, as well as options entitling to purchase shares of the Company from acquisitions made by it as provided by law within the limits of a number of options giving right to a maximum of three million (3,000,000) of shares. This authorisation is given for a period of eighteen months from 15 April 2009.
The Partnership gathers key executives, managers, experts, and high potentials formally identified across the Group. Partners are given specific responsibilities in terms of significant achievements, high impact project management and/or leadership. Therefore, they benefit from a specific and selective program in terms of information sharing, career development and compensation schemes. Partners represent approximately 25 % of the total number of staff.
Those options can be exercised at the earliest 4 years after the grant date, if the presence condition is respected. The stock options can be exercised on one or more occasions from 23 March 2013 to 23 March 2019 included. From this date, the purchase right shall expire.
The exercise of the stock options allocated to the Chairman and Chief Executive Officer and half of the options allocated to the other beneficiaries (including the other members of the Executive Committee), are submitted to performance conditions.
The exercise of half of the options granted is submitted to the same performance conditions as those decided for the 23 March 2009 Plan (for the description of the performance conditions, refer to 17.3.1 – Stock option plan – Specific allocation of stock options).
Refer also to Section 20.1.6 – Notes to the Consolidated Financial Statements, Note 17 - Provisions for employee benefits.
A new authorisation of the Board of Directors as regards to the allocation of stock options, replacing the authorisation of the Shareholders meeting of 15 April 2009 in its twenty-second resolution, will be submitted to the approval of the next shareholders meeting.
This authorisation was replaced on 15 April 2009 by a new authorisation of the General Shareholder’s meeting of the Company the same day, in its twenty third resolution, that authorises the Company’s Board of Directors to make, on one or more occasions, to the employees and directors and officers defined by law, or to some of them, of the Company and of companies or groups affiliated with it pursuant to Article L. 225-197-2 of the French Commercial Code, free allotments of existing or yet-to-be-issued shares of the Company and resolved that the Board of Directors of the Company would determine the identity of the beneficiaries of the allotment and the conditions and criteria for the allotment of the shares.
On the proposal of the Compensation and Nominations Committee, the Board of Directors decides to grant on 3 March 2009, two hundred (200) free shares to each employee non partner of SCOR Group (French or foreign subsidiaries hold directly of indirectly at more than 50 %), on the basis of the authorisation of the General Shareholders’ meeting of May 2008 in its twentieth resolution.
The conditions of the plan are similar to those usually decided by the Group with a vesting period of 2 years for the tax residents of France (and an obligation to retain shares in a period of two years from the end of the vesting), and of 4 years for the beneficiaries not tax resident of France.
Following the upgrade from “A-“ to “A” by the Standard & Poors’ rating agency, the Board of Directors of 16 March 2009, on the proposal of the Compensation and Nominations Committee of 13 March 2009, decides to make an exceptional grant of free shares to Partners and to the Chairman and Chief Executive Officer.
The conditions of the plan are similar to those usually decided by SCOR (notably as regards to the presence conditions), with a vesting period of 2 years for the tax residents of France (and an obligation to retain shares in a period of two years from the end of the vesting), and of 4 years for the beneficiaries not tax resident of France.
Half of these allocations are submitted to the same performance conditions as those set for the 23 March 2009 Plan (for the description of the performance conditions, refer to 17.3.1 – Stock option plan – Specific allocation of stock options).
The following table shows the free stock award plans currently in force within the Group: Shareholders meeting and
Requirement of presence at the company as of April 15, 2011
Requirement of presence at the company as of March 16, 2011
Free shares allocates to the ten first employees non corporate officers
Requirement of presence at the company as of 30 April 2009
Refer also to Section 20.1.6 – Notes to the consolidated financial statements, Note 17 - Provisions for employee benefits.
For the list of the stock options plans currently in force within the Group as well as the stock options granted to ten employees whose number of options thus purchased is the highest; refer to Annexe A – Notes to the Corporate Financial Statements - Note 12: Stock Options.
For the number of stock options underlying shares held on the issuer and on the companies referred to previously 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, refer to Table in paragraph 17.2.2.
2 Defined Contribution Retirement Program (Employer funding varies by employee depending on age and service)
Additional pension guaranteeing 20% to 50% of the average last 5 years salaries according to seniority if the beneficiary is at SCOR at retirement
The pension schemes serve the purpose of supplying benefits to the employees in their retirement and in the event of occupational
COMEX members benefit from the collective pension schemes in place in their entity except and do not have any specific plan except for M. Paolo de Martin and M. Benjamin Gentsch who have been awarded a similar advantage than the one granted to the other COMEX members.
11 This scheme regroups a limited number of beneficiaries (with an executive status). It was closed to new entrants as of 30 June 2008.
18.2 page 157 Negative statement as to the absence of differences between the voting rights of various shareholders 18.3 page 157 Direct or indirect control by one shareholder 18.4 page 157 Agreement which could result in a subsequent change in control
18.1 Significant shareholders known to SCOR Share capital structure and voting rights in the Company to the knowledge of SCOR (on the basis of a study of identifiable share bearers (titres aux porteurs identifiables – TPI) conducted by the Company as at 31 December 2009 : As at 31 December 2009 Number of shares % of capital % voting rights (1)
To the Company’s knowledge, there was no other shareholder than those indicated in the table above holding more than 2.5 % of the share capital or voting rights of the Company as at 31 December 2008.
On 21 January 2007, GROUPAMA sold, off-market, 18,177,754 shares corresponding to 15.35% of the Company’s share capital.
On 27 April 2007, Alecta pensionsförsäkring, ömsesidigt declared that, on 26 April 2007, following a contribution of Converium stock to SCOR and the resulting SCOR capital increase, it had exceeded the thresholds of 5% of the capital and voting rights in SCOR and that it held 9,206,173 shares representing 92,061,730 voting rights, or 6.76% of the capital and voting rights in SCOR.
The contributions of Converium shares to SCOR are more fully described in Section 5.2.1.1 –Public offer upon the Converium shares.
On 16 August 2007, Morgan Stanley & Co. International Plc, which is controlled by Morgan Stanley, declared that, on 8 August 2007, it had fallen below the thresholds of 5% of the capital and voting rights in SCOR and that it held 6,948,672 shares representing 69,486,720 voting rights, or 3.80% of the capital and voting rights in SCOR.
On 13 January 2009, Silchester International Investors Limited declared that it had fallen below the registered thresholds of 2.5% of the capital and voting rights in SCOR and that it held, on behalf of its clients, 4,558,409 shares representing 4,558,409 voting rights, or 2.48% of the capital and 2.54 % of voting rights in SCOR.
Since 3 January 2009 and the completion of the Company’s reverse stock split, no further shares with a par value of EUR EUR 0.78769723 are in existence and each share with a par value of EUR 7.8769723 of entitles the holder to one vote.
The bylaws moreover make no provision for shares giving dual voting rights. In addition, there is no limitation on voting rights in the bylaws.
19.1 page 160 Related party transactions entered into in 2009 as defined articles L.225 - 38 et seq. of the French commercial code 19.2 page 161 Agreements approved in past years, which were continued or terminated in the 2009 financial year 19.3 page 167 Special report of the auditors on related party agreements and commitments
At its meeting of 29 July 2009, the Company’s Board of Directors authorised, pursuant to Article L. 225-38 of the French Commercial Code, the signature by SCOR SE, with regard to a contemplated acquisition of reinsurance portfolios in the United States, an engagement letter for a mission of financial advice with BNP Paribas, for a period of 9 months. The commissions under this engagement amount to EUR 500,000 tax excluded of execution commission.
Contribution of SCOR SE by 51% of the shares of SCOR Holding (Switzerland) to the benefit of SCOR Global P&C SE
At its meeting of 29 July 2009, the Company’s Board of Directors authorised the contribution of SCOR by 74,811,626 shares of SCOR Holding (Switzerland) AG, representing 51% of its share capital and voting rights, to the benefit of SCOR Global P&C SE,.
