Certain statements contained in this registration document (the “Registration Document”) may relate to objectives of SCOR SE (“SCOR” or the “Company”) or of the SCOR group (the “Group”) or to forward-looking information, specifi cally statements announcing or corresponding to future events, trends, plans, or objectives, based on certain assumptions. These statements are typically identifi ed by words or phrases indicating an anticipation, assumption, belief, continuation, estimate, expectation, forecast, intention, and possibility of increase or fl uctuation and similar expressions or by future or conditional verbs. This information is not historical data and must not be interpreted as a guarantee that the stated facts and data will occur or that the objectives will be met. Undue reliance should not be placed
1 Person responsible 3 1.1 Name and title of person responsible 5 1.2 Declaration by person responsible 5 2 Statutory Auditors 6 2.1.1 Principal Auditors 8 2.1.2 Alternate Auditors 8 2.2 Resignation or non renewal of Auditors 8 3 Selected fi nancial information 9 3.1 Group key fi gures (under current consolidation scope) 9 4 Risk factors 12 4.1 Risk related to the business environment 14 4.1.1 The Group is exposed to diverse risk factors in the non-life and life reinsurance businesses 14 4.1.2 We are exposed to losses from catastrophic events 19 4.1.3 We could be subject to losses as a result of our exposure to terrorism 20 4.1.4 We could be subject to losses as a result of our exposure to environmental pollution and asbestos related risks 20 4.1.5 If our claims reserves prove to be inadequate, our net income, cash fl ow and fi nancial position may be adversely affected 21 4.1.6 We may be adversely affected by the inability of our retrocessionaires and cedents or members of pools in which we participate to meet their obligations and by the availability of retrocession reinsurance on commercially acceptable terms 23 4.1.7 We operate in a highly competitive sector 24 4.1.8 Financial ratings play an important role in our business 24 4.1.9 A signifi cant portion of our contracts contain provisions relating to fi nancial strength which could have an adverse effect on our portfolio of contracts and our fi nancial position 25 4.1.10 Operational risks, including human errors or computer system failure, are inherent in our business 26 4.1.11 We are exposed to risks related to the recent acquisitions 26 4.1.12 Our run-off GMDB portfolio inherited from Converium is sensitive to changes in fi nancial markets and the behaviour of policyholders 27 4.1.13 We are exposed to credit risks 28 4.2 Market risk 30 4.2.1 We face risks related to our fi xed income investment portfolio 30 4.2.2 We face risks related to our equity-based portfolio 31 4.2.3 We are exposed to other risks arising from our fi nancial instruments 31 4.2.4 We are exposed to currency risk 32 4.2.5 Our shareholders equity and net income are sensitive to the valuation of our intangible assets and deferred tax assets 32 4.3 Liquidity risk 33 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 33 4.4 Legal risk 34 4.4.1 We are exposed to risks related to legislative and regulatory changes and political, legislative, regulatory or professional initiatives concerning the insurance and reinsurance sector, which could have adverse consequences for our business and our sector 34 4.4.2 We are exposed to certain litigation matters 34 4.4.3 Our positions on tax accounts are subject to audit and approval by tax authorities 35 4.5 General corporate insurance and risk coverage
A Appendix A : Unconsolidated corporate fi nancial statements of SCOR SE 275
1.1 Name and title of person responsible Mr. Denis Kessler, Chairman of the Board of Directors and Chief Executive Offi cer of SCOR.
1.2 Declaration by person responsible I declare that, having taken all reasonable care to ensure that such is the case, the information contained in this Registration Document is, to the best of my knowledge, in accordance with the facts and contains no omission likely to affect its import.
I have obtained an audit completion letter from the statutory auditors, in which they indicate that they have verifi ed the information concerning the fi nancial situation and the accounts provided in this Registration Document, and have read the entire Registration Document.
On the date of the Shareholder’s Meeting called to approve the fi nancial statements of the fi nancial year ending 2.2 Resignation or non renewal of Auditors Not applicable.
MAZARS Represented by Messrs. Michel Barbet-Massin and Lionel Cazali Tour Exaltis – 61, rue Henri Regnault 92075 La Défense Cedex CRCC of Versailles
SCOR Global Life Division Gross written premiums 2,701 2,432 1,181 Life operating margin 6.0% 7.4% 7.5% (1) In accordance with IFRS 3 “Business Combinations” the 2007 fi gures have been adjusted to refl ect the fi nalisation of the intial accounting of Converium Holding AG (“Converium” 98.06% acquired on 8 August 2007) in 2008 and Revios Rückversicherung AG (“Revios” wholly acquired on 21 November 2006) in 2007 as described in Section 20.1.6.3 – Notes to the consolidated fi nancial statements. Accordingly, the 2006 fi gures include approximately 41 days of results from Revios. A full year of Revios’ earnings is included in the 2007 results whereas Converium is included in the consolidated fi nancial statements as from 8 August 2007. The 2008 fi nancial information includes a full year of results for the operations of Ex-Revios and Ex-Converium entities. (2) Operating income is defi ned as result before fi nancial expenses, share in results of associates, restructuring costs, negative goodwill and taxes. (3) Earnings per share is calculated as net income divided by basic number of shares. The basic number of shares includes the average number of closing shares, shares issued during the period and time-weighted treasury shares. (4) Liquidity is defi ned as cash and cash equivalents and short term investments comprised primarily of government bonds maturing less than 12 months from date of purchase. (5) Claims supporting capital is defi ned as the sum of IFRS shareholders’ equity, subordinated debt and debt securities.
The risk factors described below must be considered together with the other information contained in the Registration Document, and specifi cally with: Appendix B - Report from the Chairman of the Board of Directors on the conditions for the preparation and organisation of the work of the Board of Directors and on the internal control procedures - Part II, which describes the internal control procedures set up by the Group to address the risk factors that it is exposed to; The consolidated fi nancial statements of the Group that appear in Section 20.1 - Historical fi nancial information: consolidated fi nancial statements and in particular Note 27 - Insurance and fi nancial risk.
SCOR is focused on monitoring its critical risks through processes and procedures referred to as the ERM framework. The SCOR framework is based on the COSO II ERM framework which covers strategic, operational, reporting and compliance aspects of Risk Management. A fundamental strategic part of the framework is the risk appetite which for SCOR is defi ned as: 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-fi nance the current business plan of the Group.
The outlook for the world economy in 2009 and beyond is extremely uncertain. The Group will continue to use all available risk management tools to manage the downside risks and also take advantage of opportunities that offer high returns in relation to risk.
However, the extremely uncertain economic outlook makes it impossible to predict all possible future outcomes, some of which may have a signifi cant negative impact on the Group.
The principal risk the Group faces under insurance and reinsurance contracts is that the actual amounts of claims and benefi t payments, or the timing thereof, differ from expectations. The frequency of claims, severity of claims, actual benefi ts paid, subsequent development of long-tail claims and external factors beyond the Group’s control, including infl ation, legal developments, etc have an infl uence on the principal risk faced by the Group. Additionally, the Group is subject to the quality of claims and other data provided by ceding companies and thus performs periodic audits at ceding companies. In spite of these uncertainties the Group seeks to ensure that suffi cient reserves are available to cover its liabilities.
The same losses may be covered under various different lines of business within the Property branch such as fi re, engineering, aviation, space, marine, energy and agricultural.
For Casualty business, the frequency and severity of claims and the related indemnifi cation payment amounts can be affected by several factors. The most signifi cant factors are the changing legal and regulatory environment, including changes in civil liability law. Additionally, due to the length of amicable, arbitral and court procedures, the Casualty business is exposed to infl ation risks regarding the assessment of claim amounts and potentially to so-called emerging risks, which are risks considered to be new or at least known but which are subject to constant evolution such as EMF (Electro Magnetic Fields).
Non-Life insurance and reinsurance businesses are cyclical. Historically, reinsurers have experienced signifi cant fl uctuations in operating income due to volatile and unpredictable developments, many of which are beyond the control of the reinsurer including primarily, frequency or severity of catastrophic events, levels of capacity offered by the market and general economic conditions and to varying extents the price competition and capacity available.
The primary consequences of these structural factors are to reduce the volume of Non-Life reinsurance premiums on the market, to make the reinsurance market more competitive, and also to favour the operators who are most attentive to the specifi c needs of the cedents.
Beyond the general trends, the premium rate cycle is affecting certain geographic markets and/or certain lines of business in a differentiated fashion and independently of each other.
Underwriting guidelines, which specify maximum acceptable commitment per risk and per event, are in place within SCOR Global P&C. They are reviewed and updated annually by the Underwriting Management Department and approved by the CEO and Chief Risk Offi cer of SCOR Global P&C. Any request for deviations from the underwriting guidelines is subject to a two-tier referral process: the fi rst tier is submitted by the Underwriting Department to the Underwriting Management Department and the second tier, for exposures exceeding certain thresholds or with specifi ed characteristics are further submitted by the Underwriting Management Department to the Group Risk Management Department of SCOR SE.
With regard to its Casualty business SCOR allocates less capacity to new business of this type than to Property. Furthermore, the underwriting guidelines restrict SCOR’s shares of Casualty reinsurance programs and are particularly restrictive regarding certain areas (Florida, California, etc).
Property - The geographical accumulations by peril are analysed using external software and simulation tools. The principal tools used are World Cat Enterprise (WCE) developed by Eqecat, RiskLink by RMS and Catrader by AIR.
Reserves for Property business are sensitive to rate that losses occur. However, given the short-tail nature of the business, the reserves are less sensitive to potential changes than reserves for Casualty business.
The main categories of risk for life insurance and reinsurance are biometric, behavioural and catastrophe risks as well as credit risk (see Section 4.2 - Financial Markets and 4.2.4 - We are exposed to currency risk ) and market risks (See section 4.2 - Financial Markets and 4.2.3 - We are exposed to other risks arising from our fi nancial instruments).
Mortality risk is the risk of loss arising 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.
Products such as critical illness, short-term and long-term disability or long term care, which all contain morbidity risk, are subject to among others the risk of negative trends in health (e.g. due to obesity, pollution, stress etc.) as well as improved medical diagnoses capabilities which increase the number of claims that otherwise would possibly have remained undetected.
In life reinsurance, a major risk lies in the occurrence of a pandemic. In the past century, three major outbreaks of infl uenza occurred and claimed millions of lives. The repetition of a similar event could cause large losses to the Group, due to an increased mortality far beyond the usual volatility. Experts monitor closely the H5N1 infl uenza virus strain (implicated in the outbreaks of avian fl u) to see if it can be transmitted from human to human, which would make it a possible source for a pandemic. Other infectious diseases are also studied due to their potential for signifi cant loss development. In general, however, better means of communication and increased public health measures, combined with progress in vaccine research, make the estimated impact less severe than those of the past.
Lapses refer to policies which are terminated by the assured before the maturity date of the policy. Depending on the product design, higher or lower policyholder lapses may reduce SCOR Global Life’s expected future income. Lapses may differ from expected due to a changing economic environment or other reasons, such as changes in tax incentives for the reinsured policies, tarnished reputation of the cedent or from the introduction of more attractive products in the market, etc.
As previously indicated unexpected natural or man-made catastrophic events can provoke very signifi cant material damage affecting the Non-Life activities of the Group. In addition such events could cause multiple deaths and serious injuries which could potentially seriously impact the Life activities of SCOR, particularly in instances of contracts covering groups of employees working for the same employer at the same location.
Aggregate portfolio exposures are continually monitored. Through an accumulation control, risks which exceed SCOR Global Life’s retention are identifi ed and retroceded. The retention limits are revised each year based on SCOR Global Life’s risk profi le.
Nevertheless, no guarantee shall be implied from the measures detailed above, including those relating to risk monitoring, mitigation and assessment, to protect the Group from the risks in the Life reinsurance business.
The twin-engine activities of Non-Life and Life reinsurance take place in two different market environments. They are subject to heterogeneous external constraints, which generally have only very limited correlation with each other. The diversifi cation and the overall balance between these two business areas within the Group represent stabilising factors. However, in some cases NonLife and Life businesses are both connected to each other as well as to the fi nancial markets. This exposes SCOR to accumulation and/ or correlation risks which are diffi cult to quantify.
Unforeseen events, such as natural catastrophes or terrorist attacks, can cause signifi cant damage. These types of risk primarily affect the Non-Life operations. However, in cases where we face a large number of casualties, the possibility of the losses also affecting Life reinsurance as well cannot be excluded. This mostly applies to Group reinsurance treaties covering people who work for the same employer at the same location.
SCOR takes into account the effect of the diversifi cation between the two markets (Life and Non-Life) in its internal model, by setting parameters for the interdependence of the various lines of business.
Political risks, which are characterised by social and political instability in certain countries, are particularly signifi cant in emerging markets for their commercial growth. In such countries, substantial changes in regulations, particularly tax or commercial regulations, are more probable than in more developed markets.
SCOR limits these risks by implementing a prudent policy of international expansion.
Like all other reinsurance companies, SCOR may be exposed to multiple insured losses to property or to the person arising from a single occurrence, whether a natural catastrophe such as a hurricane, windstorm, fl ood, hail, severe winter storm, earthquake, or a man-made catastrophe such as an explosion fire at a major industrial facility or an act of terrorism. Any such catastrophic event may generate insured losses in one or more of SCOR’s lines of business.
In particular the Group’s most signifi cant exposure to natural catastrophes in Non-Life relates to earthquakes, especially in Japan, Taiwan, Canada, Portugal, Mexico, Israel, Chile, Italy, USA and Turkey, and storms, fl oods and other weather-related phenomena notably in Europe, Asia, the Caribbean and the United States.
We manage our exposure to catastrophes through selective underwriting practices, especially by limiting our exposure to certain events in certain geographic zones (as for example hurricanes which are now frequent in the Gulf of Mexico), by monitoring risk accumulation on a geographical basis and by retroceding a portion of those risks to other reinsurers (retrocessionaires) selectively chosen based on the information publically available confi rming their solid fi nancial strength. We evaluate our natural catastrophe exposure by means of the catastrophe modelling software World Cat Enterprise (EQECAT), RiskLink (RMS) and Catrader (AIR).
Different risk measures (such as value at risk or expected shortfall) per peril and region provide the information required to determine levels of retrocession and other risk transfer means (e.g. catastrophe bond) needed to ensure that the net aggregate exposure remains within the acceptable risk tolerance. The modelling strategy is based on two pillars, a sophisticated use and comparison of commercially available models with two models for peak regions (tier one regions) and the most appropriate model for second and third tier markets. The impact of non-modelled but probable loss potentials is considered taking into account sum of limits and maximum probable loss assumptions for each individual peril and region.
Nevertheless, no guarantee that the Group is protected against material catastrophic losses, or that retrocession will continue to be available in the future at commercially acceptable rates shall be implied from the measures detailed above, including those relating to the management of risks on a geographical basis or retrocessions. Although we attempt to limit our exposure to acceptable levels, it is possible that multiple concurrent catastrophic events could have a material adverse effect on our current and future revenues, net income, cash fl ow and fi nancial position.
Refer to Section 4.1.6 - We may be adversely affected by the inability of our retrocessionaires and cedents or members of pools in which we participate to meet their obligations and by the availability of retrocessional reinsurance on commercially acceptable terms or additional information on the Group’s retrocession programs.
In the context of our business, we may be exposed to claims arising from the consequences of terrorist acts. These risks, the potential signifi cance of which can be illustrated by the 11 September 2001 attack on the World Trade Center (“WTC”) in the United States, can affect both individuals and property.
Refer to Section 20.1.6. - Notes to the consolidated fi nancial 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), and the Netherlands (NHT), 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 signifi cant risks in this area. Therefore, the Group monitors very closely its exposure to the U.S. 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.
4.1.4 WE COULD BE SUBJECT TO LOSSES AS A RESULT OF OUR EXPOSURE TO ENVIRONMENTAL POLLUTION AND ASBESTOS RELATED RISKS
In addition, IBNR Reserves have been established to provide for additional reserves on both known and unknown claims. These reserves are reviewed and updated quarterly.
As a result of these imprecisions and uncertainties, we cannot exclude the possibility that we could be exposed to signifi cant 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 fl ow and fi nancial position.
As stated before, our reserves and policy pricing are based on a number of assumptions and on information provided by third parties, which, if proven to be incorrect, could have an adverse effect on our results of operations. Despite the audits carried out by us on the companies with which we do business, and our frequent contacts with these companies, we are still dependent upon their evaluation of the risk with regard to the establishment of our own reserves.
SCOR regularly reviews and updates its methods for determining IBNR Reserves. However, it is diffi cult to accurately value the amount of reserves required, especially in view of changes in the legal environment, which could affect the reserve development.
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 cedent’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 department 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.
In determining the amount of its reserves, the Group generally uses actuarial techniques that take into account quantitative loss experience data, together with qualitative factors, where appropriate. The reserves are also adjusted to refl ect reinsurance treaty terms and conditions, the variety of claims processing that may potentially affect the Group’s commitment over time. With the exception of the reserves for worker’s compensation in the USA and most of the reserves of Commercial Risk Partners (“CRP”), the Bermudan entity of the Group, which are discounted pursuant to American and Bermudan regulations, the Group does not discount Non-Life reserves.
In January 2003, we have placed the operations of CRP in run-off and conforming to the strategic plan, “Back on Track”, we have chosen to withdraw from certain lines of business in the U.S.. Since the end of 2004, these operations known as “Discontinued Business ” and run-off business have been managed by a specialised team whose principal objective has been to control and commute these contracts and portfolios wherever possible.
For CRP, this proactive policy has permitted to reduce very signifi cantly the remaining exposures.
Thanks to this active management of our U.S. run-off activities, the strengthening of the long term capital base of our U.S. subsidiaries which we have carried out in the past and their reorganisation in order to improve their underwriting policy that is now in line with overall Group objectives and the proactive expense management, at the end of 2008, the risks arising from our U.S. subsidiaries should not represent any greater risk than those associated with other entities of the Group. Nevertheless, due to the specifi c environment in which they operate, there can be no assurance that our U.S. Non-Life Subsidiaries will not face further fi nancial diffi culties in the future.
