REPORT ON CORPORATE GOVERNANCE 43 2.1. Corporate officers, executives and employees 44 2.2. Executive compensation and share ownership 70 2.3. Major shareholders and related party transactions 105 2.4. Audit report on the corporate governance report 120
RISK FACTORS AND RISK MANAGEMENT MECHANISMS 121 3.2. Strategic risks 123 3.3. Underwriting risks related to the P&C and Life reinsurance businesses 130 3.4. Market risks 140 3.5. Credit risks 144 3.6. Liquidity risks 147 3.7. Operational risks 150 3.8. Internal control and risk management procedures 152
ADDITIONAL INFORMATION 241 5.1. Charter and bylaws 242 5.2. Description of SCOR’s share capital 248 5.3. Third-party information and statements by experts and declarations of any interest 250 5.4. Published information 250 5.5. Material contracts 250
APPENDIX G Regulation (ec) of April 29, 2004 – correspondence table 335
A European Company with share capital of EUR 1,524,196,637.05 Registered Office: 5 avenue Kléber – 75116 Paris
1.1. SELECTED FINANCIAL INFORMATION 5 1.1.1. Group key figures 5 1.1.3. Dividend distribution policy 7 1.2. INFORMATION ABOUT THE SCOR GROUP 8 1.2.2. History and development of SCOR 10 1.2.3. Organizational structure of SCOR 11 1.2.4. Ratings information 13 1.2.5. Business overview 14 1.2.6. SCOR investments in tangible and intangible assets 20 1.3. MARKET AND FINANCIAL REVIEW 24 1.3.1. Reinsurance market developments 24 1.3.2. Financial market developments 24 1.3.3. Significant events of the year 24 1.3.4. Information on SCOR’S competitive position 25 1.3.5. Revenues & earnings summary 25 1.3.6. Financial position, liquidity and capital resources 36 1.3.8. Cash flows 38 1.3.9. Calculation of financial ratios 39 1.3.10. Events subsequent to December 31, 2017 41 1.3.11. Documents on display 41
SCOR SE (“the Company”) and its consolidated subsidiaries (referred collectively as “SCOR” or the “Group”), form the world’s fourth largest reinsurer (1) serving more than 4,000 clients from its three regional management platforms, or organizational hubs (the “Hubs”): the EMEA Hub, the Americas Hub and the Asia-Pacific Hub.
The European Hub (EMEA Hub) results from the combination of previously existing Hubs of Zurich-Cologne and Paris-London. This new step in the optimization of the Group’s organizational structure follows on from the creation of the Zurich-Cologne Hub in October 2014 and the Paris-London Hub in April 2015.
Although 2017 has been marked by an exceptional series of large natural catastrophes which occurred during the second half of the year, SCOR’s strong underlying results demonstrate its resilience and the effectiveness of its business model, based on extensive business and geographical diversification, while focusing on traditional reinsurance activities.
** In September 2014 and December 2015, SCOR issued two subordinated notes for EUR 250 million and EUR 600 million, respectively, with the intention to refinance through the proceeds of these two notes the optional redemptions of the outstanding balance of the 6.154% undated deeply subordinated EUR 350 million notes callable in July 2016 and of the 5.375% fixed to floatingrate undated subordinated CHF 650 million notes callable in August 2016. The proceeds of these notes were also meant to be used for general corporate purposes. Had these redemptions been effective on December 31, 2015, the leverage ratio would have amounted to 20.6%. These redemptions occurred on the expected dates.
* Return on equity is based on the Group’s share of net income divided by average shareholders’ equity (calculated as shareholders’ equity at the beginning of the period adjusted for the effect of all movements during the period using a prorata temporis method). The ROE calculation method was adjusted in 2014 to take into account material foreign exchange rates movements that do not occur evenly throughout the reporting period. A daily weighted average is used for the currency or currencies that experienced such movements and simple weighted average is used for the other currencies. The ratio previously reported in 2013 Registration Document was 11.5% for 2013.
P&C management expenses Commissions * The Life technical margin is calculated as the percentage of net technical result plus income from funds held by ceding companies and the net of gross and ceded earned premiums. The net technical result represents the result of the net reinsurance operations of SCOR Global Life division including income and expenses either implied in the reinsurance and retrocession arrangements or fully related to these arrangements.
** The technical result calculation method was adjusted in 2014 to include revenues from Life reinsurance contracts that do not transfer significant reinsurance risk (previously presented in the investment income line). The ratio previously reported in the 2013 Registration Document was 7.3% for the year ended December 31, 2013.
A resolution will be presented to the Annual Shareholders’ Meeting held during the first half of 2018, to approve the financial statements for the financial year 2017, proposing the distribution of a dividend of EUR 1.65 per share for the financial year 2017.
The statute of limitations for dividends is five years. Unclaimed dividends will be paid over to the French Treasury. See also Section 4.6 – Notes to the consolidated financial statements, Note 21– Earnings per share 108%1.30
SCOR GROUP01 Information about the SCOR Group 1.2. INFORMATION ABOUT THE SCOR GROUP
In 1989, the Company and UAP Réassurances, a subsidiary of the state-owned Société Centrale de l’Union des Assurances de Paris, combined their Property and Casualty and Life reinsurance businesses. Following a reverse merger with Compagnie Générale des Voitures, the Company listed its ordinary shares on the Paris stock exchange and changed its name to SCOR SA and to SCOR in 1996. In the same year, UAP Réassurances sold its 41% stake in SCOR through an IPO. SCOR’s American depositary shares were also listed on the New York stock exchange at that time. They were delisted in 2007 and the Company’s securities were deregistered with the US Securities and Exchange Commission (SEC) on September 4, 2007.
As at the date of this Registration Document, SCOR SE’s shares are listed on the Eurolist of Euronext Paris SA and on the SIX Swiss Exchange (formerly SWX Swiss Exchange) in Zurich, where they were admitted for trading on August 8, 2007.
The Company was converted into a European Company (Societas Europaea) in 2007. As such, SCOR SE is governed by the provisions of Council Regulation (EC) No. 2157/2001 (the “SE Regulation”) and those of European Council Directive 2001/86/EC of October 8, 2001 supplementing the Statute for a European Company with regard to the involvement of employees, and by the provisions of French law relating to European Companies, as well as for all other matters partially covered or not covered by the SE Regulation, by French legal provisions applicable to sociétés anonymes, where they are not contrary to the specific provisions applicable to European Companies.
Under the directive No. 2009/138/EC of November 25, 2009 named “Solvency II” transposed in French law in 2015 and entered into force on January 1, 2016, French companies, whose exclusive business is reinsurance, can only carry on said business after having obtained an official authorization, issued by the ACPR. Registered reinsurers in France can operate under certain conditions in the European Economic Area (EEA) under the freedom to provide services and/or the freedom of establishment (branch).
For additional information on the impact of these regulatory changes on the Group’s operations and financial position, see Section 3.2.3.