The share value of SCOR Holding (Switzerland) has been fixed at EUR 994,192,887.82
Acquisition of 100% of the shares of SCOR Canada Reinsurance Company by SCOR Global P&C SE from SCOR SE
At its meeting of 3 November 2009, the Company’s Board of Directors authorised the sale by SCOR SE to SCOR Global P&C SE of 100% of the share capital and voting rights of SCOR Canada Reinsurance Company which registered office is in Toronto (“SCOR Canada”).
This transaction has been completed on 17 December 2009 for a price of EUR 147,700,000.
19.2 Agreements approved in past years, which were continued or terminated in the 2009 financial year
The Board of Directors’ meeting held on the 18 March 2008 and the 26 August 2008 authorised the signature by its Chief Executive Officer, pursuant to Article L.225-38 of the French Commercial Code, with the power of delegation, the conclusion of legal documentation relating to the notional cash-pooling agreement and in particular, the IntraGroup Cash Management Agreement contract signed on 20 October 2008, by which participating companies give the power to SCOR SE for the management of cash-pooling.
The Directors concerned by this agreement were Messrs. Denis Kessler, Patrick Thourot, Daniel Lebègue and Allan Chapin.
SCOR SE’s new rule concerning retirement pensions pursuant to Article 39
The wage taken into account, in order to calculate the rights, is the average wage of the last five professionally active years, adjusted on the date of departure, according to the development of INSEE’s annual average index of the consumer price.
The participant who leaves the Company, in order to enter into retirement, will have the right to a supplemented pension if he/she fulfils the following criteria on the date of his/her departure, and notably: they have acquired a seniority of at least 5 years from their date of departure; they have successfully obtained the settlement of their pensions with regard to the obligatory retirement schemes.
At its meeting of 5 June 2008, the Company’s Board of Directors authorised, pursuant to Article L. 225-38 of the French Commercial Code, the parent company guarantee’s signature for the reinsurance commitments of SCOR Switzerland AG.
The Directors concerned by this agreement, as Members of the Board of Directors of SCOR Holding (Switzerland), were Denis Kessler and Jean-Claude Seys.
Opening contract for accessible credit through the issue of a credit letter with BNP Paribas
At its meeting of 26 August 2008, the Company’s Board of Directors authorised, pursuant to Article L. 225-38 of the French Commercial Code, the signature of the agreement (the “Facility Agreement”), finalised with BNP Paribas, for the issue of stand-by letters of credit (“SBLC”), with regard to the Group’s insurance and reinsurance activity for a maximum amount up to USD 400,000,000.
In order to guarantee its obligations under the terms of the Credit Agreement, each Group companies which is a party to the Facility Agreement granted/will grant a senior pledge on a financial instruments account to BNP Paribas under the terms of a pledge agreement entered/to be enter into with BNP Paribas (and the related pledge declaration) and pledged/will pledge (i) on the date of the signature of the pledge agreement, a number of OATs for a minimum amount equal to EU 5,000; (ii) on 2 January 2009, an additional number of OATs for an amount equivalent to the value in Euros of 55% of the SBLCs (corresponding to the letters of credit issued under the old credit agreement and assumed and extended by BNP Paribas); and (iii) to pledge before each new utilisation a number of OATs for an amount equivalent to the value in Euros of 55% of the amount of the new utilisation.
This Facility Agreement gave rise to the payment by SCOR Global P&C SE for SCOR SE to BNP Paribas of USD 491,447.73 in 2009.
This mission gave rise to the payment of a commission in 2009 of EUR 160,000.
Parent company guarantee from SCOR SE in favour of SCOR Africa Ltd for reinsurance commitments
At its meeting of 13 November 2008, the Company’s Board of Directors authorised, pursuant to Article L. 225-38 of the French Commercial Code, the signature of a parent company guarantee by SCOR SE for the reinsurance commitments of SCOR Africa Ltd.
Only SCOR Perestrakhovaniye’s commitments, pursuant to the insurance and/or reinsurance contracts, are covered by this parent guarantee.
In 2006, despite SCOR's spin-off of its Non-Life reinsurance operations to SCOR Global P&C, SCOR remained a reinsurance company because of the retrocessions established between SCOR Global Life and SCOR Global P&C as the retroceding companies, and SCOR as the retrocessionaire. These retrocessions back the Group's debt carried by SCOR for maintaining the aggregate Group’s solvency and confirming its rating.
Due to the completion of this merger on 25 July 2007, (but retroactive to 1 January 2007, under the terms of the merger agreement), the contracts underwritten by its German branch fall under the scope of the retrocession agreement (which was not the case when the contracts were underwritten by the subsidiary). As a result, there is a significant increase in the volume of retrocessions to SCOR SE.
In 2006, despite SCOR's spin-off of its Non-Life reinsurance operations to SCOR Global P&C, SCOR remained a reinsurance company because of the retrocessions established between SCOR Global Life and SCOR Global P&C as the retroceding companies, and SCOR as the retrocessionaire. These retrocessions back the Group's debt carried by SCOR for maintaining the Group’s aggregate solvency and confirming its rating.
The signature of the retrocession framework agreement between SCOR and SCOR Global Life (then named SCOR Vie) was authorised by the Board on 16 May 2006, pursuant to the provisions of Article L.225-38 of the French Commercial Code. The contract was signed on 4 July 2006, as part of the reorganisation of the Group through the creation, via spinoff, of the subsidiary SCOR Global P&C.
Pursuant to this agreement, SCOR Global Life retroceded a portion of its activities and reserves to SCOR.
This retrocession allows the requirements of the rating agencies with regard to the Group’s rating to be addressed. In effect, the retrocession rate is adjusted based on capital needs with regard to activity cycles. The rating agencies confirmed that they are maintaining their rating with regard to this new organisation of the Group.
Due to the completion of this merger on 3 August 2007, (but retroactive to January 1 pursuant to the terms of the merger agreement), the contracts underwritten by its German subsidiary fall under the scope of the retrocession agreement which resulted in a significant increase in the volume of retrocessions from SCOR Global P&C SE to SCOR SE.
Under the terms of the Agreement, CALYON made a commitment to issue or cause the issue to SGLR of one or more letters of credit for a period of five years for a total commitment equal to the smaller of the following two amounts: (a) USD 250 million or (b) the sum equal to the difference between (i) the so-called Triple X reserves and (ii) 150% of the amount of the reserves required in the accounting plan (net of deferred acquisition costs).
We are not required to ascertain whether any other agreements exist but to inform you, on the basis of the information provided to us, of the terms and conditions of the agreements of which we were notified. It is not our role to determine whether they are beneficial or appropriate. It is your responsibility, under the terms of Article R. 225-31 of the French Commercial Code, to assess the benefits arising from the execution of these agreements and commitments for the purpose of approving them.
Authorisation to conclude an amendment to the opening contract for accessible credit through the issue of a credit letter signed on 23 December 2008 between SCOR SE and BNP Paribas
The share value of SCOR Holding (Switzerland) is fixed at EUR 994,192,887.82
This parent company guarantee did not give rise to any remuneration in 2009.
At its meeting of 3 November 2009, the Company’s Board of Directors authorized, pursuant to Article L. 225-38 of the French Commercial Code, the sale by SCOR SE to SCOR Global P&C SE of 100% of the share capital and voting rights of SCOR Canada Reinsurance Company which registered office is in Toronto (“SCOR Canada”).
The following entities of the Group are participating in the cash-pooling scheme: SCOR SE, SCOR Global P&C SE, SCOR Global Life SE, SCOR Auber, GIE Informatique, SCOR Global Life Deutschland (branch), SCOR Global P&C Deutschland (branch), SCOR Rückversicherung AG, SCOR Global Life Rappresentanza Generale per l’Italia (branch), SCOR Global P&C Rappresentanza Generale per l’Italia (branch), SCOR Global Life Iberica Sucursal (branch), SCOR Global P&C Iberica Succursal (branch), SCOR Global Life Reinsurance UK Ltd, SCOR Global Life Reinsurance Services UK Ltd, SCOR Global Life Reinsurance Ireland Ltd, SCOR Financial Services, Sweden Reinsurance Co Ltd, SCOR Holding Switzerland AG, SCOR Switzerland AG.