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 benefi ts 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.
We transfer a part of our exposure to certain risks to other reinsurers through retrocession arrangements. Under these arrangements, other reinsurers assume a portion of our losses and expenses associated with losses in exchange for a portion of premiums received. When we obtain retrocession, we remain liable to our cedents for that part of the risk that is subsequently transferred to the retrocessionaire and must meet our obligation even if the retrocessionaire cannot meet its obligations to us.
We also assume fi nancial risk linked to the possible non payment of premiums due by the cedents and or due to possible guarantees granted to the cedents providing security against our liability to them. Thus, the inability of our retrocessionaires or cedents to meet their fi nancial obligations (in particular the payment of premiums, return of fund withheld, payment of losses) could negatively affect our revenues, net income, cash fl ow and fi nancial position. We periodically review the fi nancial position of our retrocessionaires and cedents notably before the conclusion of contracts. This does not preclude the possibility that our retrocessionaires or cedents may become fi nancially unsound by the time they are called upon to pay amounts due, which may not occur many years after the contract was executed. Receivables for which a loss is deemed probable, are discounted in our accounts. In addition to the risks stated, we could be confronted with a systemic risk in as much that failures occurring in the (re)insurance sector are susceptible to affect all the participants in the sector.
or subsequent event such as Europe Storm or Japan Earthquake, the losses of which are determined by a model over a period running from 1st January 2007 to 31 December 2009. Continuing this strategy to diversify retrocession sources, SCOR issued two similar Cat Bonds, Atlas IV on 29 November 2007 for a term of three years and one month, providing EUR 160 million in additional retrocession coverage for SCOR and its subsidiaries for a fi rst event such as Europe Storm or Japan Earthquake and Atlas V on 19 February 2009 for a term of three years providing USD 200 million in additional retrocession coverage for SCOR and its subsidiaries for an event such as U.S. and Puerto Rico Earthquake or Hurricane.
In any event, we are exposed to the risk that in the future we will be unable to retrocede our exposures at commercially acceptable conditions.
Finally, we participate in various insurance and reinsurance pools in order to spread certain risks, (in particular terrorist risks), among the members of the pool. (For further details, refer to Section 4.1.3 - We could be subject to losses as a result of our exposure to Terrorism. ) In case of the total failure of a member of a pool, we could be required to assume part of the liabilities and obligations of the failed member, which could affect our revenues, net income, cash fl ow and fi nancial position.
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 fi nancial strength as perceived by the rating agencies, our underwriting expertise, reputation and experience in the lines written, the jurisdictions 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. 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 fi nancial resources and, in certain cases, higher ratings from the rating agencies. In 2006 and 2007, 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.
In particular, when available reinsurance capacity is greater than the demand from ceding companies, our competitors, some of which hold higher ratings than we do, may be better positioned to enter new contracts and gain market shares at our expense.
Financial ratings are very important to all reinsurance companies, including SCOR, as ceding companies wish to reinsure their risks with companies having a satisfactory fi nancial 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 fi nancial strength notably through our ratings. This is also true for our reinsurance treaties
In addition, certain stand-by letter of credit facilities would require collateralisation if the rating of the Group deteriorates.
In order to keep close control over our ratings and notably to prevent downgrades in our fi nancial 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 fi nancial year to present our results and our fi nancial position to them and specifi c meetings before implementing strategic or fi nancial projects, to assess their potential impact on our rating.
In the same way, many of our reinsurance treaties contain a requirement for SCOR to put in place letters of credit (“LOC”) provisions whereby in the circumstances described in the previous
Sections, the cedent has the right to draw down on a LOC issued by a bank in SCOR’s name.
In the case of a large number of LOCs being drawn down simultaneously, SCOR could encounter diffi culties in providing the total amount of required cash (i.e. SCOR is also exposed to a liquidity risk).
Operational risks are inherent in all businesses including our own. Their causes are multiple and include, but are not limited to, poor management, employee fraud or errors, failure to document a transaction as required, failure to obtain required internal authorisations, non-compliance with regulatory or contractual obligations, IT system fl aws, poor commercial performance or external events. We are also exposed to risks relating to the integration of the underlying data of newly acquired companies into our operating and fi nancial accounting IT systems.
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 have been an important part of our underwriting process and are a contributing factor to our competitiveness. We also use certain licensed systems and data from third parties. We cannot be certain that our technology or applications owned or licensed will continue to operate as intended, or that they will continue to be compatible with each other, or that we will have access in the future to these or comparable licensors or service providers. Our information technology system is subject to the risk of breakdowns and outages, disruptions due to viruses, attacks by hackers and theft of data. A major defect or failure in our internal controls or information technology and application systems could result in a loss of effi ciency of our teams, harm to our reputation or increased expense or fi nancial 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. Nevertheless, an operational risk failure, in particular the failure, always possible, of these internal control procedures, could have an adverse impact on our activities, current or future revenue, net income, cash fl ow and fi nancial position.
On 21 November 2006 SCOR completed the acquisition of Revios. On 8 August 2007, SCOR acquired the majority of the outstanding share capital of Converium Holding AG (“Converium ”) and its effective control. During 2007 and 2008, SCOR acquired the remaining shares still in circulation and on 5 June 2008, SCOR became the sole shareholder of Converium (which became SCOR Holding (Switzerland) AG). For more information on this acquisition, please see Sections 5.2.1.2 - Public offer upon the Converium shares and 5.2.1.3 – Cancellation of the shares of SCOR (Holding) Switzerland. The total consideration and the fair value of acquired net assets are detailed in Section 20.1.6 - Notes to the consolidated fi nancial statements, Note 3 - Acquisitions.
SCOR recently acquired ReMark Group BV and Prevoyance Re. For more information on these acquisitions see Paragraph 20.1.6 – Notes to the Consolidated Financial Statements, Note 3 - Acquisitions.
The integration of recently acquired companies may be more diffi cult than anticipated and the synergies may eventually be less than those anticipated
The success of recent business combinations will be assessed with regards to the success of the integration into the Group of the businesses acquired. Subsequently, as with any external growth transaction in the services sector in general, and reinsurance in particular, the integration of the activities of recently acquired companies may take longer and/or be more diffi cult than expected. The success of this integration will depend, notably, on the ability to maintain the client base to coordinate development efforts effectively, in particular at the operational and commercial levels, and to streamline and/or integrate the information systems and internal procedures and the ability to retain key employees. Diffi culties encountered in the integration could entail higher integration costs and/or less signifi cant savings or fewer synergies than expected.
4.1.12 OUR RUN-OFF GMDB PORTFOLIO INHERITED FROM CONVERIUM IS SENSITIVE TO CHANGES IN FINANCIAL MARKETS AND THE BEHAVIOUR OF POLICYHOLDERS.
SCOR Global Life inherited from Converium retrocession liabilities with regard to Guaranteed Minimum Death Benefi t (GMDB) rider options attached to variable annuity policies written in the U.S. This type of business, which carries during fi nancial crisis a specifi c 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 0.9 million policies that were issued mainly in the late 1990’s and which incorporate various benefi t types. Claims occur in the event of death and if a policy is “in the money”, which means that 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 defi nition of the underlying reinsurance agreements.
The GMDB Liability is determined periodically based on the information provided to SCOR Global Life by its retrocedent companies. The current account value, the guaranteed death benefi t and details of the covered benefi t types are taken into consideration for the evaluation of the net amount at risk and the expected future liability. For the evaluation of the liabilities, SCOR Global Life uses an actuarial model that considers 1,000 investment performance scenarios.
We are exposed to risks related to the bond market. The deterioration of the fi nancial situation of some issuers may result in the increased probability of default on coupons paid or even on the redemption of capital. This would lead to a drop in the value of these issuers’ bonds, which would affect the value of our investment portfolio.
For Bond investments which are managed externally, a specifi c investment framework is provided to the fund manager. Bond investments managed internally are monitored locally by each entity in conformity with the laid down management mandate. Whether managed internally or externally, each entity monitors directly or through the external managers the invested assets by issuer, by rating, by sector of activity and by geographical area, in order to assess the concentration risk of its portfolio.
In general, for all types of investments (including bonds), the Group’s investment policy is defi ned and followed by the Investment Committee which meets at least on a monthly basis. It is presided over by the Group’s Chief Executive Offi cer and is in particular made up of the Chief Financial Offi cer, the Group Chief Risk Offi cer, the Chief Economist, the Chief Investments Offi cer and the Chief Executive Offi cer of SCOR Global Investments SE (“SCOR Global Investments”).
To the extent that our retrocessionaires belong to the same business sector, unfavourable events affecting the sector are susceptible to affect all participants in the sector. In other words, risks to which we are exposed could also become systemic risks.
The Security Committee is in charge of analysing the fi nancial security of each retrocessionaire and the amount which can be ceded to each retrocessionaire. The Security Committee meets regularly, with more frequent meetings during peak treaty renewal period, and decides on any action to be taken to limit SCOR’s potential exposure to the risk of default by any of its retrocessionaires.
SCOR reduces this risk by spreading its cash deposits across a wide number of retail banks. These deposits are monitored regularly by bank, rating, assessment of default probability, and by geographical area. Following the fi nancial crisis, an increasing number of banks fi nding themselves into diffi culties are being provided with governments protections (e.g. guarantees of deposits, nationalisations ). Deposits with such banks consequently benefi t from these protections.
SCOR is exposed to credit risk through its Credit & Surety portfolio. In effect, by reinsuring the commitments of its clients, which are credit insurers and insurers issuing sureties, SCOR must indemnify them for the portion that it 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 specifi cally monitors its main exposures in this sector. In addition, SCOR benefi ts from the expertise of its specialised cedents in terms of risk prevention, as the cedents continuously adjust their own exposure levels based on changes in the fi nancial strength of the debtors they are insuring.
The payment of future profi ts expected under Life reinsurance contracts necessarily implies that the cedent is solvent: for this reason, SCOR risks a reduction in the value of its portfolio of Life contracts in the event of the insolvency of the cedent. In such a case, it is possible that the VOBA (Value Of Business Acquired) and DAC (Deferred Acquisition Costs) need to be written down. As a consequence, equity is reduced accordingly.
Calculations are also made on the current treaties in order to verify the solidity of the value of future profi ts from the portfolio in question. This regular monitoring allows for a timely action to manage and mitigate the effects from any possible deviations of the actual results from the projections in the underwriting plan.
SCOR participates, for certain risk categories that are particularly heavy (particularly terrorist risks), in various groups of insurers and reinsurers (“pools”) aimed at pooling the relevant risks among the members of each group. In the event of a total or partial default by one of the members of a group, SCOR could be required to assume, in the event of joint liability of the members, all or part of the commitments of the defaulting member. In such a case, SCOR’s fi nancial position could be affected.
4.2 Market risk 4.2.1 WE FACE RISKS RELATED TO OUR FIXED INCOME INVESTMENT PORTFOLIO
Conversely, an increase in interest rates, as well as fl uctuations in capital markets could also lead to changes in behaviour resulting in the unanticipated surrender and withdrawal of fi xed annuities and other Life reinsurance products, including the fi xed annuities of SCOR Global Life. This would result in cash outfl ows which might require the sale of assets at a time when the increase in interest rates has caused a fall in the market value of the fi xedmaturity securities held in the portfolio. This could generate losses during the disposal of assets.
Interest rate risk is managed within the Group primarily at two levels. At the level of each entity, we take into account the assetliability matching policy and congruence rules, as well as local regulatory accounting and tax constraints. At the central level, we conduct operations to consolidate all portfolios in order to identify the overall level of risk and return. Consequently, the Group uses analytical tools which guide both its strategic allocation and local distribution of assets.
The sensitivity to changes in interest rates is generally analysed on a monthly basis. The Group analyses the impact of a major change in interest rates on each of its portfolios and at the global level. Here, the Group identifi es the unrealised capital loss that would result from a rise in interest rates. The instantaneous unrealised capital loss is measured for a uniform increase of 100 basis points in rates or in the event of a distortion of the structure of the yield curve. Portfolio sensitivity analysis to interest rate changes is an important risk measurement and management tool which may lead to decisions for reallocation or hedging.
The interest rate risk is monitored regularly also because of our primarily medium-term investment activity that is tied to the duration of liabilities resulting in moderate portfolio turnover. The average duration for the Group is relatively stable, which enables rapid risk assessment.
For information on the maturities of fi nancial assets and liabilities, related interest rates and sensitivities to interest rate fl uctuations as well as the allocation of the bond portfolio by rating of the issuer, see Section 20.1.6 - Notes to the consolidated fi nancial statements, Note 27 - Insurance and fi nancial risk.
We are also exposed to credit risks related to our bond investments. (See Section 4.1.13 - We are exposed to credit risks (a) Bond portfolio ).
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 on a regular basis. 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 regularly by the Investment Committee.
The equity risk is also controlled by the defi nition of maximum exposures per stock or mutual fund and is reviewed regularly (exposure to large-cap stocks will generally be greater than exposure to mid-cap stocks). The control ratios on mutual funds are also reviewed regularly, based on the mutual fund’s holdings.
In spite of the above, we are nevertheless exposed to a risk of capital losses on the shares we hold which – if it were to occur – could adversely impact our net income, cash fl ow and fi nancial position.
4.2.3 WE ARE EXPOSED TO OTHER RISKS ARISING FROM OUR FINANCIAL INSTRUMENTS
Currency risk is the risk that the fair value or future cash fl ows of a fi nancial instrument will fl uctuate because of changes in foreign exchange rates.
The following types of foreign exchange risk have been identifi ed by SCOR: (a) Transaction risk
We publish our consolidated fi nancial statements in Euros, but a signifi cant part of our income and expenses, as well as our assets and liabilities, are denominated in currencies other than the Euro. Consequently, fl uctuations in the exchange rates used to convert these currencies into Euros may have a signifi cant impact on our reported results of operations and net equity from year to year.
4.2.5 OUR SHAREHOLDERS EQUITY AND NET INCOME ARE SENSITIVE TO THE VALUATION OF OUR INTANGIBLE ASSETS AND DEFERRED TAX ASSETS
Recognition of the deferred tax assets i.e. the likelihood of recovering these taxes in the future, depends on applicable tax laws and accounting methods as well as the performance of each entity concerned. Due to the losses incurred, we were forced to impair, in 2003, all deferred tax assets of SCOR U.S. Corporation, a portion of this impairment was reversed in 2007 and 2008 (Refer to Section 20.1.6 - Notes to the consolidated fi nancial statements, Note 19 - Tax for details). The deferred taxes generated by the Group’s other entities were maintained. Nevertheless, the occurrence of other events, such as changes in tax legislation or accounting methods, operational earnings lower than currently projected or losses continuing over a longer period than originally planned could lead to the loss of other deferred tax assets. All of these developments or each of them separately could have a signifi cant adverse effect on our net income and fi nancial position.
Information on intangible assets and related impairment testing policy is included in Section 20.1.6 - Notes to the consolidated fi nancial statements, Note 1 - Accounting principles and methods.
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
Our operations generate substantial cash fl ows because most premiums are received prior to the date at which claims must be paid out.
These positive operating cash fl ows, together with the portion of the investment portfolio held directly in cash or highly liquid securities, have always enabled us to meet the cash demands generated by our operating activities.
However liquidity risk is increased in situations of market disruption as we may need to sell a significant portion of our assets quickly and at unfavourable terms.
In the current fi nancial market environment, SCOR has decided to pursue a high liquidity policy.
As of this date, we are subject to comprehensive and detailed regulations and to the supervision of the insurance and reinsurance regulatory authorities in all countries in which we operate. Changes in existing laws and regulations may affect the way in which we conduct our business and the products we may offer or the amount of reserves to be posted, including on claims already declared. Insurance and reinsurance supervisory authorities have broad administrative power over many aspects of the reinsurance industry and we cannot predict the timing or form of any future regulatory initiatives. Furthermore, these authorities are concerned primarily with the protection of policyholders and policy benefi ciaries, rather than shareholders or creditors. The diversity of the regulations to which we are subject has been substantially reduced by the implementation into French law of Directive n. 2005/68/EC dated 16 November 2005 by ordinance n. 2008-556 of 13 June 2008 and application decrees n. 2008-711 of 17 July 2008 and n. 2008-1154 of 7 November 2008 as well as a regulation (arrêté) of 7 November 2008. This Directive prescribes the application of a “single passport” and confers the supervision of EU reinsurance companies upon the supervisory authorities of the headquarters of the company. This should simplify and clarify the supervisory conditions applicable to our Group, in the European Union at least. Moreover this Directive, implemented into national law, establishes regulations relating to technical reserves and to the Life and Non-Life solvency margins applicable to the Group as of 2008 in France and in all European countries. The Directive defi nes minimal conditions common to all member States of the European Union, and gives national legislators the option to set more stringent requirements. The national provisions adopted for the implementation of this Directive and their interpretation, as well as other legislative or regulatory changes, increase the harmonisation of regulations governing reinsurers with the regulations governing insurers. These new regulations may increase our solvency margin obligations, thereby restricting our underwriting capacity.
SCOR establishes tax accounts in accordance with applicable local laws and regulations. However, some tax positions may differ from the view taken by the relevant tax authorities. Additionally tax laws and regulations may change with retroactive impact.
4.5 General corporate insurance and risk coverage (excluding reinsurance activity) (1)
Some of SCOR’s major assets include its IT network and its communication tools, which are regularly updated to refl ect technological progress.
In these fi elds, emergency solutions have been organised off-site such as system duplication and data backup, to allow business continuity in the event of a major incident. 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.
The properties and other assets of SCOR and its subsidiaries are covered locally through property and fi re 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).
With the exception of a few policies purchased locally, liability risks are mostly covered at Group level for amounts deemed suffi cient.