Furthermore, complexity and extraterritorial scope of many legislations on the fight against financial criminality (fight against money laundering, financing of terrorism and corruption, compliance with national and international financial sanctions) create serious risks of significant penalties in case of non-compliance. As examples, see the French Law of December 9, 2016 on transparency, fight against corruption and modernization of the economic life (called “Law Sapin II”) and the European Market Abuse Regulation (called “MAR Regulation”) which came into force on July 3, 2016.
At the beginning of the 1980s, the French government’s stake in the Company’s share capital, held through the Caisse Centrale de Réassurance, was progressively reduced in favor of insurance companies that were active on the French market (for more details, see Section 1.2.1 – Introduction).
SCOR’s American Depositary Receipts (ADRs) have not been listed on the New York Stock Exchange (NYSE) since June 5, 2007. The American Depositary Receipt Facility program managed by The Bank of New York Mellon has been maintained as a sponsored level 1 facility. The ADR securities are now traded on the US over-the-counter market. SCOR’s obligations to report to the US Securities and Exchange Commission (SEC) ended at the same time.
In August 2007, SCOR acquired Converium (which became SCOR Holding (Switzerland) AG (SCOR Holding Switzerland)). SCOR’s shares were also admitted to trading in Swiss Francs on the SWX Swiss Exchange (which later became the SIX Swiss Exchange) in Zurich.
On September 1, 2014, SCOR announced the creation of a local entity in Brazil, SCOR Brasil Resseguros SA (SCOR Brasil Re), following the granting of a license to operate as a Local Reinsurer beside the Brazilian insurance authority SUSEP on August 26, 2014.
1.2.3.1. BRIEF DESCRIPTION OF THE GROUP AND OF THE POSITION OF THE ISSUER
The Group parent company whose stock is listed on the Euronext Paris regulated market is SCOR SE.
SCOR Global Investments, the third division of the Group, manages the investment portfolio of the Group’s legal entities. It is composed of the Group Investment Office and SCOR Investment Partners SE, a portfolio management company, approved by the AMF. The Group Investment Office manages the interaction between the SCOR Group and SCOR Investment Partners in managing the risk appetite, monitoring investment risks and setting investment guidelines. SCOR Investment Partners manages directly the assets of many SCOR Group subsidiaries and manages also the funds on the behalf of the Group and third party clients.
Each Hub has local, regional (1) and Group responsibilities, with the heads of each Hub reporting to the Group Chief Operating Officer. Each Hub typically includes the following functions: Legal and Compliance, Information technology support, Finance and Human Resources. This organization enables: ●● SCOR’s operational structures and support functions to be optimized by creating service entities in charge of managing pooled resources, including information technology, human resources, legal and others in the Group’s main locations; ●● several Group functions to be carried out and managed in geographical locations other than Paris in order to benefit fully from the competencies within different Hubs; and
●● the Group to develop a global culture while keeping local specificities.
The Hubs are not responsible for generating revenues or for underwriting or claims management. The local underwriting and claims management teams have direct reporting lines within the respective P&C and Life divisions. Hub-shared service costs are then allocated to the divisions.
See: ●● Section 1.2.3 – Organizational structure of SCOR; ●● Appendix C – 5.2.1 – Investments; ●● Section 4.6.22 Note 22 – Related party transactions; ●● Section 4.6.2.1 – Significant subsidiaries, investments in associates and joint ventures; ●● Section 4.7 – Information on holdings; ●● Section 1.2.3.1 – Brief description of the Group and of the position of the issuer (regarding the role of SCOR towards its subsidiaries); ●● Section 4.6.3 Note 3 – Acquisitions and disposals; ●● Section 2.1.2 – Board of Directors (regarding the duties carried out in the subsidiaries by the managers of the Company); ●● Section 2.1.4 – Executive Committee (regarding the duties carried out in the subsidiaries by the managers of the Company); and
On September 7, 2017, SCOR was informed of the decision by Standard & Poor’s (S&P) to affirm the financial strength rating for the Group and its main subsidiaries at “AA-”, with a “stable outlook”, as in the previous year, and to maintain the counterparty credit ratings at “AA-/A-1+”.
On September 1, 2017, A.M. Best upgraded SCOR’s insurance financial strength rating to “A+” (Superior) from “A” (Excellent), and the long-term issuer credit rating to “aa-” from “a+”. The outlooks are stable. According to A.M. Best, this decision reflects “SCOR’s track record of strong and resilient operating profitability and its very strong risk-adjusted capitalization, despite persisting challenging market conditions”, adding that “the ratings also reflect SCOR’s excellent business profile as a tier 1 reinsurer, its well-diversified portfolio of Non-Life and Life reinsurance, and the Group’s excellent enterprise risk management (ERM) framework.”
For more information on risks arising from credit ratings, please see Section 3.2.4 – Downgrade risk.
With “Vision in Action”, SCOR continues to focus on its two equally weighted strategic targets, profitability and solvency: ●● a ROE above 800 basis points above the five-year rolling average of five-year risk-free rates over the cycle; ●● an optimal solvency ratio in the 185-220% range (percentage of SCR, according to the internal model) (1).
It also affirms the Group’s consistent shareholder compensation policy set by the SCOR’s Board of Directors. SCOR aims to remunerate shareholders through cash dividends, and if relevant, does not exclude special dividends or share buy-backs. Overall, the Board will aim to maintain a minimum dividend payout of 35% over the cycle, while pursuing low variation in the dividend per share from year to year.
Footprint scenarios are an innovative and complementary risk management tool. Whereas risk drivers and extreme scenarios are probability-based, the footprint approach consists of carrying out an impact assessment on the Group under a deterministic scenario. This approach is complementary to a probability-based view.
(1) Ratio between the Eligible Own Funds (EOF) and the Solvency Capital Requirement (SCR).
SCOR GROUP 01Information about the SCOR Group 1.2.5.1. THE REINSURANCE BUSINESS
In treaty reinsurance, the ceding company is contractually bound to cede and the reinsurer is bound to assume a specified, contractually defined portion of a type or category of risks insured by the ceding company. Treaty reinsurers, including SCOR, do not separately evaluate each of the individual risks assumed under their treaties and, consequently, after a review of the ceding company’s underwriting practices, they are dependent on the original underwriting decisions made by the ceding company’s primary policy writers.
With respect to proportional (or quota share) reinsurance, the reinsurer, in return for a predetermined portion or share of the insurance premium charged by the ceding company, indemnifies the ceding company against the same portion of the losses under the covered insurance contract(s). In the case of reinsurance written on a non-proportional basis, through an excess of loss or a stop loss contract basis, the reinsurer indemnifies the ceding company against all or a specified portion of the loss sustained, on a claim by claim basis or for amounts incurred, in excess of a specified amount, known as the ceding company’s retention or reinsurer’s attachment point, and up to a negotiated reinsurance contract limit.