The Group entities taking part in the cash pooling, during the second phase, are: SCOR UK Company Ltd, SCOR UK Group Ltd, SCOR Holding UK Limited, SCOR London Management Ltd, Converium Insurance Uk Ltd, SCOR Underwriting Ltd, SCOR Global Life Schweiz AG, SCOR Global Life SE Belgique, SCOR Global Life Austria, SCOR Global P&C Ireland Ltd.
In Asia: SCOR Asia-Pacific Pte Ltd, SCOR Reinsurance Company (Asia) Ltd.
The aim of this plan is to specify the terms and conditions for the application of an additional pension scheme, put into place by the Company.
The wage, taken into account, in order to calculate the rights, is the average wage of the last five professionally active years, adjusted on the date of departure, according to the development of INSEE’s annual average index of the consumer price.
Parent company guarantees from SCOR SE to the benefit of SCOR Switzerland AG for reinsurance commitments
At its meeting of 5 June 2008, the Company’s Board of Directors authorised, pursuant to Article L. 225-38 of the French Commercial Code, the parent company guarantee’s signature covering the reinsurance engagements of SCOR Switzerland AG.
This unlimited guarantee’s grant is the subject of the same remuneration for SCOR SE, as those of other guarantees, previously granted by SCOR SE.
This agreement has been signed on December 23, 2008 and gave rise to a payment of EUR 491 447 by SCOR SE to BNP Paribas in 2009.
At its meeting of 13 November 2008, the Company’s Board of Directors authorised, pursuant to Article L. 225-38 of the French Commercial Code, the signature by SCOR SE, with regard to a contemplated acquisition, of the engagement letter with the Corporate Finance Department of BNP Paribas.
The mission gave rise to a payment of EUR 160 000 in 2009.
At its meeting of 13 November 2008, the Company’s Board of Directors authorised, pursuant to Article L. 225-38 of the French Commercial Code, the signature by SCOR SE, with regard to a contemplated issuance of catastrophe bonds by Atlas V, a special purpose vehicle incorporated in Ireland, the purpose of which is to provide a USD 200 million additional retrocession coverage for SCOR SE and its subsidiaries, of the engagement letter as joint-book runner and joint lead manager with the London branch of BNP Paribas.
At its meeting of 13 November 2008, the Company’s Board of Directors authorised, pursuant to Article L. 225-38 of the French Commercial Code, the parent company guarantee’s signature by SCOR SE for the reinsurance engagements of Prévoyance Ré.
Parent company guarantee from SCOR SE to the benefit of SCOR Africa Ltd for reinsurance commitments
At its meeting of 13 November 2008, the Company’s Board of Directors authorised, pursuant to Article L. 225-38 of the French Commercial Code, the parent company guarantee’s signature by SCOR SE for the reinsurance engagements of SCOR Perestrakhovaniye.
Retrocession agreement signed by SCOR and SCOR Global Life on July 4, 2006
In 2006, at the time of SCOR SE’s spin-off of its non-Life reinsurance operations to SCOR Global P&C SE, the Group was reorganized for better transparency and SCOR SE remained a reinsurance company because of the retrocessions established between SCOR Global Life SE and SCOR Global P&C SE as the retroceding companies, and SCOR SE as the retrocessionaire.
The signature of the retrocession framework agreement between SCOR SE and SCOR Global Life SE (then named SCOR Vie) was authorized by the Board on May 16, 2006, pursuant to the provisions of Article L. 225-38 of the French Commercial Code. The contract was signed on July 4, 2007.
Retrocession agreement signed by SCOR and SCOR Global P&C on July 4, 2006
These retrocessions back the Group’s debt, carried by SCOR for better solvency and, therefore, a better rating.
The signature of the retrocession framework agreement between SCOR SE and SCOR Global P&C SE was approved by the Board on May 16, 2006, pursuant to the provisions of Article L. 225-38 of the French Commercial Code. The contract was signed on July 4, 2007, as part of the reorganization of the Group through the creation via spin-off of the subsidiary SCOR Global P&C SE.
The Board of Directors, at its meeting of 24 May 2007, in accordance with articles L. 225-38 and L. 225-42-1 of the French Commercial Code, and at the recommendation of the Compensation and Nomination Committee, renewed commitments for the benefit of the Chairman and Chief Executive Officer as defined by the Board on 21 March 2006, and as amended by the Board on 12 December 2008, which are described in the Report of the Chairman of the Board of Directors on the conditions for the preparation and organization of the work of the Board of Directors and the internal control procedures compliant with Article L. 225-37 of the French Commercial Code.
This Agreement and this parent company guarantee were part of a transaction intended to provide SCOR Global Life U.S. Re with additional financial resources so that it could meet the financial coverage requirements stipulated by the American “Triple X” prudential regulations.
20.1 page 174 Historical financial information : consolidated financial statements 20.2 page 258 Auditing of historical consolidated financial information 20.3 page 260 Sources of financial information not extracted from the audited Financial Statements of the issuer and indication of such absence of audit 20.4 page 260 Date of most recently audited financial information 20.5 page 261 Interim and other financial information 20.6 page 261 Dividend distribution policy 20.7 page 261 Litigation and arbitration procedures 20.8 page 261 Material change in financial or commercial situation
Share of retrocessionaires in insurance and investment contract liabilities Note 16 1,439 1,251
Group shareholders’ equity Note 13 3,894 3,410 Share capital 1,459 1,451 Additional paid-in capital 774 952 Revaluation reserves 37 (251) Retained earnings 1,217 904 Net income for the year 370 315 Equity based instruments 37 39
Financial debt Note 14 629 936 Subordinated debt 477 583 Debt instruments issued - 201 Other financial debt 152 152
OCEANE financial debt – repayable 1 January 2010 Note 14 191 -
In EUR Earnings per share Note 24 2.06 1.76 Earnings per share (Diluted) Note 24 2.04 1.68
Group other comprehensive income 268 (372) Revaluation - Assets available for sale 480 (390) Shadow accounting (82) 90 Effect of changes in foreign exchange rates (21) (105) Taxes recorded directly in or transferred to equity Note 19 (104) 57 Actuarial gain/losses not recognised in income (8) (13) Other changes 3 (11)
FOR THE YEAR ENDED 31 DECEMBER In EUR million 2009 2008 (1)
Net cash flow provided by (used in) operations Note 12 851 779
CASH AND CASH EQUIVALENTS AT 31 DECEMBER 1,325 1,783 (1) Bank overdrafts have been reclassified within the Statement of Cash Flows from financial debt to cash and cash equivalents, net of overdrafts in line with the presentation within note 12. Comparative amounts have been updated to reflect this change in presentation.
(1) Some comparatives figures have been revised to align with the presentation requirements of IAS 1 (revised).
Net income for year ended 31 December 2008 - - 315 - - - 3 318 Other comprehensive income net of tax(1) - - (135) (237) - - (30) (402)
Total comprehensive income, net of tax - - 180 (237) - - (27) (84)
Other comprehensive income net of tax - - (20) 288 - - - 268
Revaluation – Assets available for sale - - - 480 - - - 480
The preparation of the consolidated financial statement requires management to make certain judgements, assumptions and estimates. These affect the reported amounts of revenue, 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 most material financial statement captions for which the Group uses estimates and assumptions are reinsurance reserves, receivables and liabilities relating to reinsurance operations, the fair value and impairment of financial instruments, intangible assets, retirement and other defined benefit plans and deferred taxes.
when the Group owns, directly or indirectly, between 20% and 50% of the outstanding voting rights. Joint ventures, where there is joint control, are accounted for using the equity method.
The financial statements of the material subsidiaries are prepared for the same accounting period as that of the parent company. All material intra-Group balances and transactions including internal results of intra-company transactions are eliminated.