The management of the Group’s property and liability insurance is subject to a validation procedure in which a steering committee composed of specialist staff is requested to issue an opinion. Assessment of strategies is performed by the Chief Risk Offi cer (“CRO”).
(1) Generally speaking, the amounts of insurance mentioned in this Section 4.5 are for purposes of illustrating the policy of transferring certain risks by the SCOR Group, subject to other provisions of corresponding policies or policy, specifi cally those regarding possible lower limits of coverage, particular deductibles, geographic coverage and/or particular exclusions.
5.1.4. DOMICILE AND LEGAL FORM OF ISSUER, LEGISLATION GOVERNING ITS ACTIVITIES, COUNTRY OF INCORPORATION, ADDRESS AND TELEPHONE NUMBER OF ITS REGISTERED OFFICE
SCOR is a European Company (Societas Europaea) governed by the provisions of Council Regulation (EC) No. 2157/2001, dated 8 October 2001 on the Statute for a European Company (the “SE Regulation”), and that of the European Council Directive 2001/86/EC of 8 October 2001 supplementing the Statute for a European Company with regard to the involvement of employees, and by the provisions of French law relating to European Companies, as well as for all other matters partially covered or not covered by the SE Regulation, by the French corporate law provisions applicable to a société anonyme, where not contrary to the specifi c provisions applicable to European Companies.
The conversion had no impact upon the rights of the Company’s shareholders or bondholders who automatically became shareholders and bondholders of SCOR SE without any action being required on their part. They remain shareholders and bondholders in proportion to their rights acquired prior to the completion of the conversion. Thus, the fi nancial liability of each shareholder of SCOR SE is limited to the amount of his subscription prior to the conversion. The proportion of the voting rights held by each shareholder in the Company has not been affected by the conversion into a European Company.
The conversion in itself did not have any impact on the value of the SCOR 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-thecounter 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 the SEC on 4 September 2007.
European reinsurance companies are under an obligation to meet the defi ned 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 suffi cient time to resolve the problems that have arisen. Our Swiss subsidiary is required to 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 suffi cient assets, free of any predictable commitment, for all its activities (solvency margin).
reinsurers authorised in France and their branches are monitored by the Autorité de Contrôle des Assurances et des Mutuelles (“ACAM”). 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 fulfi l the regulatory solvency margin demands.
In the United States, the Group’s reinsurance and insurance subsidiaries are regulated primarily by the insurance regulators in the state in which they are domiciled, but they are also subject to regulations in each state in which they are authorised or licensed. SCOR Reinsurance Company, the Group’s main Non-Life subsidiary in the United States, is domiciled in the State of New York and SCOR Global Life U.S. Re Insurance Company, the Group’s main Life insurance subsidiary in the United States, is domiciled in Texas. The Group’s other subsidiaries in the United States are currently domiciled in Arizona, Delaware, Texas, and Vermont.
In 1989, SCOR and UAP Reassurances combined their Property & Casualty and Life reinsurance businesses as part of a restructuring of SCOR’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’s listing on the New York Stock Exchange.
In July 1996, SCOR acquired the reinsurance portfolio of the American insurer Allstate Insurance Company, doubling the share of its U.S. business in the Group’s total turnover.
While maintaining an active local presence in major markets and building up new units in fast-growing emerging countries, SCOR continued in the following years to streamline its structure and its organisation.
In 1998, SCOR and SOLAREH incorporated SOLAREH SA, which is now held equally by SCOR Global Life and SOLAREH International. Its corporate purpose is to facilitate the reintegration to society of the disabled by reeducation, prevention and training services granted to French insurers which are reinsured by the Group.
In 1999, SCOR 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 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.
That same year, SCOR and a group of international investors formed a reinsurance company in Dublin, named Irish Reinsurance Partners Ltd (“IRP”), which has since become SCOR Global P&C Ireland Ltd, with a paid-up capital of EUR 300 million in order to strengthen the Group’s total equity and increase its underwriting capacity to take advantage of the upturn in the reinsurance cycle. IRP has been principally used for the retrocession in quota share of 25% of the part of the Non-Life business underwritten or renewed by the Group during fi nancial years 2002, 2003 and 2004.
In 2002, SCOR signed a cooperation agreement in the Life reinsurance business with the Legacy Marketing Group of California, for the distribution and management of annuity products. A number of Life offi ces were opened around the world to benefi t from the growth potential of the Life reinsurance business.
On 21 November 2006, the Group completed the acquisition of Revios, allowing it to create a top worldwide Life reinsurer. Based in Cologne, Revios is the former Life reinsurance unit of Gerling Global Re Group, and had successfully developed autonomously since 2002. Revios has since become one of the leading European reinsurers specialising in Life reinsurance, with offi ces in 17 countries. The combination of Revios and SCOR VIE created SCOR Global Life, an operating entity which, with an annual volume of gross written premiums of EUR 2,701 million at 31 December 2008 is one of the top 5 worldwide leaders in Life reinsurance, according to the rankings published in the Standard & Poor’s Global Reinsurance Highlights (2008 Edition).
Following the acquisition of SCOR Holding (Switzerland) (formerly Converium Holding) shares on the market, SCOR held, on 22 October 2007, more than 98% of SCOR Holding (Switzerland), enabling SCOR to seek, on 25 October 2007, a court-ordered procedure for the cancellation of the shares of SCOR Holding (Switzerland ) not yet held by the Group.
On 7 January 2008, SCOR Holding (Switzerland) delisted its American Depositary Shares from the New York Stock Exchange. SCOR Holding (Switzerland) then requested the deregistration of its securities with the SEC. The deregistration of SCOR Holding (Switzerland ) securities took place on 4 September 2008. Moreover, further to the request addressed by SCOR Holding (Switzerland), the SWX Swiss Exchange, by order dated 14 November 2007, delisted SCOR Holding (Switzerland)’s shares as from 30 May 2008.
Following the acquisition of Converium and Revios by SCOR, the integration of these companies has been implemented in the framework of an innovative approach, in accordance with the new global, multi-cultural dimension of the Group: the Hub Company.
This model has been designed around six structured platforms, around roles and not just by legal entities. Each platform is in charge of some of the local, regional and global responsibilities.
The Hubs have been progressively put in place: on 5 May 2008 for the Cologne Hub; on 20 May 2008 for the London Hub; on 16 June 2008 for the Asia Pacifi c Hub; on 18 June 2008 for the America Hub; on 27 January 2009 for the Zurich Hub; on 24 February 2009 for the Paris Hub.
On 8 January 2008, in keeping with its strategic policy for the development and growth of its presence in the African markets, notably English and Portuguese speaking, the Group created a subsidiary in South Africa, SCOR Global South Africa (Pty) Ltd. In addition, the Group created, on 21 April 2008, another subsidiary in South Africa, SCOR Africa Ltd (currently named Micawber 673 Proprietary Ltd), bound to operate Life and Non-Life activities.
Refer to Section 4.2.1 - We face risks related to our fi xed-maturity portfolio - and 4.2.2 - We face risks related to our equity-based portfolio, for a description of risk management connected with our investments in debt instruments and equity securities.
The SCOR Board meeting of 4 July 2006 approved the execution of an acquisition agreement between SCOR and GLOBALE Rückversicherungs-AG relating to the acquisition of Revios. This acquisition will enable the Group to create a top-tier worldwide Life reinsurer.
SCOR fi nanced this acquisition through: a subordinated debt issue of EUR 350 million, launched on 28 July 2006 by the issue of deeply subordinated perpetual bonds (Tier 1), a share capital increase of EUR 377 million executed on 12 December 2006.
On 16 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; (ii) 5.50 Swiss francs and (iii) 0.40 euro in cash, equal to 50% of the amount of the per share dividend for fi nancial year 2006 paid out by SCOR 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 fi led with the Swiss takeover board (“TOB”) on 5 April 2007 as amended on 12 June 2007 (the “Offer Prospectus”).
SCOR’s Extraordinary General Shareholders’ Meeting, held on 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, 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 fi rst 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”).
13 July 2007 and closed on 26 July 2007, 92,969,353 Converium shares were presented for acceptance of the Offer. The settlement /delivery of the Offer was executed according to the procedures appearing in the Offer Prospectus and SCOR proceeded to issue 46,484,676 new shares on 8 August 2007, with a unit price of EUR 18.79, including EUR 10.9130277 in issue premium and 7.8769723 Euro of face value; SCOR paid the Converium shareholders who contributed their shares to the Offer, a total amount of 511,331,441.50 Swiss francs as payment of 5.50 Swiss francs per Converium share contributed, and a total amount of EUR 37,187,741.20 as payment of 0.40 Euro per Converium share contributed, i.e. 61,400,679.50 Swiss francs after conversion into Swiss francs on the basis of the Euro/Swiss franc exchange in effect on the date the Offer was executed.
On 22 October 2007, SCOR announced that it held more than 98% of the voting rights of SCOR Holding (Switzerland) (formerly Converium ) and thus that the Group met the conditions necessary for the fi ling of a cancellation action with respect to the remaining shares of SCOR Holding (Switzerland) not owned by the Group, in order for the Group to become the sole shareholder of SCOR Holding (Switzerland). Such cancellation procedure is a court procedure initiated in compliance with Swiss laws before a Swiss Court pursuant to which a shareholder holding more than 98% of the voting rights of a company may request the cancellation of the shares held by the minority shareholders in consideration for a counterpart strictly identical to that offered in the context of a previous public offer. Immediately after the cancellation of the shares, the same amount of shares is issued to the benefi t of the majority shareholder.
The request for cancellation of the 2,840,816 shares of SCOR Holding (Switzerland) was fi led 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.
The order of the Commercial Court of Zurich was issued on 15 May 2008 and became effective on 20 May 2008. On 5 June 2008, the Board of Directors of SCOR decided, as a consideration for the 2,840,816 shares of SCOR Holding (Switzerland), to (i) issue 1,420,408 SCOR shares and (ii) to pay CHF 15,624,488 and (iii) EUR 1,136,326.40 corresponding to the dividend paid by SCOR for 2007 to be paid in Swiss francs at the exchange rate applicable on the day preceding the cancellation of the remaining shares, 5 June 2008 (i.e., EUR 1 = CHF 1.61630) (such amount being fi nanced out of SCOR’s own total equity).
At the end of 2002, SCOR reassessed its new “Back on track” strategic plan. This plan was implemented in order to shift the Property and Casualty underwritings towards: short-tail lines, which give a better forward-looking view of the activities, that do not involve the same level of risk on future results and which avoid the diffi culty of calculating future results and the related required reserves for long-tail activities exposed to disputes and to claims infl ation; and non-proportional activities, for which the prices are defi ned by SCOR underwriters and actuaries; these activities, which are independent of the prices given by ceding companies to their clients, are less sensitive to the negative effects that can result from the underwriting and rates of the ceding companies.
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 million 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, specifi cally 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.
With premium revenues of EUR 2,407 million, 2005 was marked by stability in premiums in contrast to 2004, because of the continuation of strict underwriting rules and the renewal of the NonLife treaties in January and April 2005 affected by a rating of BBB+ (Standard & Poor’s) and B++ (AM Best), which were relatively unfavourable compared to our principal competitors. In August 2005, Standard & Poor’s upgraded the SCOR rating to A- and on 8 September 2006, AM Best also raised its rating to A-.
SCOR VIE’s acquisition of Revios on 21 November 2006 resulted in the creation of SCOR Global Life. This combination was part of the Group’s strategy to balance out Life and Non-Life businesses. This “business mix” enabled the Group to improve its risk profi le through diversifi cation of its portfolio, to reduce the volatility of its result and to optimise the use of its capital depending on the divergent developments of Life and Non-Life reinsurance markets. The combination between SCOR and Revios allowed collaboration between highly complementary entities in northern and southern Europe and in Asia.
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- Pacifi c (in Singapore).
Further strengthening of SCOR’s organisational setup has been achieved through the acquisition of ReMark, offering direct global marketing of Life insurance products for fi nancial institutions and serving over 200 clients in 33 countries.
The 2007 Full Year results showed that SCOR had entered a new global dimension in terms of earning power and business volume, with all business drivers producing solid results.
Throughout 2008, the Group continued to deliver on its ”Dynamic Lift V2” path. The January 2008, then January 2009 Non-Life renewals demonstrated the effectiveness of the integration of Converium, with SCOR reaching its objective of consolidating two strong independent reinsurance groups into one leading franchise with minimum contract and client attrition levels.
On 29 October 2008, the Group announced the establishment of its dedicated investment management company, SCOR Global Investments. This is the Group’s third operating unit alongside SCOR Global P&C and SCOR Global Life. This new entity will be in charge of managing the global investment portfolio of all the Group’s legal entities. SCOR Global Investments will implement the Group’s investment strategy as determined by the Group Investment Committee, headed by Group Chairman and CEO Denis Kessler. SCOR Global Investments will be regulated by the French Autorité des Marchés Financiers (AMF) and expects to receive authorisation before 29 March 2009, unless this deadline is extended further to a request for additional information.
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 benefi ts, including a reduction in net liability on individual risks and catastrophe protection from large or multiple losses. Reinsurance also provides a ceding company with additional underwriting capacity by permitting it to accept larger risks and a greater number of risks than would be possible without a corresponding increase in share capital. 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: 1. 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; 2. reinsurance also 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; 3. it makes substantial liquid assets available to insurers in the event of exceptional losses.
In addition, reinsurers also provide advisory services to ceding companies by: a) defi ning their reinsurance needs and devising the most effective reinsurance program to better plan their capital needs and solvency margin; b) supplying a wide array of support services, specifi cally in terms of technical training, organisation, accounting and information technology; c) providing expertise in certain highly specialised areas such as the analysis of complex risks and risk pricing; d) enabling ceding companies to build up their business even if they are temporarily under capitalised, particularly in order to launch new products requiring heavy investment.
Such dependence subjects reinsurers in general, including SCOR, to the possibility that the ceding companies have not adequately evaluated the risks to be reinsured and, therefore, that the premiums ceded in connection therewith may not adequately compensate the reinsurer for the risk assumed. The reinsurer’s evaluation of the ceding company ’s risk management and underwriting practices as well as claims settlement practices and procedures, therefore, will usually impact the pricing of the treaty.
The ability to separately evaluate each risk reinsured, however, increases the probability that the underwriter can price the contract to more accurately refl ect the risks involved.
Excess of loss reinsurance is often written in layers. One or a group of reinsurers accepts the risk just above the ceding company’s retention up to a specifi ed amount, at which point another reinsurer or a group of reinsurers accepts the excess liability up to a higher specifi ed 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, better enables underwriters and actuaries to more accurately price the underlying risks.
Reinsurers typically purchase reinsurance to cover their own risk exposure or to increase their capacity. Reinsurance of a reinsurer’s business is called a retrocession. Reinsurance companies cede risks under retrocession agreements to other reinsurers, known as retrocessionaires, for reasons similar to those that cause primary insurers to purchase reinsurance: to reduce net liability on individual risks, protect against catastrophic losses and obtain additional underwriting capacity.
Reinsurance can be written through professional reinsurance brokers or directly from ceding companies. A ceding company’s selection of the market will be infl uenced by its perception of such advantages and disadvantages relative to the reinsurance coverage being placed. For example, broker coverages usually involve a number of participating reinsurers that have been assembled by a broker, each assuming a specifi ed portion of the risk being reinsured. A ceding company may fi nd it easier to arrange such coverage in a diffi cult underwriting environment where risk capacity is constrained and reinsurers are seeking to limit their risk exposure. In contrast, direct coverage is usually structured by ceding companies directly with one or a limited number of reinsurers. The relative amount of brokered and direct business written by the Group’s subsidiaries varies according to local market practice.
SCOR’s main Specialty reinsurance activities includes Credit & Surety, Ten-Year Inherent Defects Insurance, Aviation, Space, Marine, Engineering, Agricultural Risks and Structured Risk Transfer. They include both treaties and facultative reinsurance.
Aviation insurance covers damages caused to aircraft, injuries to persons transported and to third persons caused by aircraft or air navigation, as well as losses resulting from products manufactured by companies in the aerospace sector.
Facultative and reinsurance treaties underwriten in the space sectors cover the launch preparation, the launch, and the orbital operation of satellites. This applies primarily to commercial telecommunication and earth observation satellites.
To cope with the broader reinsurance buyers ‘needs in transferring risk and to benefi t from these changes by broadening the SCOR’s fi eld of activity, SCOR employs a Global Head of Structured Risk Transfer who facilitates the knowledge transfer of structured products and associated risks throughout the SCOR’s organisation.
The Business Solutions (facultative) business covers all insurable risks during construction and operation of industrial groups and service companies. It primarily consists of facultative reinsurance underwriting performed by specialised teams organised in an international network around two major divisions, “Natural Resources”
and “Industrial & Commercial Risks” covering fi ve business sectors: (i) Energy & Utilities, (ii) Construction & Major Projects, (iii) Industry, (iv) New Technologies and (v) Finance & Services, completed by two “Market Units” responsible for facultative reinsurance for the Group’s insurance company treaty clients and alternative solutions for the transfer and fi nancing of risks for the Business Solutions (facultative) clients, respectively. Business Solutions (facultative) is aimed at professional buyers seeking global risk fi nancing solutions. The risks shared with the ceding and/or captive companies are highvalue industrially or technically complex risks insured for Property and Casualty, in the areas of petroleum or natural gas exploration and production, refi ning and petrochemicals, energy, mining, large manufacturing industries or semi-conductors.
This activity is dedicated to coverage underwritten through Joint Ventures and Partnerships, and, as of today, through Lloyd’s syndicates, GAUM (Global Aerospace Underwriting Managers Limited) and MDU (Medical Defence Union).
SCOR Global Life’s reinsurance services can also enable its clients to fi nance their development (e.g. product launching costs, portfolio acquisition). Thanks to its experience in prospective risk analysis, SCOR Global Life has the resources to combine risk acceptance and the management of fi nancial variations in order to provide its clients with tailor-made, effective fi nancing solutions over the medium or long term.