The Group is organized into three divisions (SCOR Global P&C, SCOR Global Life and SCOR Global Investments), of which there are two reportable operating segments, and one corporate cost center referred to as “Group Functions”. The reportable operating segments are: the SCOR Global P&C business, with responsibility for property and casualty insurance and reinsurance (also referred to in this Registration Document as “Non-Life”); and the SCOR Global Life business, with responsibility for Life reinsurance (also referred to in this Registration Document as “Life”). These two businesses represent SCOR’s two “operating segments” for purposes of IFRS 8 – Operating segments, and are presented as such in its consolidated financial statements, included in Section 4 – Consolidated financial statements. Each operating segment underwrites different types of risks and offers different products and services, which are marketed via separate channels; responsibilities and reporting within the Group are established on the basis of this structure. SCOR Global Investments is the asset management division of the Group. Its role is complementary to the two operating segments as it manages SCOR Global P&C’s and SCOR Global Life’s investment assets associated with the contract liabilities. SCOR Global Investments also manages assets on behalf of third parties although these activities are currently not considered material. Therefore, SCOR Global Investments is not considered a separate reportable operating segment for purposes of IFRS 8 – Operating segments.
The Group organizes its operations around three regional management platforms, or “Hubs” named EMEA Hub, Asia-Pacific Hub and Americas Hub. Each main location of the Hubs has local, regional and Group responsibilities, with the managing directors of each Hub reporting to the Group Chief Operating Officer. Each Hub includes the following functions: Legal and Compliance, Information Technology support, Finance and Human Resources. Hub shared service costs are allocated to the segments based on allocation keys. For a description of the Hub structure, see Section 1.2.3 – Organizational structure of SCOR.
The SCOR Global P&C segment carries out its global operations through the subsidiaries and branches of its two main global reinsurance entities (SCOR Global P&C SE and SCOR SE). Through those entities, their subsidiaries and branches, SCOR Global P&C is represented in three business regions EMEA, the Americas and Asia/Pacific and operates in four business areas: Property and Casualty Treaties; Specialty Treaties (including Credit and Surety, Decennial Insurance, Aviation, Space, Marine, Engineering, Agriculture risks and Alternative Solutions); Business Solutions (large corporate accounts underwritten through facultative insurance and reinsurance contracts and occasionally as direct insurance); and Business Ventures and Partnerships. In addition, SCOR Global P&C writes direct insurance, primarily on a businessto -business basis to cover certain large industrial P&C risks through the Business Solutions area of SCOR Global P&C and through the participation in Lloyd’s syndicates among which Channel 2015 for which SCOR is the sole capital provider. For a description of products and services, see Section 1.2.5.2 – Non-Life reinsurance.
The SCOR Global Life segment operates worldwide through the subsidiaries and branches of the global reinsurance companies SCOR Global Life SE and SCOR SE. Via this network SCOR Global Life is represented in three business regions Americas, EMEA and Asia/Pacific reinsuring Life and Health insurance risks along the three product lines Protection, Longevity and Financial Solutions with a strong focus on biometric risks. In order to achieve this, SCOR Global Life manages and optimizes the in-force book, deepens the franchise and has the best team, organization and tools. The franchise strategy is composed of three elements, which are the expansion of the footprint in protection to defend and strengthen market presence around the world, the diversification of the risk profile by growing health and longevity, and growth of consumer demand by supporting clients with unique distribution solutions. SCOR Global Life aims to achieve diversification, both from a geographical and a product lines perspective. For a description of products and services, see Section 1.2.5.3 – Life reinsurance.
SCOR’s cost center is referred to in this Registration Document as “Group Functions”. Group Functions is not an operating segment and does not generate revenues. The costs in Group Functions are Group-related and are not directly attributable to either the P&C or Life segment, but those costs that are indirectly attributable are allocated to the operating segments based on suitable allocation keys. Group Functions includes the cost of departments fulfilling duties for the benefit of the whole Group, such as Group Internal Audit, Group Finance departments (Tax, Accounting, Consolidation and Reporting, Financial Communication, Treasury and Capital Management, Financial Planning and Analysis), Group
SCOR Global P&C and SCOR Global Life, through their respective legal entities, are leading global reinsurers, executing an underwriting policy focused on profitability, developing value-added services and adhering to a cautious financial policy. As at December 31, 2017, the Group served more than 4,000 clients throughout the world. SCOR’s strategy of offering both P&C and Life products provides it with the benefits of balanced diversification (in terms of risks, geography and markets), which is a cornerstone of its strategy.
Political risk insurance covers the risk of losses due to measures taken by a government or similar entity which endangers the existence of a sales contract or commitment made by a public or private company of the country in which the covered operations are performed.
Marine Insurance includes insurance for hull and cargo as well as shipbuilding insurance. It also includes insurance for fixed and mobile offshore oil and gas units in construction and in operation.
Medical insurance covers medical and surgical expenses incurred by the insured person.
SCOR has set up a rigorous governance process and an ERM-focused organizational structure: ●● the Board of Directors approves risk appetite, risk limits and as a consequence, the capital allocated to insurance business investments on the basis of the Risk Committee’s recommendations; ●● the Executive Committee approves the overall investment strategy and the macro-positioning of the investment portfolio on the basis of the Group Investment Committee’s recommendation.
Based on the expertise initially developed for the management of the SCOR Group’s invested assets, SCOR Investment Partners decided in 2012 to open some of its investment strategies to third-party investors. While this business currently remains in the development phase, SCOR Investment Partners is maintaining good momentum and is increasing its third-party assets, which stood at EUR 2.2 billion as at December 31, 2017 (including undrawn commitments).
SCOR owns offices in Paris (France), Cologne (Germany), London (UK), Singapore and Madrid (Spain), where its local subsidiaries and branches have their corporate offices. Any surplus space is leased to third parties as part of SCOR’s investment management business. The Group leases office space for its other business locations. It leases space separate from its head office for business continuity planning purposes. The Group believes that the Group’s offices in each country in which it operates are adequate for its current needs.
In October 2013, SCOR Reinsurance Asia Pacific PTE LTD, signed a sale and purchase agreement to acquire two floors in a leasehold building under construction in Singapore. In subsequent years additional floors were acquired in the same building. The building is now completed and SCOR Singapore team moved into the new spaces during the spring of 2017.
See the social and environmental report in Appendix D, Note 2 – Environmental impact of SCOR’s activity.
●● R&D Center for Policyholder Behavior: providing support mainly in modeling and pricing lapse behavior within protection products; ●● R&D Center for Medical Expenses: carrying out studies on portfolios, enhancing risk modeling for pricing, and providing support in setting assumptions for new business, in particular new products.
The R&D Centers are part of the Actuarial & Risk Department of SCOR Global Life. Their employees are based in Paris, Cologne, Dublin, Charlotte, Kansas City, Chicago and Singapore and are active worldwide, responding to requests from the local teams in charge of business development and client relationships.