Amendments to IAS 32 - Financial Instruments: Presentation and to IAS 1 - Presentation of Financial Statements – Puttable Shares and Obligations Arising Only on Liquidation
IFRS 8 “Operating Segments”, published in November 2006 and applicable as from 1 January 2009, replaces IAS 14 “Segment Reporting”. The new Standard requires that the identification of the operating segments used in published financial information be based on the segments used in internal reports that are regularly reviewed by the chief operating decision-maker in order to allocate resources to the segments and assess their performance and also requires disclosures concerning the methods used to identify segments. Segment balances must also be reconciled to the amounts disclosed in the consolidated balance sheet and income statement. The new requirements of the Standard have been applied for the preparation of the consolidated financial statements for the annual reporting period. This has resulted in a minimal change in the segment disclosures presented. The revised presentation includes the split between the net insurance technical result and the result derived from investment related balances, and a revision in the order of line items presented. This has not resulted in any material impacts on the Group consolidated financial statements or to how the Group identifies its operating segments.
Amendment to IFRS 2 “Share-Based Payment”, published in January 2008 and applicable as for annual periods beginning on or after 1 January 2009, makes vesting contingent on service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. The Amendment also stipulates that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The application of this Amendment has not resulted in any material impacts on the Group’s consolidated financial statements.
Unless stated otherwise, the improvements to International Financial Reporting Standards published on 22 May 2008 and applicable as from 1 January 2009, comprise non-urgent, minor amendments to Standards. They are presented in a single document rather than as a series of isolated changes. They include both amendments that result in accounting changes for presentation, recognition or measurement purposes, and amendments that are terminology or editorial changes only, expected to have no or minimal effect on accounting. The application of these amendments has not resulted in any material impact on the Group’s consolidated financial statements.
Amendments to IAS 32 “Financial Instruments: Presentation” and to IAS 1 “Presentation of Financial Statements – Puttable Shares and Obligations Arising Only on Liquidation”, published on 14 February 2008 and applicable as from 1 January 2009, include the following respective requirements i) certain puttable shares and obligations arising only
on liquidation will be classified as equity in certain circumstances; and ii) additional disclosures concerning said instruments must be provided. The application of these Amendments has not had any material impacts on the Group’s consolidated financial statements.
Amendment to IAS 39 – “Eligible Hedged items” published in July 2008, for annual periods beginning on or after July 2009, clarifies how the principles that determine whether a hedged risk or portion of cash flows which is eligible for designation should be applied in particular situations. The application of this Amendment is not expected to result in any material impact on the Group’s consolidated financial statements.
Amendments to IFRS 2 – “Share based payments” – Group cash settled share-based payment transactions was issued in July 2009 to clarify the accounting for Group cash-settled share-based payment transactions in the individual financial statements of the entity receiving the services when that entity has no obligation to settle the transaction. It also clarifies the scope of the Standard through incorporation of the guidance contained in IFRIC 8 (Scope of IFRS 2) and IFRIC 11 (IFRS 2—Group and Treasury Share Transactions). The amendments are applicable for annual periods beginning on or after January 2010 subject to EU endorsement and are not expected to result in any material impact on the Group’s consolidated financial statements.
IFRIC 19 – “Extinguishing financial liabilities with equity instruments” issued in November 2009 clarified the treatment of debt equity extinguishments to enhance consistency between entities. An entity is now required to initially measure equity instruments issued to a creditor to extinguish all or part of a financial liability at the fair value of the equity instruments issued or the fair value of the liability extinguished, whichever is more reliably determinable. The difference between the carrying amount of the financial liability extinguished and the initial measurement amount of the equity instruments issued is recognised in profit or loss. This interpretation is applicable retrospectively for annual periods beginning on or after January 2011 (subject to EU endorsement).
At each period end, the entity must translate the items on its balance sheet which are denominated in a foreign currency into the functional currency, using the following procedures:
monetary items are translated at end of period exchange rates and the resulting gains and losses are recorded in the income statement; non-monetary items are translated: at the exchange rates in effect on the transaction date for items valued at historical cost; or at end of period exchange rates if they are valued at fair value; and to the extent that any gains or losses arise, these are directly recorded in shareholders’ equity. In particular this affects foreign exchange differences for available for sale equity securities and exchange differences resulting from the conversion of these items are also directly recorded in shareholders’ equity.
The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.
Real estate currently held by the Group is classified as investment property. Some buildings may be partially occupied by entities of the Group.
Annually each building is subject to an in-depth analysis of its market value or “fair value” by an independent appraiser. The fair value is calculated using a discounted cash flow model and considers rental status, completeness of construction and renovation work, as well as recent developments within the local real estate market. If the fair value is below the carrying amount, the related impairment losses are recognised in the income statement. The impairment provision is recorded equal to the difference between its fair value and the net book value. With regard to investment properties, their fair value is based primarily on the sum of estimated future cash flows that are discounted on the basis of current market assumptions.
The corresponding debt is recorded under “financial liabilities” and is amortised based on the effective interest rate method.
Dividends on equity instruments are recorded on the income statement when the Group’s right to receive payment has accrued.
This category includes financial assets held for trading purposes and those designated at fair value through income upon initial recognition in the financial statements. Gains and losses from changes in the fair value of financial assets classified under this category are recognised in the income statement in the period in which they occur.
The accounting method varies according to whether or not the derivative instrument is designated as a hedging instrument, as described below in “Hedging Instruments.”
The Group’s primary hedging instruments comprise foreign currency forward purchases and sales and USD denominated debt issued by the Group that has been designated as a net investment hedge.
The Group provides disclosures over the measurements of those financial instruments held at fair value, using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1); inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) (Level 2); and inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).
The level in the fair value hierarchy within which the fair value measurement is categorised is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement requires judgement, considering factors specific to the asset or liability.
For debt instruments, and loans and accounts receivable, an objective indicator of impairment relates primarily to proven default credit risk. Different factors are considered to identify those debt instruments potentially at risk of impairment, including significant financial difficulty or default in payments, to enable the Group to conclude whether there is objective evidence that the instrument or group of instruments is impaired.
Any impairment reversals in respect of equity instruments classified as available-for-sale are not recognised in the statement of income. Reversals of impairment losses on debt instruments classified as available-for-sale are reversed
The final dividend on ordinary shares is recognised as a liability when it has been approved by shareholders at the annual general meeting.
Such events lead to an adjustment of the consolidated financial statements if they provide evidence of conditions that existed at the balance sheet date, and if relevant and material.
The reinsurance contracts assumed and retroceded by the Group are subject to different IFRS accounting rules depending on whether they fall within the scope of IFRS 4 or IAS 39.
Claim reserves for losses and claims settlement expenses are recognised for payment obligations from reinsurance losses that have occurred but have not yet been settled. They are recognised for reserves for reinsurance losses reported before the reporting date and reserves for reinsurance losses that have already been incurred but not yet reported (IBNR).
The reinsurance entities of the Group record accounts transmitted by ceding companies upon receipt. At year end, estimates are made for those accounts not yet received from ceding companies. Under this method, the amounts recorded in the financial statements reflect as closely as possible the actual reinsurance commitments of the Group. This method relates to the majority of the contracts signed during the current and previous fiscal year.
Non Life gross premiums written and earned are based upon reports received from ceding companies, supplemented by the Group’s own estimates of premiums written and earned for which ceding company 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 arising from 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 U.S. and Japanese catastrophe risks, agriculture risks in Brazil and certain other risks, premiums are earned commensurate with the seasonality of the underlying exposure.
In Life reinsurance, estimates, based on experience and information supplied by the underwriters and based on the actuarial analysis, are added to mathematical reserves reported by the ceding companies.
In reinsurance, the costs associated with the acquisition of new contracts, mainly comprising commissions, are recorded as assets on the balance sheet, to the extent that contracts are profitable. They are amortised on the basis of the residual term of the contracts in Non-Life, and on the basis of the recognition of future margins for Life contracts and subject to impairment testing conducted within the liability adequacy test.
Assets and liabilities relating to reinsurance contracts are subjected each year to a liability adequacy test under IFRS 4.