The purpose of Disability insurance is to mitigate the loss of income when the insured is totally or partially unable by reason of sickness or accident to follow his occupation or any occupation for which he is suited.
Personal accident is a cover provided by SCOR Global Life. A main source of business is ReMark, a subsidiary of SCOR, which provides direct distribution solutions to insurers, fi nancial institutions and affi nity partners. ReMark designs and executes direct marketing programs.
Asia-Pacifi c - Rest of World 931 626 481 292 158 74 639 468 406
6.3 Extraordinary events infl uencing the principal business and markets Both in Life reinsurance and Non-Life reinsurance, the Group benefi ted from Fitch’s decision on 21 August 2008 to upgrade SCOR SE’s ratings to “A” on Insurer Financial Strength (IFS) and to “A” on its Long Term Issuer Default Rating (IDRs). The rating on the Junior Subordinated Debt moved to “BBB+”. The outlook for the IFS rating and the Long-term IDRs remained stable. Previously, the ratings were “A-”, “A-” and “BBB” respectively.
Standard & Poor’s (S&P) announced on 3 September 2008 its change of statement to SCOR’s Insurer Financial Strength rating to “A- positive outlook”. S&P’s senior debt rating for SCOR remains at “A-” and the subordinated debt rating at “BBB”.
A.M. Best confirmed its “A- stable outlook” Insurer Financial Strength rating for SCOR on 14 November 2008. The senior debt rating for SCOR remains at “a-” and the subordinated debt rating at BBB+.
Moody’s Investors Service announced on 4 December 2008 that it had upgraded the insurance fi nancial strength rating (IFSR) of SCOR and various subsidiaries to A2 from A3, and SCOR’s subordinated debt to Baa1 from Baa2. All ratings have a stable outlook.
With the acquisition of Converium (fi nalised in August 2007), and the rapid and effi cient integration of the teams that followed, SCOR began the renewal campaign on 1 January 2008 with a substantially expanded and reinforced portfolio base, notably in terms of variety of branches handled and of markets covered. The contribution of the Converium teams and tools has proven particularly valuable all the more since the compatibility of policies and underwriting and the complementary of the portfolios was being proven as anticipated through renewals at the end of 2007.
In 2007, the acquisitions of Revios and Converium allowed SCOR Global Life to increase the total turnover generated by its business portfolio more than twice from 2006.
Please refer to Section 4.1.6 – Our results may be affected by the inability of our cedants and retrocessionaires or members of pools in which we participate to meet their obligations and by the availability of retrocessional reinsurance on commercial acceptable terms, 4.2.1 – We face risks related to our fi xed maturity portfolio, 4.2.2 – We face risks related to our equity-based portfolio, 4.1.9 –
(ii) The geographic diversifi cation of its business by operating in a large number of countries, both mature and emerging, and by maintaining its policy of positioning itself on strong-growth markets (opening of a representative offi ce in India, opening of a branch in China, applying for an extension of the Non-Life Retakaful license in Malaysia; opening an offi ce in South Africa and establishing an underwriting presence in Australia, operating as admitted reinsurer in Brazil following the deregulation of the market); (iii) The diversifi cation of underwritten risks (product lines): longevity, mortality, dependence, major illnesses in Life reinsurance; Property & Casualty (P&C) Treaties, Specialty treaties and facultative, large corporate Facultative risks and Joint Ventures and Partnerships in Non-Life reinsurance. In this respect, the Converium acquisition is a signifi cant additional diversifi cation factor by enlarging the Non-Life offer and portfolio of the Group to specialty lines of business in which the Group was not or barely offering.
The relative importance of its Specialty Treaties activities and its historic positions in developing economies and emerging markets, grant SCOR a solid background for pursuing a profi table expansion, despite the levelling off, if not the decline, in reinsurable matters and reinsurance premiums on the mature markets.
A highly effi cient and swift integration process with regard to teams and systems.
Access to new business with existing clients and enlargement of client base.
Positive July 2008 P&C renewals generated a premium increase of 22%; the July renewals (representing 6% of total treaty premiums ) underline SCOR’s highly valuable business franchise. The Group applies strict underwriting discipline, with a fi rmer pricing environment than expected. The 1 January 2009 renewals showed a further slight increase in premium volume; 3% rise in business volume at constant exchange rates, following a policy of increased profi tability. For more detailed information please refer to Section 9 - Operating and fi nancial review.
SCOR Global Life US Re Insurance Company Escritório de Representação no Brasil Ltda 100% (2) Brazil
(3) Subsidiaries of Remark International BV : France, United States, Canada, India, Singapore, South Korea, Japan, Australia, South Africa. Branches of Remark International BV : Germany, Mexico.
On 29 October 2008, SCOR announced the creation of SCOR Global Investments, its new subsidiary in charge of managing the global investment portfolio of all the Group’s legal entities. SCOR Global Investments will implement the Group’s investment strategy as determined by the Group Investment Committee.
SCOR wholly owns its operating subsidiaries (excluding the shares held by Directors). SCOR also makes loans to its subsidiaries and issues them guaranties so that they can underwrite under favourable conditions, especially by letting them benefi t from its fi nancial ratings. SCOR provides support in actuarial, accounting, legal, administrative, systems, internal audit, investment, and human resources to Group subsidiaries. Finally, SCOR acts, as needed, as retrocessionaire for its two operational subsidiaries through quota share treaties renewed annually which form the instrument for internal control within the Group through the annual allocation of capital to the operating subsidiaries based on the profi tability expected from their underwriting. The contracts that formalise the relationships between SCOR and its subsidiaries are presented in: Section 19 – Related Party Transactions, and in
The Group is a twin engine group driven by SCOR Global Life and SCOR Global P&C. Mobilisation of skills and expertise, a balance among teams from different entities of the Group, operating effi ciency, simplicity of structures, and clarity of reporting lines were the principles that guided the Group’s organisational choices.
The Group’s Non-Life reinsurance activities are coordinated by SCOR Global P&C. SCOR Global P&C carries out its operations via the European, American and Asian subsidiaries and through its branches in Germany, Italy, Spain, Australia and China, each of them operating primarily in its regional or national market. The Group’s Swiss, American, Canadian, and Asian Non-Life reinsurance subsidiaries, the shares of which are held by SCOR, report to SCOR Global P&C for their operations.
The Group’s Life, accident, disability, health, unemployment, and long-term care operations are conducted by SCOR Global Life (formerly SCOR VIE). SCOR Global Life carries out its operations via its European and North American subsidiaries and through its branches in Germany, Italy, Spain, and Canada, and through SCOR Global Life U.S. Re Insurance Company.
The corporate functions of SCOR Global Life, SCOR Global P&C and of the Group in Paris defi ne the underwriting policies and monitor its standard application, control the changes in natural catastrophe risk accumulation and control claims.
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 offi ces. In addition, through regular exchanges of personnel between the Group’s head offi ces in Paris and its non-French subsidiaries and branch offi ces, the Group encourages professional development and training across its various geographic markets and business lines.
The adoption of the European Company statute by SCOR, SCOR Global P&C and SCOR Global Life, occurred respectively on 25 June, 3 August and 25 July 2007, the registration dates for each company as a Societas Europaea with the Nanterre Trade and Company Register. This registration occurred after: (i) the completion of the negotiations on the involvement of the employees in the various European companies, as stipulated by the legislation governing a European company, with the special negotiation group (“SNG”) formed for this purpose in July 2006, and representing the employees of the Group; an agreement on the involvement of the employees within SCOR and SCOR Global P&C was signed with the SNG on 14 May 2007; and (ii) the approval by the Extraordinary Shareholders’ Meeting of each of the companies of the adoption of the Societas Europaea statute.
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. This consolidation enables these investments to be more dynamically managed, simplifi es 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 offi ce 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 386 million as at 31 December 2008.
On 8 September 2006, concurrent with the announcement of the upgrade of the rating of the Group’s companies by AM Best, the Group announced a change in its Non-Life reinsurance structures in the United States. This change, which was completed on 31 December 2006, is two-fold: fi rst, SCOR Reinsurance Company acquired 100% of the capital of GSINDA, a company specialising in underwriting “surplus lines”, with a primary insurance license in the United States, from GSNIC and, secondly, SCOR acquired GSNIC, an entity entirely dedicated to run-off, from SCOR Reinsurance Company (a subsidiary indirectly wholly-owned by SCOR). In this restructuring, SCOR contributed USD 80 million to SCOR Reinsurance Company.
This structure has been implemented in Cologne on 5 May 2008, in London on 20 May 2008, in New York on 18 June 2008, in Singapore on 16 June 2008, in Zurich on 27 January 2009 and in Paris on 24 February 2009.
7.2 List of issuer’s signifi cant subsidiaries Refer to: Section 7 - Organisational structure chart; Appendix A – Notes to the Corporate Financial Statements – Note 2.3 - Subsidiaries and Affi liates; 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 fi nancial equation of the acquisitions of entities in 2008; Section 20.1.6 – Notes to the Consolidated Financial Statements – Note 3, Acquisitions as concerns the share of the entities acquired in 2008 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 as concerns the fi nancial fl ows 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.
The Group remains a tenant in its head offi ce and also rents space separate from its head offi ce for the purpose of safeguarding its data storage facilities in case of emergency. The Group also owns offi ces in Milan (Italy) and Singapore, where some of its local subsidiaries have their corporate head offi ces, and the remainder of the space is leased to third parties as part of its investment management business. The Group leases offi ce space for its other business locations. SCOR believes that the Group’s offices are adequate for its current needs but, as a result of the integration of Revios and Converium, has started to combine under one roof its various local entities in each of the countries in which the Group is present. Cologne’s hub activities have all been gathered at the Médiapark site. SCOR also holds property investments as part of its asset management related to its reinsurance operations. For more information on the Group’s real estate investments, refer to Appendix A – Notes to the Corporate Financial Statements, Notes 2.1 - Changes in investments and 2.2 - Schedule of investments, and Section 20.1.6 – Notes to the Consolidated Financial Statements, Note 5 - Real-estate investments.
8.2 Environmental issues that may affect the utilisation of property, plant and equipment Refer to the environmental report in Appendix C.
The fi nancial data of the SCOR Group is presented in Section 3 – Selected fi nancial data and in Section 20.1 – Historical fi nancial information: consolidated fi nancial statements. The commentary below is based on the fi nancial data presented in the aforementioned sections.
9 OPERATING AND FINANCIAL REVIEW Refer also to Section 20.1.6 – Notes to the consolidated fi nancial statements, Note 1 – Accounting principles and methods and Note 27 – Insurance and fi nancial risks.
SCOR shareholders’ equity increased by 1% to EUR 3,560 million at 31 December 2008, before foreign exchange rate impact and dividends. After dividends and changes in currency rates, shareholders ’ equity decreased from EUR 3,648 million at 31 December 2007 to EUR 3,416 million at 31 December 2008 (consolidated shareholders’ equity was EUR 2,261 million at 31 December 2006).
For the year ended 31 December 2008, SCOR recorded foreign exchange rate translation adjustments to total consolidated shareholders ’ equity amounting to EUR (129) million as compared to EUR (185) million and EUR (57) million for the years ended 2007 and 2006, respectively.
In a challenging financial market environment, SCOR further reinforced its prudent asset management policy and maintains a strong focus on liquidity management. The Group’s short term liquidity position, which is well diversifi ed across a limited number of banks and placed in government securities and short-term investments with maturity less than 12 months, stands at EUR 3.7 billion at the end of 2008 up from EUR 2 billion at the end of 2007 (EUR 1.2 billion at 31 December 2006).
Positive operating cash fl ow amounted to EUR 779 million in 2008. Operating cash flows in 2007 of EUR 611 million allowed the Group not only to fi nance the cash component of the Converium Offer (as defi ned in Section 5.2.1) with its own cash but also to redeeem EUR 340 million of debt. (Refer to Section 20.1.6 – Notes to the consolidated fi nancial statements, Note 14 - Financial debt).
Net invested assets including cash and cash equivalents, amounted to EUR 18.8 billion at 31 December 2008 as compared to EUR 19.0 billion and EUR 13.0 billion at 31 December 2007 and 2006, respectively.
Over the past four years, the Group has continually reduced its debt ratio and currently has a leverage position of 19% (18% and 32% at 31 December 2007 and 2006, respectively). SCOR currently has no refi nancing needs with a fi rst debt maturing in mid 2010.
Book value per share stands at EUR 19.01 at 31 December 2008 as compared to EUR 20.11 and EUR 19.4 at 31 December 2007 and 2006, respectively.
Gross written premium for the year ended 31 December 2008 amounted to EUR 5,807 million, an increase of 22% as compared to EUR 4,762 million for the same period in 2007 on an adjusted basis. Gross written premium in 2006 were EUR 2,935 million. The overall increase in gross written premium of EUR 1,145 million in 2008 is to due an increase for SCOR Global P&C of EUR 776 million SCOR Global Life of EUR 369 million.
Net earned premium for the year ended 31 December 2008 amounted to EUR 5,281 million as compared to EUR 4,331 million and EUR 2,837 million for the years ended 31 December 2007 and 2006, respectively. The net earned premium in 2008 includes for the fi rst time the full year impact of the ex-Converium group, acquired 8 August 2007.
The overall increase in operating income of EUR 168 million from 2006 to 2007 is due to strong underlying profi tability and positive contribution of the Converium and Revios acquisitions.
The Group recorded an increase of 92% in its net 2007 results, as adjusted, before profi ts from the acquisition of Revios (EUR 252 million) compared to 2006, and a 134% increase in net result for 2007 after profi ts from the acquisition of Revios (EUR 306 million ).
The business comprises traditional reinsurance business; Treaty, Business Solutions, and Specialty Lines. SCOR Global P&C capitalizes on a long-standing franchise, experience, and an extensive data base comprising multi-line expertise.
For 2008, SCOR Global P&C achieved a net combined ratio of 98.6% compared to 97.3% in 2007. The deterioration in combined ratio was due to a larger number of Catastrophes during 2008 and also due to the fact that the two main catastrophes which have hit the 2007 accounting year have occurred before 8 August 2007, date of integration of Converium in the Group fi gures.
SCOR Global P&C successfully integrated Ex-Converium operations, and successfully completed the renewals throughout the year for P&C and Specialty Treaty business, with minimal attrition.
The 2008 gross written premium of EUR 3,106 million represents an increase of 33.3% compared with the 2007 published gross written premium of EUR 2,329 million. This increase is primarily due to the inclusion of Converium within the 2008 consolidated result for the entire year. Whereas, for 2007 the Converium group was included within the consolidated accounts from 8 August 2007, its date of acquisition. This demonstrates the successful “post SCOR/Converium merger” renewals campaign, and strong complementary franchise of the merged portfolios. The gross premium earned closely follows the evolution of written premium.
The following table highlights losses due to catastrophes for the years 2008, 2007, and 2006: at December 31
The Indiana Floods occurred in the United States in June 2008. As at 31 December 2008 the estimated loss is EUR 10.3 million.
The remaining impact, of other various less signifi cant 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 signifi cant non catastrophe losses were incurred during 2008 for the Eurotunnel fi re, for EUR 27.7million net of retrocession, and the Apache incident EUR 14.4 million.
In January 2007, the Kyrill storm struck Northern and Central Europe. The SCOR Group had an estimated a loss of EUR 36.5 million as at 31 December 2008.
Two civil liability claims: Vioxx and Canadian Pacifi c Railway for which the losses were estimated at USD 25.3 million and USD 30 million, respectively, at 31 December 2007.
Other large claims in 2007, although less extensive, arose from natural catastrophes (storm in Australia, fl oods in the United Kingdom, Switzerland and Mexico, an earthquake in Peru and cyclone Dean), industrial accidents and the loss of two satellites.
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 signifi cantly following the hurricanes of 2005.
10.1 Capital Refer to Section 20.1.5 – Consolidated statement of changes in shareholders’ equity and Section 20.1.6 – Notes to the consolidated fi nancial statements, Note 13 – Information on share capital, shareholders’ equity and capital management.
10.2 Cash fl ow Refer to Section 20.1.4. – Consolidated statements of cash fl ows and Section 20.1.6. - Notes to the consolidated fi nancial statements, Note 2 – Segment information for an analysis of principal cash fl ow statement items.
10.3 Borrowing conditions and fi nancing structure Refer to Section 20.1.6 – Notes to the consolidated fi nancial statements, Note 12 – Cash and cash equivalents for information on the Group’s cash positions.
On 26 June 2007, the Swiss Federal Offi ce of Private Insurance (“FOPI”) 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 impact on the solvency of Converium and any intra-group transaction or any transaction affecting the capital resources of Converium that exceed certain limits be submitted to the FOPI for approval.
As at the date of this Registration Document, no material investment is contemplated and the property, plant and equipment described in Section 8.1 do not require additional fi nancing.
10.5 Sources of fi nancing relating to 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, plant and equipment referred to in Section 8.1 – major existing or planned property, plant and equipment do not require any additional fi nancing.
CERDI (SCOR Global Life’s R&D Centre for Disability Research): dedicated to the analysis of disability risk, a risk which analysis is complex due to various and multiple defi nitions, cover types and socio-economic environments.
URDRA (SCOR Global Life’s R&D Centre for Medical Selection): follow up of the new medical approaches to known and new pathologies, with their implications for insurance. Client support regarding the pricing of substandard risks.
11.2 Information technologies SCOR was the fi rst reinsurer to implement a uniform international information system. This policy has been reaffi rmed when decided in 2007, to launch a comprehensive integration program over two years, for the back-offi ce applications in 2008, and for the front-offi ce ones in 2009. The objective is a rapid return to a single global system, and the works for migrating administrative systems of Revios and Converium toward the SCOR one, Omega, have been respectively completed in May and August 2008. The PeopleSoft accounting solution has been extended to Revios, before being generalised in 2009. Consolidation is entirely done in SAP Magnitude as from 2008. This systems integration implies the parallel adoption by all business teams of common rules for administration, accounting and result analysis in reinsurance. A training and change management program has already been started for this purpose.