At the forefront of risk modeling, particularly extreme risks in Life and Non-Life businesses, the Group devotes considerable resources to fundamental research and the promotion of scientific risk management techniques in various disciplines. As well as prize-winning internal research projects, conducted with the assistance of students from renowned schools and universities, SCOR and SCOR Foundation for Science have signed partnership agreements with the following institutions: ●● a Research Chair on Risk, in cooperation with the Institut d’Economie Industrielle (IDEI) of Toulouse University, the Risk Foundation and Paris Dauphine University, is dedicated to the risk market and to value creation, with a research program specially focused on Long-Term Care. For SCOR, this implies costs of EUR 1.5 million spread over five years; ●● a Research Chair in Finance, in cooperation with the JeanJacques Laffont Foundation based in Toulouse, focuses on risk management, long-term investment, corporate governance and asset management strategy. For SCOR, the related cost is EUR 1.5 million spread over five years; ●● a Research Chair on Macroeconomic Risk in cooperation with the Paris School of Economics, is dedicated to the macroeconomic modeling of tail events, the consequences of uncertaint on the macroeconomic equilibrium, the contagion of extreme macroeconomic risks and crises, and to the long-term macroeconomic risks. For SCOR, the related cost is EUR 900,000 spread over three years; and
SCOR also organizes Actuarial Awards in Europe (Germany, France, Italy, Spain and Portugal, Sweden, Switzerland and the United Kingdom), and in Asia (Singapore). The Group places great importance on the development of actuarial science and each year awards prizes for the best academic papers in the field of actuarial science. These prizes are designed to promote actuarial science, develop and encourage research in this field and contribute to
SCOR GROUP01 Information about the SCOR Group the improvement of risk knowledge and management. The SCOR Actuarial Awards are recognized as a mark of excellence in the insurance and reinsurance industries. The winning papers are selected on the basis of criteria including an excellent command of actuarial concepts, the use of high-quality analysis instruments, and subjects that could have a practical application in the world of risk management.
SCOR was one of the first reinsurers to implement a global information system. This strategy is reaffirmed during the integration process after a new acquisition, when SCOR aims to rapidly reestablish a global integrated information system. In accounting, consolidation and financial reporting, SCOR has delivered its global SAP solution, embedding a unique chart of accounts and standard processes in all its Hubs throughout the Group. Over recent years, the accounting teams have worked alongside the IT Department, to design this new global finance system which is critical for SCOR.
Three years ago, SCOR Investment partners launched a strategic project, SGI 2.0, the first achievement of which was the outsourcing of middle and back office activities related to asset management to BNP Paribas Securities Services. This decision will allow to leverage their expertise in post-trade execution activities. A specific internal organization and related new procedures have been put in place to monitor the performance and the operational risks of this outsourcing. Front-office activities remain in-house, using the Bloomberg AIM solution which has been deployed in 2017.
SCOR GROUP 01Information about the SCOR Group the world. SCOR has also implemented an ambitious security plan based on stronger physical and logical access controls, cyber security reinforcement, large program for data protection, and recovery in the event of any type of disaster. Such capabilities are key enablers for the GDPR compliance effort, structured in a major company-wide project, due to be completed first half of 2018.
See Section 1.2.2 – History and development of SCOR, and Section 4.6.3 Note 3 – Acquisitions and disposals.
SCOR GROUP01 Market and financial review 1.3. MARKET AND FINANCIAL REVIEW
The US tax reform enacted in late 2017 may affect reinsurers with clients in the United States, but the reform bill has not yet had a material effect on operations of the reinsurance market as of the end of 2017.
The US Federal Reserve, on the back of a more advanced economic cycle, has been the first to tighten its monetary policy, increasing its central interest rate from 0.75% to 1.5% in the year 2017. Nevertheless, this evolution had virtually no impact on long-term interest rates, inflation remaining under control. As a consequence, US 10-year government rates at the end of 2017 stand at 2.41%, almost stable compared to the beginning of the year, like the 10-year rates in the Eurozone (0.43%), in the United Kingdom (1.19%) and in Japan (0.05%). However, the diverging monetary policies between the US Federal Reserve and the European Central Bank now imply a differential in central rates close to 2%. The higher yield of the US Dollar being perceived as transitory, the Euro has appreciated against the US currency by 14%, finishing the year at 1.20.
The improved economic outlook has also benefited emerging countries with an increase of commodity prices and more notably of crude oil which ends the year 2017 at circa USD 60.
SCOR will monitor developments in the course of 2018. SCOR is currently exploring alternate business structures to adapt to the new environment. The implementation process of certain potential business structures currently under consideration may result in a day one, non-recurring, tax expense during 2018 of between nil and approximately USD 350 million, and in a decline of SCOR’s 2017 year end solvency ratio, which, all other things being equal, is nevertheless expected to remain above 200%. External and internal uncertainties associated with the implementation of the TCJA and/or organizational changes, respectively, may not be fully resolved by year-end 2018.
On July 26, 2017, SCOR launched a share buy-back program commencing on July 27, 2017, for an amount of up to EUR 200 million, expiring mid-2019, subject to market conditions. For more information on the share buy-back program, see Section 4.6 – Notes to the consolidated financial statements, Note 12 – Information on share capital, capital management, regulatory framework and consolidated reserves.
In April 2017, SCOR Auber, a fully-owned subsidiary of SCOR SE, exercised an option to acquire an 80% stake in Château Mondot S.A.S., a French company operating a vineyard located in the Bordelais region of France, Château Troplong Mondot (Premier Grand Cru Classé B of Saint-Émilion), for a total consideration of EUR 178 million. The Group has held 20% of the company since 2014 (accounted for as an investment in associate in the Group consolidated IFRS financial statements).
The acquisition of control generated a gain on the previously held 20% equity interest.
In 2017 the Group recorded a negative one-off impact of EUR 71 million pre-tax, partially offset by EUR 45 million of IBNR release. The impact was caused by the UK Ministry of Justice’s decision to reduce the discount rate used to calculate lump sum awards in UK bodily injury cases (the Ogden Rate).
SCOR SE and its consolidated subsidiaries formed the world’s fourth largest reinsurer (1) in 2016 and 2015, serving more than 4,000 clients.
– operating as a mixed Non-Life and Life reinsurer in China using the license received in 2011, enabling SCOR to add Life reinsurance services to the existing Non-Life activities; and
●● the diversification of underwritten risks by product lines in Life reinsurance (Protection, Financial Solutions, Longevity) and in Non-Life reinsurance (Property and Casualty Treaties, Specialty Treaties, Business Solutions – large corporate accounts underwriting through facultative insurance and reinsurance contracts and occasionally as a direct insurance for industrial groups and services companies – and Business Ventures and Partnerships).