For the Non-Life segment, the test is performed in the event the ultimate combined ratio is in excess of 100% to the unearned premium reserve, net of deferred acquisition costs.
A reinsurance asset is recognised to reflect the amount estimated to be recoverable under the reinsurance contracts in respect of the outstanding claims reported under reinsurance liabilities assumed. The amount recoverable from reinsurers is initially valued on the same basis as the underlying claims provision except in the case of non proportional retrocession whether by risk or by event, where it is SCOR policy to only recognise case or IBNR recoveries upon confirmation of the occurrence of a loss booked to an amount on the assumed side which triggers the retrocession contract.
Participations in syndicates operating at Lloyd’s of London are accounted for on an annual accounting basis with a delay due to the transmission of information from syndicates that it does not control. The Group recognises its proportionate share of the syndicates insurance and reinsurance premiums as revenue over the policy term, and claims, including an estimate of claims incurred but not reported. On the closure of an underwriting year, typically three years after its inception, syndicates reinsure all remaining unsettled liabilities into the following underwriting year, a mechanism known as Re-Insurance To Close (“RITC”). If the Group participates on both the accepting and ceding years of Account and has increased its participation, RITC paid is eliminated, as a result of this offset, leaving an element of the RITC receivable. This reflects the fact that the Group has assumed a greater proportion of the business of the syndicates. If the Group has reduced its participation from one year of account to the next, the RITC receivable is eliminated, leaving an element of RITC payable. This reflects the reduction in the Group’s exposure to risks previously written by the syndicates. The
Group recognises Lloyds RITC in claims and policy benefits to ensure consistency with similar transactions recognised in accordance with IFRS and, present a true and fair view, rather than an adjustment to gross written premium as per Tech 1/99 (UKGAAP).
Past service costs generated at the adoption or modification of a defined benefit plan are recorded as an expense, on a straight-line basis over the average period until the benefits become vested. When benefit rights are acquired upon the adoption of a plan or its modification, past service cost is immediately recognised as an expense.
The Group offers stock option plans to certain of its employees. The fair value of the services received in exchange for the granting of options is recognised as an expense. The total amount that is recognised over the vesting period is established by reference to the fair value of options granted, excluding conditions of attribution that are not linked to market conditions (ROE, for example). These conditions are taken into account when determining the probable number of options which will be acquired by the beneficiaries. At each balance sheet date, the Group reviews the estimated number of options which will be acquired. Any impact is then recorded in the income statement with the offsetting entry in shareholders’ equity for the remaining vesting period.
The Group also grants shares to certain of its employees. These grants are recorded in expenses over the vesting period with the offset recorded as an increase in shareholder’s equity.
Deferred tax assets and liabilities are assessed at the tax rate applicable in the fiscal year in which the asset will be realised or the liability settled, based on the tax rates (and tax regulations) that have been enacted or substantially enacted at the balance sheet date.
Management reviews the operating results of the SCOR Global P&C and Life segments individually for the purpose of assessing the operational performance of the business and to allocate resources. The application of the new requirements of IFRS 8, requiring disclosure of segment information as reviewed internally by management has not significantly changed the presentation of the segment analysis for the Group and has resulted only in a minor revision of line item order within the segment presentation. This revised presentation provides a split between the net insurance technical result and the result derived from investment related balances. The comparatives have been revised to reflect this presentation. SCOR has complied with all the requirements of IFRS 8 within these Financial Statements to the extent that it was practical and feasible. No operating segments have been aggregated to form the SCOR Global P&C and Life reportable operating segments.
The following tables set forth the operating income for each of the Group’s business segments as well as certain assets and liabilities for the financial years ended 31 December 2009 and 2008.
Gross benefits and claims paid (2,449) (2,225) - (4,674) (1992) (2109) (4,101)
Net income from reinsurance operations (28) (108) 0 (136) (36) (104) - (140)
of which other income excluded from combined ratio calculation - (19) - (19) - (7) - (7)
The distribution by geographic region, based on subsidiary location, is as follows: For the year ended 31 December SCOR Global Life SCOR Global P&C
Key balance sheet(1) captions by segment are estimated as follows: In EUR million SCOR
Share of retrocessionaires in insurance and investment contract liabilities 926 513 1,439 745 506 1,251
Share of retrocessionaires in insurance and investment contract liabilities 990 447 2 1,439 950 295 6 1,251
The following section describes acquisitions which either occurred or for which the acquisition accounting was finalised in 2009.
The purchase price has therefore been allocated based on a preliminary estimate of the fair value of assets acquired and liabilities assumed at the date of acquisition determined in accordance with IFRS 3 “Business Combinations”. The provisional allocation requires significant assumptions and it is possible that the preliminary estimates will change, potentially by material amounts, as the initial accounting is finalised.
The provisional fair value of assets and liabilities acquired on 4 December 2009 is as follows: XLReA: fair value of assets and liabilities acquired as at 4 December 2009 In EUR million Provisional
The value of business acquired (“VOBA”) has been estimated as EUR 20 million based on an estimate of expected future income and using a discount rate including an appropriate risk premium. This intangible asset will be amortised over the lifetime of the underlying treaties, in line with expected emergence of income.
The table below details the key estimated figures for the period from 4 December 2009 to 31 December 2009, which have been included within SCOR’s consolidated statement of income, and also key figures for the current reporting period: XLReA income statement for the year ended 31 December 2009
Such acquisition was completed on 24 October 2008, by transfer of: 2,673,173 SCOR treasury shares to Médéric Prévoyance; 257,701 SCOR treasury shares to the Institution Nationale de Prévoyance des Représentants; and 528,201 SCOR treasury shares to the URRPIMMEC (Union des Régimes de Retraites et de Prestations en cas d’invalidité et de maladie des Industries Métallurgiques, Mécaniques, Electriques et Connexes).
As from the acquisition date of 24 October 2008, Prévoyance Ré was fully consolidated by SCOR. This resulted in recognition of VOBA of EUR 21 million and a negative goodwill of EUR 6 million in 2008.
In accordance with IFRS 3, the accounting of a business combination can be reviewed within twelve months from the acquisition date. On 30 September 2009, the initial accounting was finalised with no net change in fair value of net assets acquired. These changes reflect the availability and use of more up to date information on which to base the final acquisition accounting and were recorded as follows: Fair value of assets and liabilities acquired
Change in scope of consolidation 3 21 - 24 Amortisation for the year - (131) (7) (138) Impairment for the year - - - -
NET BOOK VALUE AT 31 DECEMBER 2008 787 607 70 1,464
Goodwill, which represents the excess of the cost of each business combination over SCOR’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired, was EUR 787 million as at 31 December 2009 and EUR 787 million as at 31 December 2008. During 2008 the Group finalised the initial accounting in respect of the 2007 acquisition of Converium, which resulted in goodwill of EUR 579 million.
The annual goodwill impairment tests conducted for both the Global P&C segment and the Global Life segment show a fair value in excess of the total carrying value. Consequently, the result of the goodwill impairment tests is that no goodwill impairment charges were recognised for the year ended 31 December 2009 (2008: Nil).
Revios Group acquired in 2006 436 457 Converium Life portfolio acquired in 2007 35 78 Remark acquired in 2007 44 52 Prévoyance Ré acquired in 2008 16 20 XL Life America Inc. acquired in 2009 20 TOTAL VOBA 551 607
Other intangible assets at 31 December 2009 were EUR 80 million compared with EUR 70 million at 31 December 2008.
Tangible assets and real estate investments include all fixed assets and properties of the Group, comprising real estate investments and office or housing buildings which the Group owns or leases. Other property related matters such as rental income received or commitments made to acquire property are also presented within this note.
Cumulative depreciation and impairment at 31 December 2008 (81) (21) (102) Depreciation for the period 6 (3) 3 Impairment for the period - - -
On 30 October 2009 SCOR Auber, a wholly owned subsidiary of the Group, acquired Société Civile Immobilière (“SCI”) 3-5 avenue de Friedland for EUR 82 million as part of its real estate investment portfolio. This was partly funded by debt re-financing as presented within other financial debt within Note 14.