The focus in 2009 will mainly be to strengthening the front offi ce applications to improve risk selection, anticipation and reactivity in markets and products, and simulations of results. Projects have already been started in 2008. 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 are produced in standard reports. New reserving and fi nancial 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, profi tability 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 EQECAT, AIR and RMS market solutions. In the Life business, several projects are underway for harmonising and reinforcing substandard risks underwriting, accumulation process, calculation of retrocession and of embedded value. Finally, the SCOR Group works for extending and industrialising its Asset and Liability Management (ALM) tool.
The importance that SCOR places on risk control and on strategic planning has clearly been confi rmed.
Along with its reinsurance system, in 2008 the Group has again generalised the deployment of unique and common tools for all “corporate” functions. After human resources, accounting and consolidation, have this year been added the preparation and follow-up of operating expenses budget, based on the SAP BPC
solution, along with the centralisation of all investments portfolios of the Group, now performed in SimCorp Dimension. After Paris, all entities will gradually use Dimension for their Asset Management.
The SCOR technical environment is based on a new international secured network. Corporate technical standards have been implemented in all locations, both on PCs and servers. The Group has also implemented an ambitious security plan based on stronger physical and logic access controls, protection against unauthorised access, and restarts in the event of a disaster.
Mobility is covered by ongoing developments in line with changing business needs and in compliance with security standards.
The combination of the IT operations of SCOR, Revios and Converium has generated the defi nition of an extensive action plan at the level of the information systems governance, already materialised in 2008, by evolutions in the areas of budget preparation, of project portfolio and project follow-up, of technical standards, and of fi rst elements of the IT internal control.
12.1 Most signifi cant trends in production, sales, inventory, costs, and selling prices since the end of the last fi nancial year 12.1.1 NON-LIFE
SCOR tapped the benefits of its ranking in the top five on the global reinsurance market during the 1 January 2009 reinsurance renewals season. In this period of fi nancial turmoil and credit crisis, where the lack of fi nancial fl exibility for insurers was a major reason behind the increased demand for reinsurance, the Group maintained an extremely strict policy on technical underwriting. The annual negotiations with its clients enabled SCOR to optimise its portfolio and pursue diversifi cation, whilst ensuring that its capital was allocated as profi tably as possible, thereby demonstrating the Group’s strength and confi rming the success of the combination of the SCOR and Converium portfolios that was achieved in 2008. The renewals demonstrate the anti-cyclical nature of the reinsurance industry in a diffi cult economic and fi nancial context.
12.1.1.1 A moderate increase but a clear improvement in the quality of the portfolio under-written
The fi nancial and credit crisis, combined with the severity of the 2008 hurricanes and a high frequency of medium-sized losses in many markets worldwide (man-made and local natural hazards), had a noticeable impact on the demand for reinsurance, which is generally on the rise. SCOR worked this environment to its advantage by redirecting its Non-Life reinsurance portfolio towards greater technical profi tability and further improved global business diversifi cation. On average, SCOR saw a price improvement of 3.3%, with lower acquisition costs and stable exposure.
12.1.1.4 Decrease in proportional volume due to a strict underwriting policy geared to improve profi tability
Despite an increase in demand for proportional reinsurance, which was predictable and is beginning to emerge in response to the capital needs of insurers, premium volume generated from proportional Property & Casualty Treaty business saw a slight reduction from EUR 496 million to EUR 481 million. SCOR reduced the volume of this business by applying a disciplined underwriting policy in accordance with its profi tability objectives. In particular the Motor portfolio was targeted for closer reviews that led to signifi cant reductions and withdrawals.
The natural catastrophe-related Property book, which represented around 12% of SCOR’s entire P&C Treaties volume, experienced a signifi cant increase of around 19%, rising from EUR 152 million in 2008 to EUR 181 million in 2009. With over USD 200 billion worth of economic damage caused and insured losses rising to USD 45 billion in 2008 worldwide, rates generally went up and portfolios with exposures in the most affected areas in the USA and Asia-Pacifi c saw signifi cant improvements in rates and conditions.
The deepening of the fi nancial crisis in the course of 2008, is expected to affect the Life insurance market and therefore it poses various challenges to Life reinsurance players, such as SCOR.
In the midst of a worldwide serious economic downturn, with some major economies turning into recession, some covers, such as unemployment and to a certain extent Health covers, are expected to deteriorate sharply. In the context of a deteriorating labour market, disability claims can be expected to rise.
The vast majority of our portfolio is traditional individual life, subject largely to mortality risk. Furthermore, SCOR Global Life is not currently underwriting variable annuities and our exposure to unemployment is very small. The technical performance of our Life portfolio is therefore largely immune to the adverse effects resulting from the economic downturn. In addition, SCOR’s prudent investment policy, has reduced signifi cantly its exposure to the fi nancial market turmoil.
As the economy slows down signifi cantly and the housing market goes into reverse, mortgage-related Life insurance is expected to 12 | TREND INFORMATION
decline, with the UK and Spanish market being the most affected by the housing market downturn and the U.S. market to a lesser extent.
On the other hand, in the face of a gloomy economic situation, demand for income protection should be enhanced. Fixed annuities are expected to experience sustainable growth and improved margins as a result of the widening of corporate spreads.
SCOR sees opportunities in the current market environment. Due to signifi cant impairments in their investment portfolios several primary insurers are facing issues relating to their solvency ratio. We expect these insurers to consider their fi nancial options and to reach the conclusion that at a time when fi nancial markets are offering very limited liquidity (both equity and debt), reinsurance is an attractive alternative to capital raising. We expect that the increased demand for fi nancial reinsurance solutions will lead to considerably hardened market conditions.
Information on the members of the Board of Directors and Senior Managers
Administrative, Management, and Supervisory Bodies and Senior Management confl icts of interest
According to the bylaws, Board members must be physical persons. There shall be no fewer than 9 and no more than 18 Board members. Their maximum term in offi ce shall be 6 years. However, SCOR having decided to adopt the Corporate governance code of listed corporations of the AFEP-MEDEF of December 2008, the duties of the Directors are in fact limited to 4 years. Directors may not hold offi ce after the age of 72. If a Director in offi ce should exceed this age, his term will continue until the period established by the Shareholders’ Meeting. The General Shareholders’ Meeting may, in compliance with the provisions of the bylaws, appoint one to four Non-Voting Directors (Censeurs) to the Company. NonVoting Directors serve for renewable two-year terms. If there are fewer than four non-voting Directors, the Board of Directors may appoint one or more non-voting Directors. The Directors and the Non-Voting Directors are proposed by the Board of Directors and appointed by the Ordinary General Shareholder’s Meeting. When Directors and Non-Voting Directors are co-opted by the Board of Directors, their appointment is submitted for ratifi cation to the next Ordinary General Shareholder’s Meeting. The age limit for performing the functions of a Non-Voting Director is set at 72 years old. Non-Voting Directors are convened to meetings of the Board of Directors and participate in discussions in an advisory capacity only.
Directors: Carlo Acutis, Gérard Andreck, Antonio Borgès, Allan Chapin, Daniel Havis, Daniel Lebègue, André Lévy-Lang, Luc Rougé, Herbert Schimetschek, Jean-Claude Seys, Claude Tendil, Patrick Thourot, Daniel Valot; Non-Voting Director: Georges Chodron de Courcel.
The Board of Directors held on 3 March 2009 decided to propose to the Ordinary annual meeting of the Shareholders which will be held on 15 April 2009: the renewal of the duties as Director of Carlo Acutis; the renewal of the duties as Director of André Lévy-Lang; the renewal of the duties as Director of Jean-Claude Seys; the renewal of the duties as Director of Luc Rougé; the appointment of Peter Eckert as Director in replacement of Patrick Thourot; the appointment of Médéric Prévoyance as Director; the renewal of the duties as Non-Voting Director Georges of Chodron de Courcel.
Professional Address: SCOR SE 1, avenue du Général de Gaulle 92800 Puteaux
Chairman of the Board: SCOR Life Insurance Company (U.S.) (formerly Republic Vanguard Life Insurance Company)
Other positions: Abroad 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)* - Comité Stratégique de CEA – Comité Européen des Assurances (Belgium) - 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)
Director: - Yura S.A. (The Netherlands) - Camfi n S.p.A. (Italy)*
Member of the Board: - Presidential Council Comité Européen des Assurances (Belgium) - Geneva Association (Switzerland)
Other positions: France Chairman of the Board of Directors: - SOCRAM - MACIF SGAM - MACIF Gestion - MACIF - CEMM SAS
Chairman and Chief Executive Officer: - OFI Instit (formerly OFI Net Epargne)
France Chairman of the Board of Directors: - Macif-Mutualité - Mutuelle Santé
Permanent Representative of MACIF: - on the Board of Directors of Domicours
Member of the Supervisory Board: - OFIVALMO - GPIM - MACIF Gestion - IMA
Abroad Member of the Tax Committee: - Banco Santander de Negocios (Portugal)
Principal position: Partner of Compass Advisers LLP (New York, USA) since June 2002
Abroad Managing Partner of: - Lazard Frères & Co LLC (U.S)
“Advisory Director”: - Toronto Blue Jays (Canada): Director: - Taransay Investment Ltd. (Canada) - 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)
Birth Date: Professional address Clariden Leu AG Bahnhofstrasse 32 8070 Zurich Suisse
Board member of the European advisory Board: - Booz & Co (US)
Member of the advisory Board: - Member of the advisory Board “Insurance Linked Securities” of Horizon 21 (Switzerland)
Chairman: - Farmers Group (US) - Farmers New World Life (US) - Zurich Compagnie d’Assurances (Germany) - Zurich Deutsche Herold (Germany) - Zurich Kosmos (Austria)
(1) Member of the Strategic Committee. (2) Member of the Risk Committee.
Director: - Harmonie Mutuelles - Fédération Nationale de la Mutualité Interprofessionnelle (FNMI) - MFSM
Other: - Conseil Supérieur de la Mutualité (High Council on Mutual Insurance): member of the “Approval” Committee and member of the “General Affairs” Committee - Prévadies’representative to the Conseil des Mutuelles Santé (Council of Mutual Health Insurance Companies) - Member of the staff of the Fédération Nationale de la Mutualité Interprofessionnelle (FNMI)
Chairman: - MATMUT DÉVELOPPEMENT - MATMUT IMMOBILIER - MATMUT LOCATION VÉHICULES
Permanent Representative: - SMAC on the Board of Directors of Mutations Ndie - SMAC on the Board of Directors of HANDIMUT - SMAC on the Board of Directors of OFI Convertibles - SMAC on the Board of Directors of OFI SMIDCAP - MATMUT on the Supervisory Board of IMA - MATMUT on the Board of Directors of MUTATIONS MEDICAL - OFI Asset Management on the Board of Directors of OFIVALMO NET EPARGNE
Permanent Representative of Ofi Asset Management on the Supervisory Board of: - OFI MANDATS
Permanent Representative of Matmut on the Supervisory Board of: OFI TRESOR IMA
Principal position: Chairman of the Institut Français des Administrateurs (IFA, French Society of Directors)
Chairman of the Board of Directors: - Institut d’Études Politiques de Lyon
Director: - Areva* - Gaz de France* - Thalès* - SCOR VIE - SCOR Reinsurance Company (U.S.) - General Security National Insurance Company (U.S.) - Crédit Agricole S.A.*
Other positions: Abroad Business Manager: - UNIQA Praterstraße Projekterrichtungs GmbH (Austria)
Other positions: France Chairman of the Board of Directors: - Fondation MAAF Assurances - Savour Club SA (subsidiary of MAAF SA)
Vice-Chairman of the Supervisory Board: - ABP IARD (subsidiary of MAAF S.A.)
Principal positions: Chairman and Chief Executive Officer: - Generali France - Generali Vie - Generali IARD
Other positions: France Chairman of the Board of Directors: - Europ Assistance Holding - Generali France Assurance
Abroad Chairman of the Board of Directors: - Europ Assistance Italie (Italy)
Abroad Chairman of the Board: - Commercial Risk Re-Insurance Company (U.S.) - Commercial Risk Partners Ltd (Bermuda) - Commercial Risk Reinsurance Company Ltd (Bermuda)
Permanent Representative: - of FERGASCOR to the Board of Directors of Société Putéolienne de Participations
Abroad Member of the Supervisory Board: - SCOR Global Life Rückversicherung AG (Germany)
Chairman of the Board: - SCOR Deutschland (Germany) - IRP Holdings Limited (Ireland) - Irish Reinsurance Partners Ltd (Ireland) - SCOR UK Group Limited (U.K.) - SCOR UK Company Limited (U.K.) - SCOR Reinsurance Asia-Pacifi c (Singapore)
(4) Member of the Compensation and Nominating Committee. * Companies which shares are listed on a regulated or organised market. *** The renewal of the duties of Patrick Thourot will not be proposed to the Ordinary annual general meeting of the Shareholders of 15 April 2009.
Other offi ces and positions held in any company in France and abroad as at the date of the
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
Director: - Erbé S.A. (Belgium) - BNPP ZAO (Russia) SCOR Holding (Switzerland) AG (Switzerland)
Abroad Chairman of supervisory board: - BNP Paribas Bank Polska (Poland)
Chairman: - BNP U.S. Funding (U.S.) - BNP Paris Peregrine Ltd (Malaysia)
Director: - BNP Paribas Canada - BNP Prime Peregrine Holdings Ltd (Malaysia) - BNP Paribas Securities Corp (U.S.) - BNP Paribas UK Holdings Ltd (U.K.) - Banca Nazionale del Lavoro (Italy)
Denis Kessler, a French citizen, is a graduate of HEC business school (Ecole des Hautes Etudes Commerciales) and holds a PhD in economics and advanced degrees in economics and social sciences. He was Chairman of the Fédération Française des Sociétés d’Assurance (FFSA), CEO and member of the Executive Committee of the AXA Group and Executive Vice-President of MEDEF (Mouvement des Entreprises de France). He joined SCOR as Chairman and Chief Executive Offi cer on 4 November 2002.
Carlo Acutis, an Italian citizen, is a Vice Chairman of Vittoria Assicurazioni S.p.A. He also serves as Chairman and member of the Boards of Directors of a number of companies. This specialist of the international insurance market was formerly Chairman and Vice Chairman of the Presidential Council of the CEA, Comité Européen des Assurances, and director of the Geneva Association.
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 Offi cer 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.
Before becoming a partner at Compass Advisers LLP in New York in June 2002, Allan Chapin, a U.S. citizen, was a partner at Sullivan & Cromwell LLP and Lazard Frères in New York for several years. He also serves on the boards of directors for the Pinault Printemps Redoute Group (PPR) and a number of subsidiaries of SCOR in the U.S.
Peter Eckert, a Swiss citizen, has a broad international experience in Risk Management, General and Life Insurance, Asset Management, Banking and IT. He was a Board member of the Swiss Federal Banking Commission EBK since 1st July 2007 and Deputy Chairman of the Board of the new Swiss Financial Market Supervising Authority (FINMA) since 1st January 2008. Since 1st January 2009, he is Chairman of Bank Clariden Leu.
Daniel Havis, a French citizen, is Chairman and Chief Executive Offi cer of Mutuelle Assurance des Travailleurs Mutualistes (MATMUT) and was Chairman of GEMA until June 2008. He is Chairman of MutRé since 1st January 2009.
Luc Rougé has 33 years of experience in reinsurance with SCOR SE in the management of treaties and claims, as well as in studies, reporting and controls. He was the Works Council representative on the Board of Directors in the 1980s. He then served as Secretary of the Works Council and as an employee director for nearly nine years. He is since 2007 the Director elected by the employees of the Group on a worldwide basis.
Jean-Claude Seys, a French citizen, has spent his career in the insurance and banking industry. He was Chairman and Chief Executive Offi cer of MAAF and of MMA in which he remains a Director. He is the Vice-Chairman and Deputy Director of COVEA (société de groupe d’assurance mutuelle).
Patrick Thourot, a French citizen, graduated of the Ecole Nationale d’Administration and Inspecteur Général des Finances, was Chief
Executive Offi cer of PFA (Athéna Group) and worked for AXA, where he was a member of the Executive Committee before he was appointed Chief Executive Offi cer of Zürich Financial Services in France. He was named Chief Operating Offi cer of the Group in January 2003, a position he held until 18 March 2008. He has been a Deputy to the CEO of SCOR since 4 September 2007.
Georges Chodron de Courcel, a French citizen, is Chief Operating Offi cer of BNP Paribas and holds various positions as Director in subsidiaries of the BNP Paribas Group.
Chairman and Chief Executive Offi cer Denis Kessler is assisted in his duties to defi ne and implement the strategy for SCOR’s business by an executive board, known as the Executive Committee (the “COMEX”), the members of which are employees of SCOR.
2003 Director: SCOR Global P&C SE (France) SCOR Global Life SE (France) SCOR Holding (Switzerland) AG (Switzerland) SCOR Africa Ltd (South Africa) (South Africa)
Benjamin Gentsch 48 Deputy Chief Executive Offi cer of SCOR Global P&C SE Chief Executive Offi cer of SCOR Switzerland.