The following table shows the breakdown by volume of Life and Non-Life gross premiums written by geographical area based on market responsibility, taking into account the country in which the ceding company operates for treaty business and location of the insured for facultative business: Total SCOR Global Life SCOR Global P&C
Net earned premiums for the year ended December 31, 2017 amounted to EUR 13,281 million as compared to EUR 12,462 million and EUR 11,984 million for the years ended December 31, 2016 and 2015, respectively. The overall increase in net earned premiums of EUR 819 million from 2016 to 2017 and EUR 478 million from 2015 to 2016 is consistent with the evolution in gross written premiums.
The return on invested assets in 2017 was 3.5% as compared to 2.9% in 2016 and 3.1% in 2015.
Gross benefits and claims paid were EUR 11,963 million, EUR 9,848 million and EUR 9,499 million in 2017, 2016 and 2015, respectively. The level of gross benefits and claims paid for SCOR Global P&C increased to EUR 4,564 million during 2017 from EUR 3,164 million in 2016 (2015: EUR 3,135 million). For SCOR Global Life the level of gross benefits and claims paid increased to EUR 7,399 million in 2017 from EUR 6,684 million in 2016 (2015: EUR 6,364 million).
The Group cost ratio (1) calculated as the total of all management expenses less certain non-controllable expenses (e.g. bad debts), legal settlements, acquisition expenses and amortization, divided by gross written premiums, was 5.0% for the year ended December 31, 2017, unchanged from 5.0% in 2016 (2015: 5.0%). Management expenses for the years ended December 31, 2017, 2016 and 2015 were EUR 858 million, EUR 815 million, and EUR 776 million respectively, on a comparative basis.
Operating income for the year ended December 31, 2017 amounted to EUR 491 million as compared to EUR 951 million in 2016 and EUR 1,048 million in 2015. The decrease between 2016 and 2017 is notably due to the higher severity of natural catastrophes. For the year ended December 31, 2017, the operating segment SCOR Global Life contributed EUR 342 million (EUR 396 million and EUR 364 million in 2016 and 2015, respectively) and SCOR Global P&C EUR 265 million (EUR 680 million and EUR 808 million in 2016 and 2015, respectively) to the operating result. In 2017, 2016 and 2015, EUR (116) million, EUR (125) million and EUR (124) million respectively, related to Group functions.
SCOR generated consolidated net income of EUR 286 million in 2017, compared to EUR 603 million and EUR 642 million respectively for the years ended December 31, 2016 and 2015.
Although 2017 has been marked by an exceptional series of large natural catastrophes which occurred during the second half of the year, the results benefited from a positive underlying performance of SCOR Global P&C and SCOR Global Life, a prudent asset management policy which safeguarded shareholders’ interests whilst delivering solid returns. In 2017, the effective tax rate was 16.3%. See Section 4, Note 17 – Income taxes, for explanations on the effective tax rate.
In 2015, SCOR benefited from a strong operating performance, a prudent asset management policy which safeguarded shareholders’ interests while delivering solid returns and a rather benign year in terms of natural catastrophes. In 2015, the effective tax rate was 26.0%.
Return on equity was 4.5%, 9.5% and 10.6% for the years ended December 31, 2017, 2016 and 2015 respectively. Basic earnings per share were EUR 1.53, EUR 3.26 and EUR 3.46 for the years ended December 31, 2017, 2016 and 2015, respectively.
SCOR Global P&C is a leading P&C reinsurer with a worldwide footprint.
In 2015, gross written premiums increased by 16% compared to 2014 from EUR 4,935 million to EUR 5,723 million. At constant exchange rates the growth was 4.9%, in line with the forecasts at the beginning of the year.
In 2016, the combined ratio reflected very strong technical results, with a decreasing net attritional loss ratio (54.1% compared to 56.9% in 2015) despite higher natural catastrophes compared to 2015. Natural catastrophes had a 5.5% impact on the Group net combined ratio for year-end 2016 compared to a 2.2% impact in 2015 and a 4.2% impact in 2014.
Number of catastrophes occurred during the financial year 17 (3) 18 (5) 11 (6)
Losses due to catastrophes, net of retrocession (2) 779 (4) 274 111
In 2016, SCOR was affected by the following catastrophes which resulted in total net estimated losses of EUR 307 million as at December 31, 2016: In EUR million Cat losses
In 2015, SCOR was affected by the following catastrophes which resulted in total net estimated losses of EUR 111 million as at December 31, 2015: In EUR million
SCOR Global Life ranks among the top four life reinsurers worldwide (1) and has grown by 7.0% in gross written premiums from EUR 8,187 million in 2016 to EUR 8,764 million in 2017 (a 8.5% increase at constant exchange rates (2)). SCOR Global Life has increased its new business premiums from new clients and with existing clients in all three regions and across all three product lines. Growth was recognized in the Protection product line in Americas, in the Financial Solutions product line in Asia Pacific and in the Longevity product line in Europe.
SCOR Global Life has maintained its leadership in the US Life reinsurance market (3), the largest life reinsurance market in the world. SCOR Global Life entered in 2017 the large Health reinsurance market, with a platform in Minneapolis, and leveraging its strong expertise and position in the US Individual Life reinsurance market.
Net investment income for the year ended December 31, 2017 amounted to EUR 764 million compared to EUR 670 million and EUR 666 million for the years ended December 31, 2016 and December 31, 2015, respectively.
Fair value through income on invested assets (2) (4) (5) 11 5 11
Net interest income on funds withheld and contract deposits 177 182 184
IFRS INVESTMENT INCOME NET OF INVESTMENT MANAGEMENT EXPENSES 728 694 692
IFRS. (3) Impairment/depreciation of real estate is presented net of EUR 3 million depreciation attributable to 3rd parties. (4) Fair value through income on invested assets includes EUR 13 million of step acquisition revaluation gain. (5) Fair value through income on invested assets includes EUR (1) million investment income from other consolidated entities. (6) Real estate financing expenses relate to real estate investments (buildings owned for investment purposes) only, net of financing expenses attributable to 3rd parties.
During 2017, invested assets decreased to EUR 18,580 million from EUR 19,226 at December 31, 2016, mainly as a result from negative FX impacts, partially offset by positive income generated by the invested assets portfolio in 2017 as well as a positive mark-to-market development net of realized gains.
Meanwhile, SCOR further rebalanced its invested assets portfolio towards its target asset allocation, and increased its exposure to corporate bonds, representing 46% of invested assets at the end of 2017 compared to 38% at the end of 2016. Over the same period, government bonds & assimilated were reduced from 25% to 24% of invested assets and covered bonds & Agency MBS from 11% to 10%. The fixed income portfolio continues to represent a significant portion of SCOR’s invested assets with 81% invested within this asset class (as at year end 2016: 79%), and an average rating at “A+” at the end of 2017. The duration of the fixed income portfolio stood at 4.6 years at the end of 2017 compared to 4.5 years at the end of 2016.
The real estate portfolio decreased to EUR 680 million as at December 31, 2017, subsequent to the sale of a building and stands at 4% of invested assets (as at December 31, 2016: EUR 875 million, 5% of invested assets).