The Group holds a finance lease which contains an option to purchase an investment property at the end of the lease term. The amount of the minimum payments and their discounted values are as follows:
In EUR million Minimum payments including principal payments Minimum payments including principal payments
Less interest expenses (5) - (9) Principal in minimum payments 8 8 12 12
Less than one year 13 15 From one to five years 27 51 More than five years - 3 TOTAL MINIMUM PAYMENTS 40 69
Less than one year 24 23 From one to five years 48 36 More than five years 4 6 TOTAL MINIMUM PAYMENTS 76 65
During the year the Group committed to a purchase and construction agreement in relation to an office building within Cologne. Contingent expenditure relating to amounts not yet incurred during the year in relation to this contract amount to approximately EUR 35 million as estimated at the balance sheet date. This expenditure is partially contracted as instalments payable from 2010 onwards and is contingent upon both the progress of construction work and backing by bank guarantees. The completion of the work relating to this agreement is anticipated by the end of 2011, with the final payment contingent upon the transfer of this property to the Group.
Loans and receivables Note 7 8,071 9,309 Derivative instruments Note 8 104 15 TOTAL INSURANCE BUSINESS INVESTMENTS 18,644 16,982
Analysis of insurance business investments and financial liabilities carried at fair value by valuation method: Investments and cash as at 31 December 2009
FV based on prices published in an active market Level 1
Investments at fair value determined using valuation techniques based on observable market data (Level 2)
(1) The amounts presented above include set up costs for Atlas V & VI of EUR 3.2 million and EUR 1.4 million respectively, which are presented in financing expenses
Gains or losses (realised and unrealised) included in profit or loss for the period relating to level 3 investments are presented in the consolidated income statement as follows: (1) The amounts presented above include set up costs for Atlas V & VI of EUR 3.2 million and EUR 1.4 million respectively, which are presented in financing expenses
The change in the valuation of the available-for-sale portfolio affecting shareholders’ equity is as follows: In EUR million
Net unrealised losses net of tax 1 January (251) (13) Transferred to consolidated net income during the period, net of impairment 95 42 Change in unrealised gains and losses (including investments purchased during the period) 189 (277) Impact of foreign exchange 14 Change in scope and other (10) (3) Net unrealised gains (losses) net of tax 31 December 37 (251)
Total impairment losses recorded in 2009 amounted to EUR 232 million, of which EUR 185 million (2008: EUR 218 million) relate to the equity portfolio and EUR 47 million (2008: EUR 42 million) on fixed-income securities.
The Group analyses its unrealised losses on equity securities as follows: (1) Other also includes one listed investment with an unrealised loss of EUR 7 million (2008: EUR 14 million) judged not impaired given the strategic nature of the investment.
Magnitude of decline < 12 12-18 > 18 Total 41-50% ≥ 51% Total unrealised losses on available-for-sale equity securities analysed on a line-by-line basis 0 (3) 0 (3)
The table below presents the estimated maturity profiles of financial assets, which are expected to generate cash inflows to meet cash outflows on financial liabilities: As at 31 December 2009 As at 31 December 2008
In EUR million Book value Net unrealised gains / (losses) Book value Net unrealised gain / (losses)
As at 31 December 2009 Available-for-sale 5,524 834 1,422 752 137 181 8,850
Total fixed income securities as at 31 December 2008 4,191 481 1,083 257 26 172 6,210
As at 31 December 2009 Less than one year One to five years Five to ten years
Short term investments are carried at fair value. Other loans and receivables are carried at cost which approximates the fair value at 31 December 2009 and 2008.
Derivative financial instruments include the following items: Derivative assets Derivative liabilities Fair value through
On 19 February 2009 SCOR reopened the market for catastrophe bonds (an Insurance Linked Security) with the issue of the three series “Atlas V" catastrophe bonds. The multi-year property catastrophe agreements concluded between SCOR and Atlas V Capital Limited (“Atlas V") provides the Group with additional protection of USD 200 million for exposures to earthquakes and hurricanes in the USA and Puerto Rico. Events are covered for the risk period from 20 February 2009 to 19 February 2012.
Amounts are recorded in the balance sheet representing the derivative asset recognised at fair value through P&L and other liabilities representing the value interest payments. SCOR values the derivative asset using a model that is based on a combination of market inputs to the extent that trades in these instruments are active and catastrophic modelling tools. These assets are disclosed as level 3 investments within insurance business investments (Note 6). Amounts recorded in the statement of income include transaction costs that are expensed at inception as financing expense. The changes in fair value through income as presented above are recognised as other operating expenses or other operating income.
SCOR swaps 1Y Euribor + 2.20% for the German all properties total return
The indices used to measure the relevant real estate returns are those issued by an independent third party company (IPD). These indexes are obtained by the analysis of the appraised market values on 31st December of each year and rental incomes of the real estate portfolios of institutional investors using the independent third party provider. The indices are therefore derived from a large and diversified data base. The notional exposure for each of the four legs of the transactions is EUR 30 million.
The underlying indexed annuity contracts contain caps (limits) on the percentage increase in the underlying index that SCOR contractually must credit to the policyholders’ accounts. The average cap on the portfolio is about 6%. Our maximum total exposure at 31 December 2009 associated with the USD 812 million (2008: USD 734 million) notional amount including recognition of the caps if counterparties fail to pay is USD 56 million (USD 76 million).
SCOR enters into forward currency purchase and sales contracts to reduce its overall exposure to balances held in currencies other than the functional currencies of its subsidiaries. The contracts are recorded at their net fair value from valuations provided by banking counterparties using market inputs. The outstanding contracts at 31 December 2009 and 2008, converted into EUR at the closing rates, were as follows: Forward sales Forward purchases In EUR million Notional Fair value Notional Fair value 31 December 2009(1) 744 740 660 648 31 December 2008 519 529 851 830 (1) The amounts presented exclude a forward contract executed near to the close of markets on 31 December 2009 for the sale of USD to purchase EUR for a notional amount of EUR 396 million in order to hedge the change in functional currency in a subsidiary to avoid being unhedged while markets are closed at the start of 2010. The value of this transaction as at 31 December 2009 was close to nil.
Cash where applicable earns interest based on daily deposit interest rates. Total cash and cash equivalents include short term deposits and investments, which mature in less than three months from the date of the initial investment and earn interest based on the rates for short term deposits. Money market funds meeting certain criteria are also classified as cash equivalent.
Bank overdrafts have been reclassified within the Statement of Cash Flows from financial debt to cash and cash equivalent, net of overdrafts as presented within the table above. Comparative amounts within the Statement of Cash Flows have been updated to reflect this change in presentation.
In EUR million 2009 2008 Consolidated net income 370 315 Realised gains and losses on investment disposals 109 (89)
The authorised share capital of the Company at 31 December 2009 was 185,213,031 shares with a nominal value of EUR 7.8769723 each compared with authorised share capital of 184,246,437 shares with a nominal value of EUR 7.8769723 at the end of 2008.
The number of ordinary shares which were issued and fully paid in circulation as at 31 December 2009 and 2008 were as follows: In 2008 the increases were due to the purchase of Converium and the squeeze-out of the minority shareholders.
In 2009 the movements were due to the following operations: The Board held on 3 March 2009 decided to reduce the share capital by cancellation of 129,539 treasury shares for a total value of EUR 1 million.
At the end of 2009, 7,987,792 OCEANE bonds (EUR 2 per bond) were converted into 934,576 SCOR shares for a total amount of EUR 16 million.
All other movements presented above relate to the issuance of shares on the exercise of stock options for EUR 2 million (EUR 1.3 million in share capital and EUR 0.7 million in additional paid-in capital). This resulted in the creation of 161,557 new shares throughout the year.
During the year the conversion/exchange ratio was adjusted on these bonds in accordance with the offering and listing prospectus of the OCEANEs. In December, the debt matured through a combination of reimbursement and conversion. The details of the bonds and the related reimbursements and conversions during the year are described more fully in Note 14 - Financial debt.