2007 (1) Chairman of the Board of Directors: SCOR Holding (UK) Ltd (UK) SCOR Insurance (UK) Ltd (UK) SCOR London Management Ltd (UK) Chief Executive Officer: SCOR Switzerland AG (Suisse) SCOR Holding (Switzerland) AG (Suisse) Director: SCOR Switzerland AG (Switzerland) SCOR Insurance (UK) Ltd (UK) SCOR London Management Ltd (UK) SCOR Holding (UK) Ltd (UK) Chairman of the Supervisory Board: SCOR Rückversicherung (Deutschland) AG (Germany)
Gilles Meyer 51 Chief Executive Offi cer of SCOR Global Life SE
2004 Director: SCOR UK Company Ltd. (U.K) SCOR UK Group Ltd. (U.K) SCOR Channel Ltd. (Guernsey) Arisis Ltd. (Guernsey) SCOR US Corporation (U.S.) 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-Pacifi c Pte Ltd Singapore Finimo Realty Pte Ltd (Singapore) SCOR Reinsurance Company (Asia) Ltd (Hong Kong) SCOR Services International Ltd (Hong Kong) Arope Insurance SAL (Liban) SCOR Holding (Switzerland) AG Permanent Representative: SCOR SE at ASEFA S.A.’s Board (Spain). Member of the Supervisory Board: SCOR Global Investments SE
Norbert Pyhel 58 Deputy Chief Executive Offi cer of SCOR Global Life SE
2008 Chairman of the Board of Directors: Investors Insurance Corporation (US) SCOR Global Life Rückversicherung Schweiz AG (Switzerland) Director: SCOR Global Life Re Insurance Company of Texas (US) SCOR Global Life US Re Insurance Company (US) SCOR Financial Services Ltd (UK) SCOR Africa Ltd (South Africa) Member of the Supervisory Board: SCOR Rückversicherung (Deutschland) AG (Germany) Managing Director: SCOR Global Life Reinsurance Ireland Ltd (Ireland) Sweden Reinsurance Co. Ltd (Sweden)
François de Varenne 42 Chief Executive Offi cer of SCOR Global investments SE
2005 Chairman and Chief Executive Officer: SGF (France) (resignation in progress) Member of the Supervisory Board: SCOR Rückversicherung (Deutschland) AG (resignation in progress) Gimar Capital Investissements (France)
Jean-Luc Besson is an actuary and holds a PhD in Mathematics. He has served as a Professor of Mathematics at the University level, then as Director of Research, Statistics and Information Systems at the FFSA. He was appointed Chief Reserving Actuary of the Group in January 2003 and has been Chief Risk Offi cer since 1 July 2004.
Chief Executive Offi cer of SCOR Switzerland and Deputy Chief Executive Offi cer of SCOR Global P&C SE.
Paolo De Martin, 39, Group Chief Financial Offi cer of SCOR SE
Gilles Meyer, 51, Chief Executive Offi cer of SCOR Global Life SE
Victor Peignet, 51, Chief Executive Offi cer of SCOR Global P&C SE
Norbert Pyhel, 58, Deputy Chief Executive Offi cer of SCOR Global Life SE
A German citizen, Norbert Pyhel holds a doctorate in mathematical statistics from the Technische Hochschule Aachen. He began his career in insurance with Gerling Globale Rückversicherungs-AG, where he was appointed Executive Director Life & Health for continental Europe in 1990 and Joint Managing Director of Gerling Life Reinsurance GmbH in Cologne in 2002. He was a member of the Executive Board of Revios, which then became SCOR Global Life. His most recent position was as Managing Director of SCOR Global Life in Germany. He is a member of the German Association of Actuaries (DAV) and the Swiss Association of Actuaries (ASA). In February 2008, he was named Deputy Chief Executive Offi cer of SCOR Global Life SE.
A French national, François de Varenne is a graduate of the Ecole Polytechnique, a civil engineer of the Ponts et Chaussées and holds a doctorate in economic sciences. He is graduated as an actuary from the Institut de Science Financière et d’Assurances (ISFA). François de Varenne joined the Fédération Française des Sociétés d’Assurances (FFSA) in 1993 as Manager of Economic and Financial Affairs. In London beginning in 1998, he served successively as Insurance Strategist with Lehman Brothers, Vice-President for asset management solutions and structured transactions, a specialist in insurance and reinsurance companies at Merrill Lynch, and then at Deutsche Bank. In 2003, he became Managing Partner of Gimar Finance & Cie. He joined the Group in 2005 as Director of Corporate Finance and Asset Management. On 3 September 2007, he was named Group Chief Operating Offi cer. On 29 October 2008, he was appointed Chief Executive Offi cer of SCOR Global Investments SE.
To our knowledge, during the last fi ve years: no Director and no member of senior management has been convicted of fraud; no Director and no member of senior management has been associated with a bankruptcy, sequestration, or liquidation; 14 | ADMINISTRATIVE AND MANAGEMENT BODIES
no Director and no member of senior management has been the subject of an accusation or offi cial public sanction issued by statutory or regulatory authorities; and no Director and no member of senior management has ever been prohibited by a court from acting as a member of an administrative, management, or supervisory body of an issuer or from participating in the management or business of an issuer.
14.2 Administrative, Management, and Supervisory Bodies and Senior Management confl icts of interest No loans or guarantees have been granted or established in favor of the Directors by SCOR or by any other Group company.
To our knowledge, there are no confl icts of interest between the duties of the Directors and members of senior management with regard to SCOR and their private interests.
15.1 Amount of remuneration paid and benefi ts in kind 15.1.1 DIRECTORS’ FEES AS OF 31 DECEMBER 2008
The approved principles and rules for setting compensation and benefi ts granted to Board members are provided in Appendix B - Report of the Chairman of the Board of Directors on the terms and conditions for preparing and organizing the work of the Board of Directors and on internal control procedures in compliance with Article L.225-37 of the French Commercial Code – Part I – Conditions for preparing and organizing the work of the Company’s Board of Directors – f) Approved principles and rules for setting compensation and benefi ts of any kind granted to company executives.
The shareholders meeting of the Company held on 31 May 2005 resolved that the annual maximum aggregate amount of Directors fees shall not exceed EUR 800,000. This amount has not been modifi ed since then. Upon the proposal of the Compensation and
Nomination Committee and within the limit of this amount, the Board of Directors set the terms and conditions of the allocation to encourage the presence of the Directors. It has been decided to allocate the Directors fees, which are payable to each Director or Non-voting Director, in one fi xed sum of EUR 20,000, payable by quarter and a variable sum, depending on the presence of the Directors at the meetings of the Board of Directors and to its Committees, equal to EUR 1,700 per Board or Committee meeting at which they are present. The payment of the Directors fees is paid at the end of each quarter. Moreover, each Director receives the single sum of EUR 10,000 that must be used to purchase Company ’s shares, that the Director commits to keep until the end of his appointment.
In 2008, total compensation paid to the Executive Committee members and to the Chairman and Chief Executive Offi cer as of the date of this Registration Document was EUR 6,762,038.
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 in preparing the report to be issued in accordance with article L.225-37 of the French commercial Code.
The approved principles and rules for setting compensation and benefi ts granted to the Chairman and Chief Executive Offi cer and the Chief Operating Offi cer for 2007 are provided in Appendix B - Report of the Chairman of the Board of Directors on the terms and conditions for preparing and organizing the work of the Board of Directors and on internal control procedures. Upon the proposal of the Compensation and Nomination Committee, the Board of Directors held on 12 December 2008, set the Chairman and Chief Executive Offi cer’s fi xed compensation at EUR 1,200,000 and his variable compensation to a maximum of EUR 1,000,000. The Compensation and Nomination Committee held on3 March 2009 decided that these new conditions will be effective retroactively as of 1 January 2008.
(1) It should be noted that the fi gures stated above do not represent paid cash compensation but correspond to actuarial estimates in line with the AFEP/MEDEF governance code for listed companies. These grants are subject to presence conditions and, for some grants, to performance conditions.
The following table presents a summary of the cash compensation of the Executive and Corporate Offi cer for fi scal years 2008, 2007 and 2006: Summary table of the cash compensation of the Executive and Corporate Offi cer
In EUR Fixed compensation Variable compensation Director’s fees Total cash compensation
Refer also Appendix A – Notes to the Corporate Financial Statements, Note 14 – Compensation of Corporate Offi cers.
In accordance with the AFEP/MEDEF corporate governance code of listed corporations, the following tables present for the Executive and Corporate Offi cer the stock options exercised during the fi scal year as well as the grants and performance shares vested during the fi scal year.
Performance share acquired during the period by the Executive and Corporate
For the other COMEX members, the Compensation and Nomination Committee determines the variable compensation in agreement with the Chairman. The variable portion of the compensation presented in the table below depends, on the one hand, on the achievement of individual objectives and, on the other hand, on the achievement of the Group’s earnings objectives (based on the Group’s Return on Equity or ROE). The total amount of the variable portion does not exceed 80% of the fi x compensation.
The following table presents the gross compensation related to fi nancial years 2007 and 2008 and paid in 2008 and in 2007 to the members of the Executive Committee.
The following table presents the components of the gross compensation for fi nancial year 2008 and fi nancial year 2007 for the members of the Executive Committee (other than the Chairman and Chief Executive Offi cer).
(*) This amount includes an expatriation premium related to fi scal year 2008. (**) This amount includes an expatriation premium related to fi scal year 2007 and paid in 2008. (***) Compensation based on most recent payroll information.
The members of the Executive Committee also benefi t from the use of a vehicle for business purposes; the Chairman and Chief Executive Offi cer has a company car with driver.
15.2 Total amounts set aside or accrued to provide pension, retirement, or similar benefi ts for fi nancial year 2008 No retirement benefi t (or commitment) has been paid to the directors.
Like all Group senior executives in France, members of the COMEX are entitled to a guaranteed capped pension plan conditioned on a minimum 5 years length of service with the Group, the payment of which is based on their average compensation over the last fi ve years. The amount of the additional pension guaranteed by the Group varies from 20% to 50% depending on seniority acquired in the Group at retirement from 5 to 9 years.
Information on the Audit Committee and the Compensation and Appointment Committee
16.1 Date of expiration of the current term of offi ce
Daniel Lebègue Director 2009* 15 May 2003 Yes André Levy-Lang Director 2009* 15 May 2003 Yes
Luc Rougé Director 2009* 24 May 2007 Yes Herbert Schimetschek Director 2011* 15 May 2003 NA
Patrick Thourot Director 2009* 24 May 2007 No Daniel Valot Director 2011* 15 May 2003 NA
(Non-Voting Director) Yes * The date of expiration is the day of the Ordinary General Shareholder’s Meeting. (1) Cooptation with ratifi cation voted on by the Ordinary General Shareholders’ Meeting of 7 May 2008. (2) Cooptation with ratifi cation voted on by the Joint General Shareholders’ Meeting of 12 May 1997.
In addition, the appointment of Médéric Prévoyance and of Peter Eckert as Directors will be proposed to the next Ordinary annual meeting of the Shareholders which will be held on 15 April 2009.
16.4 Corporate governance regime Since SCOR’s shares are listed on the Euronext, the provisions relating to corporate governance applicable to SCOR include French legal provisions, as well as rules dictated by its market authorities. SCOR 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/AFPE rules.
At its meeting of 12 December 2008, the Board of Directors of SCOR has examined the AFEP (Association of French Private-sector Companies ) and MEDEF (French Business Confederation) recommendations of 6 October 2008 on the compensation of Corporate Executive Offi cers of listed companies.
Directors Mr. Denis Kessler 166,040 Mr. Carlo Acutis 7,934 Mr. Gérard Andreck 1 Mr. Antonio Borgès 1,051 Mr. Allan Chapin 1,000 Mr. Daniel Havis 1,460 Mr. Daniel Lebègue 200 Mr. André Lévy Lang 18,773 Mr. Luc Rougé 10 Mr. Herbert Schimetschek 1,846 Mr. Jean-Claude Seys 7,400 Mr. Claude Tendil 1,000 Mr. Patrick Thourot 69,531 Mr. Daniel Valot 3,973
17.2.2 STOCK OPTIONS HELD BY MEMBERS OF THE EXECUTIVE COMMITTEE AS AT THE DATE OF THE REGISTRATION DOCUMENT
No options have been granted by a related company as defi ned by Article L.225-180 of the French Commercial Code.
204,000 15.63 from 22 May 2012 to 21 May 2018 22 May 2008
17.2.3 FREE ALLOCATION OF SHARES TO COMEX MEMBERS AND OTHER COMPANY OFFICERS AS AT THE DATE OF THE REGISTRATION DOCUMENT
Jean-Luc Besson 2004 Plan – Tranche A 7,500 14.40 108,000 10/01/2005 2004 Plan – Forfeiture – redistribution - - 01/09/2007
Patrick Thourot Plan 2004 – Tranche A 9,000 14.40 129,600 10/01/2005
Rights to shares freely allocated during the fi nancial year, by the Company and by any company included in its share allocation program, to the ten employees of the Company and of any company included in its consolidation, whose number of rights thus allocated is the highest (aggregate information)
The General Shareholders’ meeting decided that stock options granted under this authorisation will not be eligible for a total number of shares of the Company over three million (3,000,000) Shares and that the total nominal amount of capital increases likely to be conducted under this authorisation against the overall ceiling set in the twenty-second resolution of this Assembly.
On 7 May 2008, in its nineteenth resolution, the General Shareholders ’ Meeting authorised the Company’s Board of Directors to award stock options intended mainly for corporate offi cers and certain employees affecting a total of 279,000 options, granting rights to subscribe one share per option.
Insofar as the resolution of the Company’s Board of Directors was taken during a black-out period related to the publication of SCOR’s half-year consolidated fi nancial statements on 7 May 2008, the Company’s Board of Directors delegated to the Chairman and Chief Executive Offi cer full powers (i) to set the subscription price of the shares to be subscribed and (ii) to take note that the attribution of options was completed as of the date of the decision of the Chairman and Chief Executive Offi cer. On 22 May 2008, the
Chairman and Chief Executive Offi cer, exercising that authority, set the subscription price of the shares to be subscribed at EUR 15.63 and took note that the awarding of options was completed.
The Compensation and Nominations Committee has proposed to refer the acquisition of a third of the number of options awarded to the achievement of performance conditions.
The condition to continuously remain an employee of the Group until 22 May 2012 applies to options with or without performance conditions.
Directors of the Company adopted the subscription price for the shares to be subscribed to EUR 15.63.
The conditions for the exercise of this plan are identical to the plan of 22 May 2008 (same performance conditions, the condition of presence is defi ned on 10 September 2012).
The performance conditions will be deemed satisfi ed if at least 3 of the 4 following conditions are met.
The Compensations and Nominations Committee see whether or not the performance conditions.
b- For benefi ciaries who are not French tax residents, the presence and performance are identical to the applicable conditions subject to French tax residents. However, the transfer of ownership of securities is made only after a period of 4 years, 8 May 2012. Non French tax resident benefi ciaries are not subject to a period of unavailability.
On 26 August 2008, the Board of Directors of the Company, under the delegation of powers conferred by the General Meeting of shareholders on the proposal of the Compensation and Nominations Committee, adopted a plan of allocation of free shares to certain employees of SCOR and its subsidiaries in France and abroad, under the statutory scheme provided for in Articles L.225-197-1 and following of the Code of Commerce. This plan consists of the allocation of shares of the Company and consequently does not entail any capital increase.
a- For benefi ciaries French tax residents, two thirds of the shares will be transferred in full ownership to the benefi ciaries at the end of a vesting period of two years to run from the date of grant, on 27 August 2010, subject to compliance with the requirement of the presence of the person in the Group on 15 August 2010.
Requirement of presence at the Company as of 15 August 2010 Performance conditions
From 7 May 2008 to 7 May 2012 included No holding period
Requirement of presence at the Company as of 30 April 2009 Treasury shares
Refer also to Section 20.1.6 – Notes to the consolidated fi nancial statements, Note 17 - Provisions for employee benefi ts.
The Board of Directors of 3 March 2009 decided to submit to the vote of the Ordinary Annual and Extraordinary general meeting of the Shareholders a twenty-third resolution aiming at authorising the Board of Directors to attribute ordinary shares of the Company at no cost to salaried employees and Company representatives.
Group employees (excluding directors and offi cers) may invest in the Employee Savings Plan. An agreement specifi es the principle, fi nancing, and conditions of the Plan. The Employee Savings Plan has four mutual investment funds, two of which are entirely dedicated to SCOR. An employer’s contribution is expected on two funds. The funds may receive several types of deposits: sums received from profi t-sharing plans, collective incentive plans, or any other voluntary contributions.
On 7 May 2008, the Combined Shareholders’ Meeting of the Company delegated its authority to the Company’s Board of Directors in order to increase the share capital by issuing shares reserved for employees of the Company and of French and foreign companies affi liated with it pursuant to Article L.225-180 of the French Commercial Code, who are participants in savings plans and/or any mutual funds, eliminating the preemptive right they have. This new authorisation replaces the authorisation granted by the General Shareholders’ Assembly of 24 May 2007.
As of the date of the Registration Document, the Company’s Board of Directors has not exercised this authorisation to increase the share capital. This authorisation was granted for a period of eighteen months as of the date of the Combined Shareholders’ Meeting on 7 May 2008.
The Board of Directors of 3 March 2009 decided to submit to the vote of the Ordinary Annual and Extraordinary general meeting of the Shareholders a twenty-fourth resolution aiming at delegating to the Board of Directors its competence in order to carry out an increase in share capital by the issuance of shares reserved for the members of savings plans (plans d’épargne), with cancellation of the preferential subscription right to the benefi t of such members.
The following table provides an overview of the primary defi ned contribution pension schemes in place in the Group.
Switzerland SCOR Switzerland AG Pension fund 1 Lump sum benefi t, equal to the accrued savings account balance, but at least equal to the sum of the employee contributions.
Defi ned Contribution Retirement Program (Employer funding varies by employee depending on age and service)
COMEX members benefi t from collective pension plans that are in place in their own entity and do not have any specifi c scheme.
Lump sum benefi t, equal to the accrued savings account balance, payable until
Negative statement as to the absence of differences between the voting rights of various shareholders
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.
No agreement or clause stipulating preferential terms for the sale or purchase of shares listed for trading on a regulated market, or for which an application for listing has been fi led, and representing at least 0.5% of the Company’s share capital or voting rights has been transmitted to the AMF.