Other investments, comprising mainly Insurance-Linked Securities (ILS), private equity and infrastructure funds and non-listed equities slightly increased to EUR 494 million as at December 31, 2017 and represent 3% of invested assets (as at December 31, 2016: EUR 467 million, 2% of invested assets).
TOTAL INSURANCE BUSINESS INVESTMENTS AND CASH AND CASH EQUIVALENTS 1,001 15,207 1,870 696 829 1,023 20,626 8,501 29,127 120 114 29,361
(1) Including Atlas CAT bonds and foreign exchange derivatives. (2) Loans and receivables excluded from invested assets are certificates of deposit (CDs) maturing in more than three months and less than twelve months. (3) Assets invested by third parties in mutual funds and non-controlling real estate investments fully consolidated by SCOR. (4) Certain consolidated entities held for investment purposes have been included in the scope of Invested Assets in Q3 2017. (5) Fair value less carrying amount of real estate investments excluding EUR 9 million attributable to third-party investors. (6) Real estate financing related to real estate investments (buildings owned for investment purposes) excluding EUR 30 million attributable to third-party investors.
Investments at fair value through income - - - 278 - 534 812 - 812 - - 812
SCOR GROUP01 Market and financial review 1.3.6. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
The strength of the 2017 results and balance sheet demonstrates the effectiveness of SCOR’s strategy which is based on extensive business and geographical diversification, focusing on traditional reinsurance activity with reinsurance liabilities with very limited exposure to economic activity risks, and no material off balance sheet exposure.
Shareholders’ equity stood at EUR 6,225 million at December 31, 2017 from EUR 6,695 million at December 31, 2016 and EUR 6,363 at December 31, 2015. See Section 4.5 – Consolidated statement of changes in shareholders’ equity for a description of this change.
Book value per share (1) stood at EUR 33.01 at December 31, 2017 compared to EUR 35.94 and EUR 34.03 at December 31, 2016 and 2015, respectively.
For more information on regulatory restrictions on the use of capital, see Section 1.2.1 – Introduction, and Section 4.6 – Notes to the consolidated financial statements, Note 12 – Information on share capital, capital management, regulatory framework and consolidated reserves.
For a description of the derivatives used to hedge the risks related to financial liabilities, see Section 4.6 – Notes to the consolidated financial statements, Note 7 – Insurance business investments.
On September 10, 2012, the Group placed perpetual subordinated notes, with a first call date in June 2018, for an aggregate total amount of CHF 250 million. Furthermore, on September 24, 2012, SCOR increased these perpetual subordinated notes by CHF 65 million.
See Section 4.6 – Notes to the consolidated financial statements, Note 11 – Cash and cash equivalents.
(1) In September 2014 and December 2015, SCOR issued two subordinated notes for EUR 250 million and EUR 600 million, respectively, and refinanced through the proceeds of these two notes the optional redemptions of the remaining balance of the 6.154% undated deeply subordinated EUR 350 million notes callable in July 2016 and of the 5.375% fixed to floating rate undated subordinated CHF 650 million notes callable in August 2016. Had these redemptions been effective on December 31, 2015, the leverage ratio would have amounted to 20.6%.
Cash flow used in financing activities amounted to EUR (467) million in 2017 (EUR (895) million in 2016 and positive cash flow of EUR 417 million in 2015). These amounts principally reflect the dividend payments, the issuance of one subordinated debt in 2016 and two subordinated debts in 2015 as well as the repayment of two existing debts in 2016 and of two other existing debts in 2015.
The Group’s total liquidity defined as cash and cash equivalents (including cash and cash equivalents from third parties) (2), shortterm government bonds with maturities above three months and below twelve months and bank overdrafts, which is well diversified across a limited number of banks, stands at EUR 1.0 billion at the end of 2017 (2016: EUR 2.3 billion and 2015: EUR 2.0 billion) supported by very strong operating cash flow generation. The Group executed its strategy of redeployment of liquidity as described by the “Vision in Action” asset management policy.
(1) Solvency ratio based on Solvency II requirements. The Group solvency final results are to be filed to supervisory authorities by June 2018, and may differ from the estimates expressed or implied in this Registration Document. These estimates were prepared on the basis of the business structure in existence at December 31, 2017 and tax assumptions consistent with those applied to the 2017 annual IFRS Group financial statements.
In EUR million As at 12/31/2017 As at 12/31/2016 As at 12/31/2015
Total expenses as per profit & loss account (1) (801) (761) (725)
Effect of changes in foreign exchange rates (3) (261) (90) 261
See Section 4.6 – Notes to the consolidated financial statements, Note 26 – Subsequent events, for further details on the events that occurred since the end of the 2017 financial year.
The information published by SCOR within the last 12 months from March 3, 2017 to February 23, 2018 is available for downloading from the following sites: ●● Autorité des marchés financiers (AMF): ●● Bulletin des Annonces Légales Obligatoires (BALO): ●● SCOR:
By combining the roles of Chairman and Chief Executive Officer, the Company benefits from a faster decision-making process and strategic alignment in terms of its governance bodies. Since 2011, SCOR’s results have demonstrated the success of this form of governance. On April 27, 2017, the Shareholders’ Meeting renewed Denis Kessler’s director term for a four-year duration and the Board of Directors held on April 27, 2017 re-appointed him as the Group’s Chairman and Chief Executive Officer.
The Board of Directors of the Company also limited the powers of the Chairman and Chief Executive Officer by stipulating in the Board’s Internal Charter the need for prior Board approval for the following operations: ●● organic growth investments and major internal structuring operations; ●● any significant operation falling outside of the scope of the strategy announced by the Group; ●● any project regarding a sale or acquisition, merger or asset contribution higher than one hundred million euros. In addition, any project regarding a sale, in one or more transactions, concerning at least half of the Company’s assets must be submitted to the Shareholders’ Meeting, as recommended by the AFEP-MEDEF corporate governance code.
Thus, in 2017, all of the directors were independent, except the Chairman and Chief Executive Officer, the employee director, Thierry Derez since COVEA crossed the 5% shareholding threshold in April 2016, and Claude Tendil who has been a director for over 12 years.
Furthermore, according to the Board’s Internal Charter, the directors may ask that the Company’s principal executives attend meetings of the Board of Directors to interview them on topics related to the performance of their functions in the absence of the Chairman and Chief Executive Officer.
The information referred to in Article L. 225-37-5 of the French Commercial Code is made public in the Report on corporate governance which is included in this Registration Document.
SCOR SE’s bylaws provide that the Board of Directors shall comprise no fewer than nine and no more than eighteen members. The actual number of directors may be modified by the shareholders at Shareholders’ Meetings. The Board of Directors cannot by itself increase the number of its members.