As at 1st January 184,246,437 182,726,994 Share capital increase – 5 June 2008 - 1,420,408 Share capital increase – 31 December 2008 - 99,035 Share capital increase – 9 January 2009 10,410 Share capital increase – 6 February 2009 9,869 Share capital increase – 28 February 2009 10,225 Share capital decrease – 3 March 2009 (129,539) Share capital increase – 31 December 2009 131,053 Share capital increase – OCEANE conversion – 22 December 2009 934,576
The Groups’ capital management objectives are: To match the profile of its assets and liabilities, taking account of the risks inherent in the business; To maintain strong credit ratings and healthy capital ratios in order to support its business objectives and maximise shareholder value ; To retain financial flexibility by maintaining strong liquidity and access to a range of capital markets; To allocate capital efficiently and support the development of business by ensuring returns on capital employed meet the requirements of the regulators and stakeholders; and
In this regard, and in line with the current strategic plan from 2007 to 2010, the Group aims to achieve the following objectives: To secure a return on equity (“ROE”) of 900 basis points above the risk free rate over the cycle; To provide a Standard and Poor’s A+ level of financial security to clients by 2010; To self-finance the current business plan of the Group (without capital increase); To return any excess capital to shareholders.
The primary source of capital used by the Group is equity shareholders’ funds and borrowings. The Group also considers alternative sources of capital including reinsurance and securitisation, as appropriate when assessing its deployment and usage of capital.
The Group actively monitors the regulatory capital requirements of each of its operating subsidiaries within this capital management framework. The Group is subject to applicable government regulation in each of the jurisdictions in which it conducts business, particularly in France, Switzerland, the United States, the United Kingdom, Singapore, Hong Kong, Ireland and Germany. Regulatory agencies have broad supervisory and administrative powers over many aspects of the insurance and reinsurance industries. Failure of an operating company to meet the local regulatory capital requirements of the jurisdiction in which it operates could lead to regulatory supervision or administration of the affairs of the operating company.
Information on reserves included in the statement of changes in shareholders’ equity
The translation adjustment caption records the differences in exchange rates resulting from the conversion of the financial statements of foreign subsidiaries and branches.
The movement in the translation adjustment is primarily due to the translation of accounts of the subsidiaries and branches using the U.S. dollar as the functional currency. The Group has designated the U.S dollar 100 million of debt issued by SCOR SE as a hedge of the net asset value of its U.S. dollar denominated subsidiaries. Other than this net investment hedge, the Group does not currently hedge its net investments in subsidiaries denominated in foreign currencies.
OCEANE financial debt - repayable 1 January 2010 191 218 - -
20.1.6.14 NOTE 14 - FINANCIAL DEBT AND OCEANE FINANCIAL DEBT REPAYABLE 1 JANUARY 2010
The following table sets out an overview of the debt issued by the Group: Subordinated debt
In EUR million Maturity Net book value Fair value Net book value Fair value
Debt instruments issued EUR 200 million OCEANE 01/01/2010 - - 191 204
OCEANE FINANCIAL DEBT REPAYABLE 1 JANUARY 2010 191 218 - -
The Company issued, on 6 July 2000, EUR 100 million in 20-year subordinated bonds, redeemable by SCOR each quarter as from the tenth year following their issuance. These floating-rate bonds bear interest indexed on the 3-month Euribor plus (i) 1.15% for the first ten years, and (ii) 2.15% thereafter.
The liquidation or the complete sale of the Company, a merger or a takeover by a third party which would render, under certain circumstances, the complete redemption of the debt mandatory.
The Group provided liquidity to both its perpetual super-subordinated debt security (Tier 1 type) (TSSDI EUR 350 million) and its EUR 100 million subordinated debt issuance (call date July 2010) resulting in acquisition of own debt of EUR 99 million at an average price of 46.5%. The purchase this debt at a discount gave rise to a consolidated pre-tax profit EUR 53.4 million which is included in other operating income.
Debt instruments issued - OCEANE financial debt repayable 1 January 2010
In accordance with the accounting principles described in Note 1, this loan was separated from its shareholders’ equity component.
After separation of the components, the loan component was classified as financial debt, in accordance with paragraph 25 of the IAS 32 standards, due to the fact that SCOR had a contractual obligation to reimburse it on the maturity date, at the latest.
The 2009 earnings per share calculation, as presented within Note 24, incorporates the EUR 16 million increase in share capital reflecting those bonds converted during the year. No additional amounts have been included within 2009 diluted earnings per share calculation as the remaining bonds at year end are no longer considered potential ordinary shares (2008: 10,470,000).
Other financial debt relates primarily to the acquisition of investment properties through financial leases, including options to purchase freehold, in total EUR 55 million and other property related bank loans of EUR 92 million.
The effective interest rate expense incurred during the year relating to financial liabilities measured at amortised cost for 2009 and 2008 is as follows: (1) The amounts presented above include set up costs for Atlas V & VI of EUR 3.2 million and EUR 1.4 million respectively, and certain other oneoff letter of credit (LOC) charges.
The maturity profiles of financial debt is included in Note 27 – Insurance and financial risk.
Interest on short and medium term debt(1) (20) (10) Interest on OCEANE, perpetual debt and other long term borrowings (41) (51)
These benefits amount to EUR 76 million and EUR 74 million at 31 December 2009 and 2008, respectively and include post-employment benefits such as pension plans EUR 72 million (EUR 70 million in 2008) and Long service awards provisions EUR 4 million (EUR 4 million in 2008).
Gross contract liabilities Gross claim reserves 3,169 2,714 9,156 9,127 12,325 11,841
Gross claims reserves and claims estimates as at 1 January 9,127 9,325 Ceded claims reserves and claims estimates as at 1 January (467) (598) Net claim reserves and claims estimates as at 1 January 8,660 8,727
Revaluation of opening balance at current year end exchange rates (35) (233) Net claims reserves and claims estimates as at 1 January – revalued 8,625 8,494
Effect of other foreign exchange rate movements 18 (20) Net claim reserves and claims estimates as at 31 December 8,683 8,660 Ceded claims reserves and claims estimates as at 31 December (473) (467) Gross claims reserves and claims estimates as at 31 December 9,156 9,127
Unearned premium reserve (UPR) Gross UPR – end of year 1,664 1 617 1 124 978 637 575 1 108 1 099 1,135 Ceded UPR – end of year 253 130 76 40 24 18 39 39 40 Net UPR - end of year 1,411 1 487 1 048 938 613 557 1 069 1 060 1,095
Deferred acquisition costs (DAC) Gross DAC – end of year 232 204 129 132 137 108 230 227 238 Ceded DAC – end of year 49 25 5 3 2 - 2 1 Net DAC - end of year 183 179 124 129 135 108 228 226 238 (1) The table includes balance sheet reserves for Converium for years from 2007 onwards only. Figures for 2007 reflect the completion of the initial accounting of the business combination with Converium. Figures for 2007 and 2008 align to the segments as defined in Note 1. Alignment to segment definition has not be applied to 2006 and prior year figures. (2) At period end exchange rates. (3) At average exchange rates. (4) Includes net cumulative payments for all underwriting years as at each balance sheet date.
The table above shows the movement in the net reserves for unpaid losses and loss expenses of SCOR Global P&C. The table begins by showing the initial reported year-end gross and net reserves, including IBNR, recorded at the balance sheet date at the exchange rates applicable at each balance sheet date.
The change in Life mathematical reserves for the years ended 31 December 2009 and 2008 was as follows: In EUR million 2009 2008
Gross mathematical reserves as at 1 January 6,964 6,546 Change in scope of consolidation 170 83 Net premiums 2,494 1,498 Claims expense (2,077) (1,127) Technical result and other (46) (28) Change in "shadow accounting" (1) 2 Impact of foreign exchange movements (92) (10) Gross mathematical reserves as at 31 December 7,412 6,964
Reinsurance Recoverable Ceded mathematical reserves as at 1 January (599) (563) Change in scope of consolidation 5 (27) Net premiums (232) 24 Claims expense 370 (5) Technical result and other 11 (23) Impact of foreign exchange movements 6 (5) Ceded mathematical reserves as at 31 December (439) (599)
Net mathematical reserves as at 1 January 6,365 5,983 Net mathematical reserves as at 31 December 6,972 6,365
Reset: After a given number of years, the GMDB is adjusted to the current account balance. This means that the GMDB can be reduced but often not below the paid-up premium (adjusted for later deposits and partial withdrawals).