On 26 January 2007, HSBC Bank Plc, which is controlled by HSBC Holdings Plc, declared that it had exceeded on 22 January 2007, (i) directly and indirectly through the company HSBC Financial Products, on 22 January 2007, as the result of an off-market acquisition of stock, the thresholds of 5% of the capital and voting rights of SCOR, and held directly and indirectly 9,097,266 shares representing 90,972,660 voting rights, which is 7.68% of the capital and voting rights in SCOR, (ii) that it exceeded on 22 January 2007, directly and indirectly through the company HSBC Financial Products, on 22 January 2007, as the result of an off-market acquisition of stock, the thresholds of 5% of the capital and voting rights of SCOR, and held directly and indirectly 9,097,266 shares representing 90,972,660 voting rights, which is 7.68% of the capital and voting rights in SCOR, and that, on 22 January 2007, it had dropped (iii) directly or indirectly through HSBC Financial Products, following a stock placement with qualifi ed investors, below the thresholds of 5% of the capital and voting rights in SCOR, and that it held directly or indirectly 2,810,388 shares representing 28,103,880 voting rights, i.e., 2.37% of the capital and voting rights in SCOR.
The contributions of Converium shares to SCOR are more fully described in Section 5.2.1.2 –Public offer upon the Converium shares.
EUR 0.78769723 are in existence and each share with a par value of EUR 7.8769723 of entitles the holder to one vote.
18.3 Direct or indirect control by one shareholder 18.4 Agreement which could result in a subsequent change in control
Related party transactions entered into in 2008 as defi ned articles L.225 – 38 et seq. of the French Commercial Code
Special report of the auditors on related party agreements and commitments
Contract between SCOR SE and its subsidiaries participating in the notional cash-pooling agreement
The following entities of the Group have been authorised to participate in the cash-pooling scheme during a fi rst phase: 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 Sucursal (branch), SCOR Global Life Reinsurance UK Ltd (devenue SCOR Global Life SE – UK Branch) (branch),
SCOR Global Life Reinsurance Services UK Ltd, SCOR Global Life Reinsurance Ireland Ltd, SCOR Global P&C Ireland Ltd.
The parent company guarantee conferred by SCOR SE to the benefi t of the reinsurance subsidiaries, pursuant to the insurance and reinsurance contracts fi nalised by the latter.
At its meeting of 18 March 2008, the company’s Board of Directors authorised, pursuant to Article L.225-38 of the French Commercial Code, the payment of existing parent company guarantees, drawn up by SCOR SE or of those which could be drawn up in accordance with the agreement granted by the Board of Directors of 28 August 2007, at a rate of 1 for one thousand, based on the amount of the Company’s shareholder’s equity, of which the agreements are guaranteed from the 1 January 2008.
In Asia: Asia-Pacifi c Pte Ltd; SCOR Reinsurance Company (Asia) Ltd.
The Directors concerned by this agreement are Messrs. Denis Kessler and Patrick Thourot.
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, for the benefi t of: the Executive Managers, by virtue of the professional agreement of 3 March 1993, who demanded their activity within the Group, from the day that the benefi ciary plan of measures of this additional pension scheme took effect; the Senior Managers of the Group, who do not have an employment contract but who nevertheless fall within the ARRCO and the AGIRC general social security scheme and supplementary pension schemes, that are in operation in SCOR, from the day that the present scheme takes effect.
The participant who leaves the Company, in order to enter into retirement, will have the right to a supplemented pension if he/she fulfi ls 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.
The Directors concerned by this scheme are Messrs. Denis Kessler and Patrick Thourot.
Parent company guarantees from SCOR SE to the benefi t 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 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), are Denis Kessler and Jean-Claude Seys.
Authorisation to fi nalise an engagement letter between BNP Paribas and SCOR SE with regard to the acquisition of the company, Prévoyance Ré
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”), fi nalised 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.
The companies parties to this agreement are SCOR SE, SCOR Global P&C SE and SCOR Global Life SE. The other companies within the Group could equally benefi t from this agreement with approval of BNP Paribas.
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 fi nancial 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.
The bank fees stipulated under the Facility Agreement are as follows: Non-utilisation commission: 0.15% per annum as at 1 January 2009, calculated on the unused and uncanceled amount of the facility and payable quarterly when due; Utilisation commission: depending on the grade granted by Standard & Poor’s to the Company and, as of today, 0.40% per annum as at 1 January 2009, calculated on the basis of the credit outstanding and payable monthly in advance; Other fees: fl at fee of USD 400 or EUR 110 for each SBLC issued; fl at fee of USD 100 or EUR 60 for each SBLC amendment; fl at fee of USD 100 for each SBLC annual extension; up-front commission of 0.03% of the used amount of the facility.
This mission did not give rise to any payment in 2008.
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 Africa Ltd’s commitments, pursuant to the insurance and/or reinsurance contracts, are covered by this parent guarantee.
This parent company guarantee did not give rise to any remuneration in 2008.
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 Perestrakhovaniye.
At its meeting of 26 August 2008, 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 P&C Ireland Holding Ltd.
This transaction has been completed on 23 December 2008 for a price of USD 113,477.10.
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 benefi t of the Chairman and Chief Executive Offi cer as defi ned by the Board on 21 March 2006 and as amended by the Board on 12 December 2008, which are described in Appendix B – Report of the Chairman of the Board of Directors on the conditions for the preparation and organisation of the work of the Board of Directors and the internal control procedures compliant with Article L.225-37 of the French Commercial Code – Part I – Conditions for the preparation and organisation of the work of the Board of Directors of the Company – f.
Approval of the proposed amendment No. 1 to the stand-by letter of Credit Facility Agreement, dated 25 November 2005
At its meeting of 9 May 2007, the Board of Directors of the Company, pursuant to Article L.225-38 of the French Commercial Code, authorised and approved the signing of the amendment to the stand-by letter of Credit Facility Agreement (“Credit Agreement ”) entered into on 25 November 2005, between SCOR SE and BNP Paribas.
Under the terms of the Credit Agreement, BNP Paribas made a credit line available to SCOR SE, under the conditions stipulated in the Credit Agreement, in a maximum principal amount of USD 85,000,000 to be made available through the issuance of standby -letters of credit (“SBLC”) or counter-guarantees intended to allow SCOR SE to guarantee the execution of its commitments under its reinsurance operations, for a period of use running from 4 January 2006 to 31 December 2008.
The bank fees stipulated under the Credit Agreement are as follows : Non-utilisation commission: 0.05% per annum as at 1 January 2006, calculated on the unused and un-cancelled amount of the facility and payable quarterly when due; Utilisation commission: 0.10% per annum as at 1 January 2006, calculated on the basis of the credit outstanding and payable monthly in advance; Other fees: fl at fee of USD 400 for each SBLC issued; fl at fee of USD 100 for each SBLC amendment; fl at fee of USD 100 for each SBLC annual extension.
The signing of this amendment to the Credit Agreement concluded on 9 May 2007 increases the maximum amount of the Credit Agreement to USD 235,000,000 and allows the use of the available amount of USD 150,000,000 following this increase primarily for the purpose of issuing a counter-guarantee related to Property & Casualty insurance policy CLP 3001140 issued for the WTC towers by Allianz Insurance Company, which is reinsured by the Company.
This amendment did not give rise to any payment by SCOR SE in 2008.
Approval of proposed amendment No. 1 to the Senior Pledge Agreement of a financial instruments account dated 25 November 2005
The Board of Directors of the Company, at its meeting on 9 May 2007, authorised and approved, pursuant to Article L.225-38 of the French Commercial Code, the signature of amendment No. 1 to the Senior Pledge Agreement of a fi nancial instruments account (the “Pledge Agreement”) signed on 25 November 2005, between SCOR SE and BNP Paribas (the “Bank”).
On 25 November 2005, pursuant to the Pledge Agreement, the Company granted an OAT pledge in favor of the Bank on its fi nancial instruments account No. 00828438.136/95, which was opened with the Bank to guarantee the sums owed by the Company under the Credit Agreement. The OAT pledge was transferred to SCOR Global P&C SE as part of the contribution of the Company’s Property & Casualty activities to its subsidiary SCOR Global P&C SE on 6 July 2006. Under the terms of the Contribution Agreement for this transaction, certain contractual commitments of the Company were expressly excluded from the contribution, including the Company’s reinsurance commitments for the Property and Casualty insurance policy No. CLP 3001140, which was issued for the WTC towers by Allianz Insurance Company, and the Credit Agreement.
Amendment to the retrocession agreement signed by SCOR and SCOR Global Life on 4 July 2006
The retrocessions also meet the requirements of the ratings agencies, primarily because the retrocession rate can be modulated based on capital needs in terms of business cycles. The rating agencies confi rmed that they are maintaining their rating with regard to this new organisation of the Group.
In order to optimize the balance in the balance sheet of the new company SCOR Global Life SE, it has been decided to modify the scope of the internal retrocession agreement with SCOR SE (termination of the agreement in Singapore and in Canada).
Amendment to the retrocession agreement signed by SCOR and SCOR Global P&C on 4 July 2006
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 confi rming 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 19 | RELATED PARTY TRANSACTIONS
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 spin-off, of the subsidiary SCOR Global P&C.
The Board of Directors of the Company, at its meeting of 13 November 2007, authorised and approved, pursuant to Article L.225-38 of the French Commercial Code, the signature of the amendments to the retrocession agreements signed by SCOR SE and its subsidiaries SCOR Global Life SE and Global P&C SE on 4 July 2006.
This Agreement and this parent company guarantee were part of a transaction intended to provide SCOR Global Life U.S. Re (“SGLR”) with additional fi nancial resources so that it could meet the fi nancial coverage requirements stipulated by the American “Triple X” prudential regulations.
Related-party agreements and commitments during the fi nancial year: Pursuant to Article L.225-40 article of the French Commercial Code, we have been advised of the agreements and commitments that received prior authorisation from your Board of Directors.
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 notifi ed. It is not our role to determine whether they are benefi cial or appropriate. It is your responsibility, under the terms of Article R.225-31 of the French Commercial Code, to assess the benefi ts arising from the execution of these agreements and commitments for the purpose of approving them.
We performed our work in accordance with the professional standards applicable in France. These standards require that we perform the work to verify the consistency of the information provided to use with the basic documents forming the sources of that information.
The Board of Directors’ meeting held on the 18 March 2008 and 26 August 2008 authorised the signature by its Chief Executive Offi cer, 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.
At its meeting of 18 March 2008, the company’s Board of Directors authorised, pursuant to Article L.225-38 of the French Commercial Code, the payment of existing parent company guarantees, drawn up by SCOR SE or of those which could be drawn up in accordance with the agreement granted by the Board of Directors of 28 August 2007, at a rate of 1 for one thousand, based on the amount of the Company’s shareholder’s equity, of which the agreements are guaranteed from the 1 January 2008. The concerned subsidiaries are as follows: In Europe: SCOR Global Life, SCOR Global P&C, Irish Reinsurance Partners Ltd, SCOR Channel, SCOR Financial Services Ltd, SCOR U.K. Co. Ltd.
The wage, taken into account, in order to calculate the rights, is the average wage of the last fi ve professionally active years, adjusted on the date of departure, according to the development of INSEE’s annual average index of the consumer price.
The Directors concerned by this scheme are Denis Kessler and Patrick Thourot.
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 illimited guarantee’s grant is the subject of the same remuneration for SCOR SE, as those of other guarantees, previously granted by SCOR SE.
The mission did not give rise to any payment in 2008.
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 catastroph 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 jointbook runner and joint lead manager with the London branch of BNP Paribas.
This agreement has been concluded on 19 December 2008 and did not give rise to any payment in 2008.
Only Prévoyance Ré’s engagements, pursuant to the insurance and/ or reinsurance contracts, are covered by this parent guarantee.
Parent company guarantee from SCOR SE to the benefi t of SCOR Perestrakhovaniye for reinsurance commitments
At its meeting of 26 August 2008, 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 P&C Ireland Holding Limited.
Agreements approved during previous fi nancial periods, the enforcement of which continued or ended during the year: Moreover, pursuant to the French Commercial Code, we have been advised that the following agreements and commitments, approved in previous years, were continued for the last year.
Under the terms of the Credit Agreement, BNP Paribas made a credit line available to SCOR, under the conditions stipulated in the Credit Agreement, in a maximum principal amount of USD 85,000,000 to be made available through the issuance of stand-by letters of credit or counter-guarantees intended to allow SCOR to guarantee the execution of its commitments under its reinsurance operations, for a period of use running from 4 January 2006, to 31 December 2008.
Approval of the proposed amendment No. 1 to the Senior Pledge Agreement of a fi nancial instruments account dated 25 November 2005.
At the time of the signature of amendment No. 1 to the Pledge Agreement, SCOR issued to BNP Paribas an additional, amended and restated declaration of pledge of a fi nancial instruments account attached to said amendment.
Retrocession agreement signed by SCOR and SCOR Global Life on 4 July 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 reorganised 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 Directors concerned by this agreement were Denis Kessler and Patrick Thourot.
In 2006, at the time of the SCOR SE spin-off its Non-Life reinsurance operations to SCOR Global P&C SE, SCOR SE was reorganised for better visibility 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.
Commercial Code, the issuance of a parent company letter of guarantee intended to cover the fi nancial obligations of SCOR Global Life (formerly SCOR VIE) under the terms of an agreement to issue letters of credit that would be signed by SCOR Global Life, SCOR Financial Services Limited and CALYON (SFS-CALYON Letter of Credit Facility Agreement) dated 13 December 2005.
Sources of fi nancial information not extracted from the audited fi nancial statement of the Issuers and indication of such Absence of Audit
The consolidated fi nancial statements for the year ended 31 December 2008 are presented below: 20.1.1 CONSOLIDATED BALANCE SHEETS
ASSETS YEAR ENDED 31 DECEMBER In EUR million 2008 2007 adjusted (1)
Other assets 4,972 3,746 Deferred tax assets Note 19 446 248 Assumed insurance and reinsurance accounts receivable Note 10 3,217 2,195 Receivables from ceded reinsurance transactions Note 10 113 261 Taxes receivable 85 4 Other assets 360 382 Deferred acquisition costs Note 11 751 656
LIABILITIES AND SHAREHOLDERS’ EQUITY YEAR ENDED 31 DECEMBER In EUR million 2008 2007 adjusted (1)
Other liabilities 1,843 1,644 Deferred tax liabilities Note 12 215 236 Derivative instruments Note 8 10 1 Assumed insurance and reinsurance payable Note 10 140 306 Accounts payable on ceded reinsurance transactions Note 10 946 817 Taxes payable 192 31 Other liabilities 340 253
In EUR Earnings per share Note 24 1.76 2.78 Earnings per share (Diluted) Note 24 1.68 2.62 (1) Adjusted for the completion of the initial acquisition accounting of the Converium and ReMark acquisitions. See Notes 1 and 3 to the consolidated fi nancial statements.
Revaluation of assets available for sale (390) (55) Shadow accounting, gross 90 45 Effect of changes in foreign exchange rates (105) (185) Actuarial gain/losses not recognised in income (13) 4 Taxes recorded directly in or transferred to equity 57 3 Treasury shares (14) (26) Share-based payments (10) 25 Other changes (41) 19 Net income recognised in shareholders’ equity (427) (170) Consolidated net income 318 410 Net comprehensive income (109) 240 Attributable to: (1) Adjusted for the completion of the initial acquisition accounting of the Converium and ReMark acquisitions. See Notes 1 and 3 to the consolidated fi nancial statements.
Net cash fl ow provided by (used in) operations Note 12 779 611 Acquisitions of consolidated entities, net of cash acquired (71) (354) Cash fl ow provided by (used in) changes in scope of consolidation (71) (354) (Acquisitions)/disposals of real estate investments 6 26
Cash fl ows from (acquisition)/ disposals and reimbursements of investments (683) 1,298
Cash fl ows provided by (used in) investing activities (769) 926 Treasury share transactions (46) (26) Dividends paid (144) (92) Cash provided by (used in) transactions with shareholders (190) (118) Cash generated by issuance of fi nancial debt 35 18 Cash used to reimburse fi nancial debt (10) (413) Interest paid on fi nancial debt (54) (81) Cash fl ows provided by (used in) Group fi nancing activities (29) (476) Cash fl ows generated by (used in) fi nancing activities (220) (594) Cash and cash equivalents at 1st January 2,052 1,241 Net cash fl ows from operations 779 611 Net cash fl ows from investing activities (769) 926 Net cash fl ows from fi nancing activities (220) (594) Effect of change in foreign exchange rates on cash and cash equivalents (59) (131) Cash and cash equivalents at end of year 1,783 2,052
Taxes recorded directly in/ transferred to equity - - - 3 - - - - 3 - 3
Shadow accounting, gross of tax - - 27 63 - - - - 90 - 90
Net revenue recognised in shareholders’ equity - - 7 (237) (14) (129) (10) (13) (397) (30) (427)
The consolidated fi nancial statements were presented by Group Management to the Accounting and Audit Committee. The Management and the Audit Committee report to the Board of Directors, which approved the consolidated fi nancial statements on 3 March 2009.
The consolidated fi nancial statements will be presented for approval at the Annual General Meeting which will take place on 15 April 2009.
As noted in our 2008 half year report, during 2008 following the completion of the Revios acquisition and the successful transfer of their technical accounting information into existing SCOR systems, certain balance sheet items were reclassifi ed. This one time reclassifi cation did not have any impact on the income statement or shareholders equity. The 2007 consolidated comparatives have not been adjusted in respect of these reclassifi cations. The impact on key 2008 balance sheet amounts, if presented on the same basis as the 2007 accounts, is as follow: Balance as at 31 December 2008
Subsidiaries are consolidated from the time the Group takes control until the date control is transferred outside the Group or control is ceased.