The following table displays the changes in the composition of the Board of Directors, during the year: Nom 1st nomination Renewal Departure Sex Nationality
REPORT ON CORPORATE GOVERNANCE02 Corporate officers, executives and employees 2.1.2.1. INFORMATION CONCERNING THE MEMBERS OF THE BOARD OF DIRECTORS
French – Age: 65 – SCOR SE 5, avenue Kléber 75116 Paris, France
●● Director of BNP Paribas SA (France)* ●● Director of Invesco Ltd (US)*
POSITIONS THAT EXPIRED DURING THE LAST FIVE YEARS ●● Director of Bolloré SA (France)*
Denis Kessler, a French citizen, is a graduate of HEC business school (École des Hautes Études Commerciales), holds a PhD in economics and advanced degrees in economics and social sciences, and is a Fellow of the French Institute of Actuaries. He was Chairman of the Fédération Française des Sociétés d’Assurance (FFSA), Senior Executive Vice-President 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 Officer on November 4, 2002. In January 2016, he was elected to join the Academy of Moral and Political Sciences of the Institut de France.
●● Chairman and Chief Executive Officer of Aéroports de Paris (France)*
●● Chairman and Director of Média Aéroports de Paris (France) ●● Director of Régie Autonome des Transports Parisiens (RATP) (France) ●● Member of the Board of Directors of Société de Distribution Aéroportuaire (SDA) (France) ●● Member of the Executive Committee of Relay@ADP (France) ●● Member of the Supervisory Board of le Cercle des économistes SAS (France) ●● Chairman of the Fondation d’Entreprise Groupe ADP (France) ●● Chairman of the Board of Directors of Établissement public du domaine national de Chambord (France) ●● Member of the Board of Directors of Airport Council International (ACI) Europe (Belgium)
●● Chairman of the Board of Directors of Egis (France) ●● Chairman of the Board of Directors of Fonds Stratégique d’Investissement (France) ●● Chairman of the Supervisory Board of Société Nationale Immobilière (France) ●● Chairman of the Management Board of Fonds de réserve des retraites (France) ●● Vice-Chairman of the Board of Investors of InfraMed (France) ●● Director of Musée du Louvre-Lens (France) ●● Director of OSEO (France) ●● Director of Veolia Environnement (France)* ●● Director of FSI-PME Portefeuille (France) ●● Director of CNP Assurances (France)* ●● Director of CDC Entreprises (France) ●● Chief Executive Officer of Caisse des dépôts et consignations (France) ●● Permanent representative of Caisse des dépôts et consignations at the Board of Directors of La Poste (France) ●● Director and Vice-Chairman of the Board of Directors of TAV Havalimanlari A.S. (TAV Airports) (Turkey) ●● Director and Vice-Chairman of the Board of Directors of TAV Yatirim Holding A.S. (TAV Investment) (Turkey) ●● Director and Vice-Chairman of the Board of Directors of TAV Tepe Akfen Insaat Ve Isletme A.S. (TAV Construction) (Turkey) ●● Chairman of the Board of Directors of ACI Europe (Belgium) ●● Member of the Supervisory Board of NV Luchthaven Schiphol (Netherlands)
●● Investments Accounting Process & Control Manager, SCOR Group Finance Investment
French – Age: 40 – BNP PARIBAS 3, rue d’Antin 75002 Paris, France
●● Member of the Management Board in charge of the Group finance, strategy, legal affairs and Group company secretary of BPCE group (France)
Member of the Strategic Committee, Risk Committee, Compensation and Nomination Committee and Corporate and Social Responsibility Committee
Date of first appointment: April 25, 2013 Expiration of term: 2021
●● Director of GMF Vie (France) ●● Chairman of the Board of Directors of Azur-GMF Mutuelles Assurances Associées (France) ●● Director and Vice-Chairman of Covéa Ré – Société de Réassurance Mutuelle (France) ●● Director of Union de Groupe Mutualiste Mutaris (France) ●● Permanent representative of Azur-GMF Mutuelles Assurances Associées on the Board of Directors of Assistance Protection Juridique (France)
Member of the Strategic Committee, Risk Committee, Audit Committee, Compensation and Nomination Committee and Corporate and Social Responsibility Committee
Belgian – Age: 46 – SIMONT BRAUN SCRL Avenue Louise, 149/20 1050 Brussels, Belgium
●● Partner and member of the Executive Committee of the law firm Simont Braun SCRL (Belgium)
●● Director of Erasme Hospital (Belgium) ●● Lecturer at the Université libre de Bruxelles (Belgium)
●● Executive Chairman of the “Wealth Management & Trust” of Rothschild & Co group, function which includes Chairman of the Board of Directors of Rothschild Bank AG (Switzerland)*
Bruno Pfister, a Swiss citizen, lawyer at the Geneva Bar and MBA graduate from UCLA Anderson School of Management, is, since December 2014, Executive Chairman of the “Wealth Management & Trust” of Rothschild & Co group function as well as the Chairman of the Board of Directors of Rothschild Bank AG. He was Vice-Chairman of the Swiss Insurance Association, Chairman and Group Chief Executive Officer of Swiss Life AG, member of the Executive Committee of Crédit Suisse Banking and Chief Financial Officer and member of the Executive Board of LGT Groupe AG.
French – Age: 59 – MACIF 17-21, place Étienne-Pernet 75015 Paris, France
French – Age: 51 – MALAKOFF MÉDÉRIC ASSURANCES 21, rue Laffitte 75317 Paris Cedex 09, France
British – Age: 49 – SCOR SE 5, avenue Kléber 75116 Paris, France
●● Director of Pernod Ricard (France)* ●● Director of Phoenix Group Holdings (UK)* ●● Director of Uniqa Insurance Group AG (Austria)* ●● Member of the Supervisory Board of Château Mondot (France) ●● Member of the Supervisory Board of Bank Gutmann AG (Austria) ●● Director of SCOR Global Life Americas Reinsurance Company (US)** ●● Director of SCOR Global Life USA Reinsurance Company (US)** ●● Director of SCOR Reinsurance Company (US)** ●● Director of Aviva Insurance Limited (UK)
French – Age: 72 – GENERALI FRANCE 2, rue Pillet-Will 75009 Paris, France
●● Chairman of the Board of Directors of GENERALI IARD (France)
Claude Tendil, a French citizen, began his career at the Union des Assurances de Paris (UAP) in 1972. He joined the Drouot group in 1980 as Chief Operating Officer. He was promoted in 1987 to Chief Executive Officer, before being appointed Chairman and Chief Executive Officer of Présence Assurances, a subsidiary of the AXA group. In 1989, he was appointed Director and Chief Executive Officer of AXA-Midi Assurances, Chief Executive Officer of AXA from 1991 to 2000, then Vice-Chairman of the Management Board of the AXA group until November 2001. During this same period, he was also Chairman and Chief Executive Officer of the AXA group’s French insurance and assistance companies. Claude Tendil was appointed Chairman and Chief Executive Officer of the Generali group in France in April 2002 until October 2013, when he became the Chairman of the Board of Directors, holding this position until June 2016.