The liability adequacy test conducted at year end 2009 did not detect any deficiencies for either the Non Life or Life segment for the year ended 31 December 2009.
Share of retrocessionaires contract liabilities 29 586 649 100 69 6 1,439 1,251 Securities pledged 2 51 56 9 6 - 124 93 Deposits received 3 221 447 28 11 4 714 645 Letters of credit 3 56 62 9 7 - 137 125 Total collateral from retrocessionaires in favour of SCOR 8 328 565 46 24 4 975 863 Share of retrocessionaires contract liabilities net of collateral 21 258 84 54 45 2 464 388
The amounts paid under defined contribution plans were EUR 7.8 million and EUR 6 million for the years ended 31 December 2009 and 2008, respectively.
An employer’s obligation under a defined benefit plan is to provide the agreed amount of benefits to current and future beneficiaries. If the defined benefit plans is not wholly funded, provisions are recognised.
The discounted obligation is calculated based on the projected unit credit method by taking into consideration actuarial assumptions, salary increase, retirement age, mortality, turnover and discount rates. Assumptions defined are based on the macro economic environment of each country in which the Group operates.
Modifications to actuarial assumptions or differences between these assumptions and actual amounts give rise to actuarial differences which are recorded in Other Comprehensive Income during the period in which they occur, in accordance with Group accounting principles.
The main defined benefit pension plans relate to Switzerland, North America and France. These locations represent 40%, 20% and 21%, respectively, as at 31 December 2009, (41%, 19% and 20%, respectively, at 31 December 2008), of the Group’s obligation under defined benefit plans.
These plans are mostly pre-financed via payments to external organisations which are separate legal entities.
Discount rates are defined with respect to high quality long term corporate bond (rated AA) with duration in line with the duration of the obligations evaluated. In Switzerland, the discount rates are determined by reference to high quality government bonds due to the absence of a deep market in high quality corporate bonds.
Expected returns on assets are determined plan by plan. They depend on asset allocation and expected performance.
An increase or decrease in the discount rate of 0.5 would result in an increase or decrease in the estimated pension liability of approximately EUR 12 million (2008: EUR 11 million) with the offsetting impact recorded in equity.
The actual returns on plan assets were EUR 6.5 million (2008: EUR (10.5) million) for the year ended 31 December 2009.
Experience adjustments on plan liabilities (1) (2) (2) (1) 2 Experience adjustments on plan assets 2 (16) - - -
The following schedule reconciles the movements in the balance sheet amounts for the year ended 31 December 2009: In EUR million Total 2009 Europe
Reconciliation of defined benefit obligation Obligation as at 1 January 166 59 68 39 154 52 64 38
Curtailments(2) (3) (3) - - (1) (1) - - Settlements (6) - - (6) - - - - Acquisition / Divestiture - - - - - - - - Benefit payments (7) (1) (4) (2) (12) (2) (8) (2) Liability (gains)/losses due to change in assumptions 6 5 (1) 2 3 (2) 4 1 Liability (gains)/losses due to experience (1) 2 (3) - (2) 2 (4) - Effect of foreign exchange 3 - 3 - 3 (1) 4 -
Fair value of assets as at 31 December 95 15 53 27 88 14 47 27
Net defined benefit obligation as at 31 December - Deficit 83 56 18 9 78 45 21 12
The following table summarises the movements in accrued (prepaid) balances recorded in the consolidated balance sheets as at 31 December 2009 and 2008: In EUR million Total 2009 Europe
The following table includes the allocation of plan assets as at 31 December 2009 and 2008: In EUR million Europe Switzerland North America
Exercisable at 31 December 1,158,081 - 855,316 - (1) After stock consolidation on 3 January 2007: 1 new share equals 10 old shares
13.3 for French 12.5 for foreigners 13.2 for French 12.4 for foreigners 14.3 for French 13.4 for foreigners 14.6 for French 13.7 for foreigners 13.7 for French 12.9 for foreigners 13.2 for French 12.5 for foreigners
Employees that are resident in France are required to hold the shares for two years from the date of acquisition.
For employees that do not reside in France, the transfer of ownership becomes effective after the fourth year subject to certain performance conditions. They are not permitted to receive any dividends until end of the fourth year and are required to continuously remain as an employee of the Group until the end of the second year.
A reconciliation of the corporate income tax, obtained by applying the French tax rate of 34.43% for 2009 and 2008 to income (losses) before taxes, minority interest and income (losses) from associated companies consolidated under the equity method, to the actual charge recorded in the income statement is presented in the table below. The effective rate in 2009 is (14.71)% (2008: (15.85)%).
The main variances are due to the difference between local tax rate of each entity and the Group tax rate, permanent differences reported by each entity, reduced rates and specific items, including the reactivation of deferred tax assets relating to US operations.
Effect of changes in foreign exchange rates (21) - (21) (105) (24) (129) Revaluation of assets available for sale 480 (138) 342 (390) 117 (273) Shadow accounting (82) 28 (54) 90 (28) 62 Actuarial gains / losses not recognised in income (8) - (8) (13) - (13) Other changes 2 6 8 (11) (8) (19) TOTAL 371 (104) 267 (429) 57 (372)
(expense) for the period In EUR million 2009 2008 2009 2008
Deferred tax assets Unrealised revaluations and temporary 1 125 2 8 Retirement scheme 17 4 3 1 Net operating losses for carry forward 603 489 64 50 Financial instruments 1 14 (2) 7 Claims reserves 41 74 (48) - "Shadow accounting" (12) 1 (3) - Other temporary differences 19 70 140 6 Elimination of internal capital gains 17 8 (5) -
Balance sheet amounts Deferred tax liabilities (251) (215) Deferred tax assets 471 446 NET DEFERRED TAX ASSET (LIABILITY) 220 231 (1) Amounts are presented on a gross basis. The balance sheet presentation incorporates net deferred tax asset or liability positions where a right of set off exists.
The net operating losses available (“NOL”) for carry-forward expire as follows: In EUR million Available NOLs Tax effected Deferred tax asset recognised
The net operating losses which have not been activated as deferred tax assets relate primarily to subsidiaries in Switzerland and the United States.
The tables below show the break down by type of investment income and break down by category of financial assets: Break-down by type
Rental income from real estate investments 27 29 Dividends 31 38 Interest income on investments 272 347 Other income (mainly cash and cash equivalent) 52 93 Ordinary investment income 382 506
Real estate depreciation (14) (13) Other investments expenses (28) (20) Net investment income excluding deposit and currency items 303 244
Interest income on funds withheld and contract deposit 212 233 Interest expense on funds withheld and contract deposit (26) (18) Currency gains (losses) 14 7 TOTAL INVESTMENT INCOME 503 467 (1) 2008 amount includes EUR 10 million relating to Groupama
The table below shows the net results of retrocession for the years ended 31 December 2008 and 2009: In EUR million SCOR
Changes in unearned premiums (5) - (5) 4 4 8 Ceded earned premiums (338) (245) (583) (262) (216) (478) Ceded claims expense 219 135 354 159 106 265 Ceded commissions 91 2 93 67 6 73 Net results from retrocession (28) (108) (136) (36) (104) (140)
These expenses are further allocated into categories by function as follows: In EUR million 2009 2008
Other Legal. tax. social security 129 145 3% 3% - 14 - 1%
Earnings per share Net income attributable to ordinary shareholders 370 179,455 2.06 315 178,486 1.76
The total gross cash compensation of key management personnel for 2009 and 2008 financial years is presented below: In EUR million 2009 2008