The Group’s investment in an associated company is recorded using the equity method. Associated entities are companies in which the Group exercises signifi cant infl uence but not control. Signifi cant infl uence is generally determined when the Group owns, directly or indirectly, between 20 percent and 50 percent of the outstanding voting rights. Joint ventures, where there is joint control, are accounted for using the equity method.
The fi nancial 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.
The Group’s consolidated fi nancial statements are presented in Euros (EUR) and all values are rounded to the nearest EUR million except where stated otherwise. The other key currencies in which the Group conducts business and the exchange rates used for the preparation of the 2008 fi nancial statements are as follows: Currency Ending rate 2008 Average rate – 2008
statements, and notably in relation to how the Group identifi es its operating segments.
Revised IAS 1 “Presentation of Financial Statements”, published on 6 September 2007 and applicable as from 1 January 2009, concludes the fi rst phase of the IASB’s project to overhaul the presentation of fi nancial statements. The revised standard requires an entity to i) present all non-owner changes in equity either in one statement of comprehensive income for the period or in two statements; and ii) present a statement of fi nancial position (balance sheet) as at the beginning of the earliest comparative period in a complete set of fi nancial statements when the entity applies an accounting policy retrospectively or makes a retrospective restatement. It also requires disclosure of income tax relating to each component of other comprehensive income as well as reclassifi cation adjustments relating to components of other comprehensive income. Finally, IAS 1 changes the title of fi nancial statements. The application of this revised Standard is only expected to have a limited impact on the Group’s consolidated fi nancial statements.
Revised IFRS 3 “Business Combinations”, and related revisions to IAS 27 “Consolidated and Separate Financial Statements”, published on 10 January 2008 and applicable for accounting periods beginning on or after 1 July 2009 (early adoption is allowed ) represents the second phase of the IASB’s project to review the accounting treatment of business combinations. Revised IFRS 3 introduces certain changes in the accounting treatment of business combinations that may impact the amount of goodwill recognised, or the amount of profi t in the acquisition period or in subsequent periods. The related revisions to IAS 27 require that a change in the interest held in a subsidiary must be accounted for as an equity transaction and no impact is recognised in goodwill or in profi t. They also introduce changes in the accounting treatment of losses generated by subsidiaries and of the loss of control of a subsidiary. These changes must be applied on a prospective basis to new acquisitions and transactions with minority shareholders that occur after the application date.
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 is not expected to result in any material impacts on the Group’s consolidated fi nancial statements.
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. Any gain or loss is directly recorded in shareholders’ equity for available for sale equity securities. Exchange differences resulting from the conversion of these items are also directly recorded in shareholders’ equity.
the gains and losses resulting from the translation of net foreign investment hedges are recorded in shareholders’ equity. They are recognised in the income statement upon the disposal of the net investments.
The preparation of the consolidated fi nancial statement requires management to make certain judgements, assumptions and estimates. These effect the reported amounts of revenue, expenses, assets and liabilities, the disclosure of contingent assets and liabilities at the reporting date. Management reviews these estimates and assessments periodically, based on past experience and other factors. The actual outcome and results could differ substantially from estimates and assumptions made. The most material fi nancial 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 fi nancial instruments, intangible assets, retirement and other defi ned benefi t plans and deferred taxes.
Reinsurance reserves are presented gross excluding shares retroceded to our reinsurers and measured on the level of individual reinsurance contracts or homogeneous segments of contracts.
In determining the amount of its reserves, the Group generally uses actuarial techniques that take into account quantitative loss experience data, together with qualitative factors, where appropriate. The reserves are also adjusted to refl ect the volume of business underwritten, reinsurance treaty terms and conditions, and diversity in claims processing that may potentially affect the Group’s commitment over time.
Share of retrocessionaires in insurance and investment contract liabilities are calculated according to the contractual conditions on the basis of the gross technical reserves. Allowances are established for any specifi c expected credit risks.
Claim reserves for losses and loss adjustment 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).
Shares of our retrocessionaires in the insurance and investment liabilities are calculated according to the contractual conditions on the basis of the gross technical reserves. Allowances are established for estimated credit risks.
The Group has defi ned benefi t pension plans and other post-employment plans. In assessing the Group’s liability for these plans the Group uses external actuarial valuations which involve critical judgments and estimates of mortality rates, rates of employment turnover, disability, early retirement, discount rates, expected longterm rates of return on plan assets, future salary increases and future pension increases. These assumptions may differ from actual results due to changing economic conditions, higher or lower withdrawal rates or longer or shorter life spans of participants. These differences may result in variability of pension income or expense recorded in future years.
Goodwill is initially measured at cost being the excess of the cost of the business combination over the fair value of the Group’s share of the net assets of the acquired company and is included in intangible assets. The squeeze-out of minority interests is recorded using the parent-entity extension method whereby the difference between the cost of the additional interest in the subsidiary and the minority interests’ share of the assets and liabilities refl ected in the consolidated balance sheet at the date of acquisition of the minority interest is refl ected as goodwill.
Negative goodwill is generated when the fair value of the net assets acquired by the Group exceeds the acquisition price and is recognised in the income statement from the date of acquisition.
Intangible assets with fi nite lives are amortised over the expected useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The am-
ortisation period and the amortisation method for intangible assets with fi nite useful life are reviewed annually at each fi nancial year end. Changes in the expected useful life or the expected pattern of future economic benefi ts are accounted for by changing the amortisation period or method as appropriate and are treated as changes in accounting estimates. The amortisation expense on intangible assets with fi nite lives is recognised in the income statement in the expense category consistent with the intangible asset.
The VOBA refers to life reinsurance portfolios acquired in a business combination. VOBA is capitalised as the present value of the stream of expected future cash fl ows These estimates include the future technical result, the future investment income less deductions for future administration expenses. The present value calculations are based on assumptions and risk discount factors relevant at the date of acquisition. The VOBA is amortised over the lifetime of the underlying reinsurance portfolio and is subject to impairment testing.
Other intangible assets consist primarily of customer related intangibles arising from non-life business combinations and purchased or development related to software.
The corresponding debt is recorded under “fi nancial liabilities” and is amortised based on the effective interest rate method.
Rental income from investment properties is recorded on a straightline basis over the term of the current rental agreements.
The Group classifi es its fi nancial assets in the following categories: available for-sale, fair value through income, loans and other accounts receivable and derivative instruments. There are currently no assets classifi ed as held-to-maturity. Sales and purchases of assets are recorded on the settlement date. Once it has been initially recorded, an asset is measured according to its asset category, determined according to the methods set forth below. Financial assets are derecognised when the contractual rights to the cash fl ow of the fi nancial asset expire or are transferred, and when the Group has substantially transferred the risks and rewards inherent to the ownership of the fi nancial asset.
Available-for-sale assets include non derivative assets that are either classifi ed as available for sale or not allocated to another category.
This category includes fi nancial assets held for trading purposes and those designated at fair value by income upon initial recognition in the fi nancial statements. Gains and losses from changes in the fair value of fi nancial assets classifi ed under this category are recognised in the income statement in the period in which they occur.
Non-derivative fi nancial assets where payment is fi xed or determinable and which are not listed on an active market are also included within this category and these are recognised at amortised cost using the effective interest rate method.
Cash and cash equivalents comprise cash, net bank balances and short-term deposits or investments with a maturity less than or equal to three months at the date of purchase or deposit.
SCOR does not make material reclassifi cations of fi nancial instruments into or out of the fair value through income category while they are held or issued.
If, as a result of a change in intention or ability or in the circumstance that a reliable measure of fair value is no longer available, it comes appropriate to carry a fi nancial instrument at cost or amortised cost, then the last reliable fair value available is taken as the new cost or amortised cost, as applicable.
Financial liabilities, with the exception of liabilities arising from reinsurance transactions, are classifi ed as fi nancial debts, fi nancial instruments and other liabilities.
At initial recognition, all borrowings are recorded at fair value less directly attributable transaction cost. After initial recognition, they are measured at amortised cost using the effective interest rate method.
Embedded derivative instruments which are included within the borrowings have been separated from the host borrowing contract and recognised separately. The portion that relates to the equity component, determined on the date of issue, is refl ected in shareholders’ equity. It is not subsequently reassessed.
Interest on fi nancial debt is included within fi nancing expenses.
Derivative instruments are recorded and classifi ed at fair value through income (designated at inception) unless they are designated as hedging instruments.
A material embedded derivative is separated from the host contract and is recognised as a derivative: when its economic features and risks are not closely linked to the economic features of the host contract, where the embedded instrument has the same conditions as a separate derivative instrument, and where the embedded instrument is not assessed at fair value through the income statement.
Where an embedded derivative has been separated from its host contract, it is recognised in accordance with the guidance relating to the accounting for derivative fi nancial instruments.
Where the embedded derivative represents a signifi cant part of the instrument and cannot be separated from the host contract, the hybrid instrument is treated as an instrument held for trading. Gains and losses resulting from variations in the fair value of the hybrid are recognised in the income statement in the period during which they occur.
The Group has embedded derivatives included in its convertible debt securities. These embedded derivatives are not separated from the host contracts and the entire instrument has been recorded at fair value through income.
The Group’s primary hedging instruments comprise foreign currency forward purchases and sales.
The fair value of fi nancial instruments that are actively traded in organised fi nancial markets is determined by reference to quoted market bid prices, at the close of business on the balance sheet date. If quoted market prices are not available, reference can also be made to broker or dealer price quotations.
For units in unit linked-trusts, shares in open-ended investment companies and derivative fi nancial instruments (including real estate, interest rate and mortality swaps, options, etc.), fair value is determined by reference to either published bid-values, or modelled values which incorporate market inputs within the valuation assumptions.
For unlisted equity instruments, fair value is determined according to commonly used valuation techniques and impairment assessed using a similar approach to listed equities.
For debt instruments, and loans and accounts receivable, an objective indicator of impairment relates primarily to proven credit risk.
Any impairment reversals in respect of equity instruments classifi ed as available-for-sale are not recognised in the statement of income. Reversals of impairment losses on debt instruments classifi ed as available-for-sale are reversed through the income statement if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment losses were recognised in the statement of income.
Restructuring costs other than those that may be recognised on the balance sheet of an acquired company on the acquisition date are recorded when the group has a present obligation as evidenced by a binding sale agreement or a detailed formal restructuring plan of which main features are announced to those affected or to their representatives.
Where the group expects the provision to be reimbursed for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is probable.
Assumed and ceded reinsurance transactions that do not transfer signifi cant risk are recognised in the accounts in accordance with IAS 39, which means that amounts collected are no longer recognised as premiums, and technical reserves and deferred acquisition expenses recorded as assets or liabilities on the balance sheet are reclassifi ed as “fi nancial contract liabilities” and “fi nancial contract assets”. These deposits are assessed only on the basis of fi nancial fl ows and no longer on the basis of estimated ultimate results as required by accounting principles applicable to insurance transactions.
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 fi nancial statements refl ects 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 fi scal year.
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 profi table. 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.
For the Non-Life segment, the test is performed in the even the ultimate combined ratio is in excess of 100% to the unearned premium reserve, net of deferred acquisition costs.
The liability adequacy test for the life segment compares the carrying value of the technical reserves less deferred acquisition costs and value of business acquired with the fair value of the liabilities from the reinsurance portfolio recognised. The fair value is calculated as the present value of the projected future cash fl ow using current actuarial assumptions and parameters. In case of defi ciency SCOR would impair deferred acquisition costs and value of business acquired and increase the technical reserves.
A reinsurance asset is recognised to refl ect 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 confi rmation of the occurrence of a loss booked to an amount on the assumed side which triggers the retrocession contract.
The Group provides retirement benefits to its employees, in accordance with the laws and practices of each country. The main plans are in France, Switzerland, the United States and Germany. Group employees in certain countries receive additional pension payments, paid as an annuity or in capital upon retirement. The benefits granted to Group employees are either in the form of defined contribution or defined benefit plans. Plan assets are generally held separately from the Group’s assets.
For defi ned contribution plans the employer pays fi xed contributions into a separate entity, with no legal or constructive obligation to pay further contributions. As a result, only contributions paid or due for the fi nancial year are charged to the Group’s income statement as administrative expenses.
Defi ned benefi t plans are those where a sum is paid to the employee upon retirement, which is dependent upon on one or several factors such as age, years of service and salary. Defi ned benefi t obligations and contributions are calculated annually by independent qualifi ed actuaries using the projected unit credit method. The obligation recognised on the balance sheet represent the present value of the
Actuarial gains and losses arising from experience adjustments and the effects of changes in actuarial assumptions are refl ected in shareholders ’ equity.
Past service costs generated at the adoption or modifi cation of a defi ned benefi t plan are recorded as an expense, on a straight-line basis over the average period until the benefi ts become vested. When benefi t rights are acquired upon the adoption of a plan or its modifi cation, past service cost is immediately recognised as an expense.
Employees may be entitled to termination benefits when the Group makes one or more employees redundant, or encourages voluntary departures. The Group records this expense when it is formally committed by means of a detailed plan for termination, which it could not realistically retract. Benefi ts payable more than twelve months after the closing date are discounted.
The dilutive effect of outstanding options is refl ected in the calculation of the diluted earnings per share.
The main temporary differences arise from the revaluation of certain fi nancial assets and liabilities including derivative contracts, certain insurance contract liabilities, provisions for pensions and other post-retirement benefi ts and tax losses carried forward and in relation to acquisitions, on the difference between the fair values of the net assets acquired and their tax base. Deferred tax is provided on temporary differences arising from investments in subsidiaries, associates and joint ventures, except where it is probable that the difference will not reverse in the foreseeable future.
Deferred taxes are not provided in respect of temporary differences arising from the initial recognition of goodwill, or from goodwill for which amortisation is not deductible for tax purposes, or from the initial recognition of an asset or liability in a transaction which is not a business combination and affects neither accounting profi t nor taxable profi t or loss at the time of the transaction.
Deferred tax on the adjustment of the capitalisation reserves of the French entities is recorded without including the probability of capital losses from asset disposals of securities subject to taxes from these reserves.
Each segment offers different products and services, which are marketed via separate channels. Given their specifi c nature, these segments constitute the primary level of segment information.
Management evaluates the performance of these segments and allocates resources to them in accordance with various performance indicators. The amount of inter-segment transactions, primarily in relating to gross written premiums, is not signifi cant.
Change in fair value of investments (42) (3) - (45) 8 5 - 13
Ceded claims 159 106 - 265 155 43 - 199 Ceded commissions 67 6 - 73 44 (4) - 40 Net result from retrocession (36) (104) - (140) (46) (123) - (169)
The distribution by geographic region, based on the location of the ceding company, is as follows: For the year ended 31 December
Share of retrocessionaires in insurance and investment contract liabilities 950 295 6 1,251 959 330 4 1,293
Cash and cash equivalents at 1st January 1,413 639 660 581 Net cash fl ows from operations 602 177 455 155 Net cash fl ows from investing activities (543) (226) 985 (59) Net cash fl ows from fi nancing activities (226) 6 (594) Effect of changes in foreign exchange rates (39) (20) (93) (38) Cash and cash equivalents at 31 December 1,207 576 1,413 639
The following section describes acquisitions which either occurred or for which the purchase accounting was fi nalised in 2008.
During 2007, SCOR acquired 98.06% of the capital and voting rights of Converium Holding AG (“Converium”). On 19 February 2007 SCOR announced that it had acquired 32.94% of Converium ’s capital through open market purchase as well as specifi c acquisitions of blocks of shares. Additional shares were acquired through a mixed public offer in Switzerland (the “Offer”) which occurred over the period from 12 June 2007 to 26 July 2007. The settlement and delivery of the shares acquired in the Offer was executed on 8 August 2007 at which date SCOR held 96.32% of the capital and voting rights of Converium.
During 2008, SCOR completed a “squeeze out” of the remaining shareholders of 1.94% of SCOR Holding Switzerland Ltd (“SHS” previously, Converium Holding AG).
Further details relating to the business combination are included in this Registration Document in Section 5.2.1.1 “Mixed public offer to acquire the Converium shares” and Section 5.2.1.2 “Squeeze out on the shares of SCOR Holding Switzerland”.
Shares acquired in 2006 5 Open market share purchases in 2007 prior to the announcement of the Offer 138 Shares acquired from Patinex and Alecta - Issuance of 17,837,210 new shares 375
Open market purchases after the Offer period 32 Purchase price, excluding expenses 1,876 Expenses directly attributable to the acquisition 12 Total cost of 98.06% interest in Converium at 31 December 2007 1,888
Other assets 1,001 1,020 Cash and cash equivalents 366 366 Total assets 8,007 7,922
In accordance with IFRS 3, the initial accounting for an acquisition can be reviewed within a period of twelve months from the acquisition date. This concerns both the fair value of acquired assets and liabilities and the cost of the business combination. The initial accounting for the business combination with Converium, which occurred on 8 August 2007, had initially been determined on a provisional basis. The accounting was fi nalised in 2008.
As at 31 December 2008, the total amount of expenses directly attributable to the business combination is EUR 15 million (EUR 12 million in the initial accounting at 31 December 2007).
Final accounting as at 2007 earnings contribution under equity method, net of dividends received (5) - (5) - (5)
Earnings 1st July 2007 to 8 August 2007 12 2 14 - 14
The details relating to the squeeze-out of minority interests are as follows: In EUR million
Issuance of 1,420.408 new SCOR shares 20 Cash 12 Expenses directly attributable to the acquisition 2
Fair value of net assets acquired 29 Goodwill on 1.94% squeeze out of minority interests 5 Goodwill on 98.06% acquisition 574 Total goodwill relating to the acquisition of Converium 579
The total goodwill resulting from the acquisition of 100% of Converium shares, after squeeze-out of remaining minority interests, amounts EUR 579 million.
Fair value of assets and liabilities acquired at 30 June 2007 2008 Adjustments
On 20 February 2007, SCOR Auber acquired 75% of the shares of “la Compagnie Parisienne de Parking” for EUR 17 million, settled in cash. The provisional goodwill was estimated at EUR 2 million.