●● Director of BNP Paribas (France)* ●● Director of SCOR UK (UK)** ●● Non-executive Member of the Board of the Department of Culture, Media and Sports of the UK Government (UK) ●● Director of Control Risks International Ltd (UK)
●● Director of CDC Group Plc (UK) ●● Member of the Board of HMG Ministry of Justice (UK) ●● Director of Ballarpur Industries (India) ●● Director of BILT Paper (India) ●● Member of the Board of the Batten School of Leadership, University of Virginia (US)
Fields Wicker-Miurin, an American and British citizen, studied in France at the Institut d'Études Politiques de Paris and then in the United States and Italy. She graduated from the University of Virginia and Johns Hopkins University. Fields Wicker-Miurin began her career in banking, before joining Strategic Planning Associates (now Oliver Wyman Consulting) as a senior partner where she was the main advisor to Lloyd’s of London. In 1994, she became Chief Financial Officer and Head of Strategy of the London Stock Exchange. She was a member of the Nasdaq Technology Advisory Council and advised the European parliament on financial markets harmonization. In 2002, she was one of the founders of Leaders' Quest, a social enterprise that works with leaders from all sectors and across the globe who want to make a responsible, positive difference through their leadership. In 2007 she was awarded the OBE (Officer of the British Empire) and in 2011 she was awarded Fellow of King College London. She is also a director of BNP Paribas, of Control Risks International Limited and a non-executive Member of the Board of the Department of Culture, Media and Sports of the UK Government where she chairs the Audit and Risk Committees.
REPORT ON CORPORATE GOVERNANCE02 Corporate officers, executives and employees 2.1.2.2. FUNCTIONING OF THE BOARD OF DIRECTORS
As of December 31, 2017, the membership of the Board of Directors is as follows: ●● 66.7% are independent Directors (75% as at December 31, 2016) and 72.7% excluding the employee director. The Audit Committee is fully composed of independent directors, the Risk Committee is composed of 66.7% of independent directors and the Compensation and Nomination Committee is composed of 57.1% of independent directors (66.7% excluding the employee director); ●● 58.3% are directors with past experience in the insurance or reinsurance industry, same as at December 31, 2016. The other directors work in the financial sector, banking, legal advisory services and other services; ●● 33.3% are non-French directors, same as at December 31, 2016 with directors who are American, British, Belgian and Swiss; ●● 41.7% are women same as at December 31, 2016. The composition of the Board of Directors is therefore compliant with applicable law.
In accordance with the provisions of the regulation governing the election of an employee candidate for the position of director of SCOR SE adopted by SCOR SE’s Board of Directors on April 3, 2007, the Board of Directors of SCOR SE has an employee director, until the Shareholders’ Meeting to be held in 2018, who is elected by the Shareholders’ Meeting on the proposal of the Board of Directors following a two-round election by universal suffrage, involving all of the Group’s employees. Once appointed by the Shareholders’ Meeting, the employee director has the same rights and obligations as the other members of the Board of Directors (including the right to vote on any decision of the Board of Directors). Michèle Aronvald is the current employee director whose term of office expires at the end of the Shareholders’ Meeting to be held in 2018. She is not a director representing employees within the meaning of the French Commercial Code which historically did not apply to SCOR SE as the criteria set forth by the law were not met.
At the Shareholders’ Meeting held on April 27, 2017, SCOR changed its bylaws in order to introduce new rules for the election of the employee director, pursuant to articles L. 225-27-1-V and L. 225-27 of the French commercial Code. The employee director shall now be elected by the employees of SCOR SE and its direct and indirect subsidiaries whose head office are in France. The mandate of the employee director elected pursuant to these new rules will begin at the end of the Ordinary and Extraordinary Shareholders’ Meeting to be held in 2018.
The Board of Directors’ meeting held on March 31, 2004 adopted a Board Internal Charter (the “Board Internal Charter”) in order to enhance or specify the rules governing the Board. This Board Internal Charter was amended by successive decisions of the Board of Directors with the last one being dated October 25, 2017. It is available on the website of the Company (www.scor.com). The main provisions of the Board Internal Charter are provided below: Functioning and duties of the Board of Directors of the Company
The Board meets at least four times a year. In accordance with legal provisions, it approves the financial statements, proposes dividends, and makes investment and financial policy decisions. Beyond the cases provided by law, some operations are subject to the prior approval of the Board: any major organic growth investments or internal restructuring operations, any significant operation falling outside of the strategy announced by the Group and any project regarding a sale or acquisition, merger or asset contribution higher than one hundred million euros (EUR 100 million). The Board’s duties and responsibilities beyond those set forth by applicable laws and regulations are set out in SCOR SE’s bylaws.
The independence of the directors is assessed on the basis of the following criteria. Accordingly, an independent director: 1. must not currently be, or have been within the last five (5) years, an employee or a corporate officer of SCOR or an employee or a director of a company consolidated by the Company. However, a director may be deemed to be independent provided that he abstains from taking part in Board decisions in the event of conflict of interest with the subsidiary concerned; 2. must not have received, in any form, compensation greater than EUR 100,000 from the Company within the last five years, excluding that received as directors’ fees; 3. must not be an executive corporate officer of a company in which the Company holds, directly or indirectly, a directorship, or in which an employee designated as such or an executive corporate officer of the company (current or in the last five years) holds a directorship;
The table below presents the results of the detailed review, criterion by criterion, of the independence of each director carried out by the Board of Directors in February 2018, based on the proposal of the Compensation and Nomination Committee, with regard to the criteria stated above: Denis Kessler, Chairman of the Board No No No Yes No Yes Yes Yes No
Thomas Saunier (1) Yes Yes Yes Yes Yes Yes Yes Yes Yes
Moreover, the three following directors are a shareholder of SCOR SE (Malakoff Médéric Assurances) or represent a shareholder of SCOR: ●● Malakoff Médéric Group (3.04% of SCOR’s capital and 3.13% of voting rights as of December 31, 2017), represented by Thomas Saunier; ●● Jean-Marc Raby, Chief Executive Officer of Macif (1.49% of SCOR’s capital and 1.54% of its voting rights as of December 31, 2017); ●● Claude Tendil, Chairman of the Board of Directors of Generali IARD, Generali Group (0.71% of SCOR’s capital and 0.74% of its voting rights as of December 31, 2017).
Directors undertake to hold no more than four other corporate officer positions in listed companies, including foreign companies, outside of the Group. They are required to consult the Lead Independent Director and the Chairman of the Compensation and Nomination Committee prior to their prospective appointment date as Director, Chairman and Chief Executive Officer, Chairman of the Board of Directors, Chief Executive Officer, member of a Supervisory Board or Management Board or Chairman of an Executive Board of other companies, whether the head office of such companies is located in France or abroad, so that the Board of Directors assisted by the Compensation and Nomination Committee, can verify that the directors are in compliance with applicable limits imposed on multiple offices and that any potential conflict of interest has been dispelled.
The Board of Directors of SCOR SE decided, in order to protect the Company’s interests, to implement an internal control program to prevent risks of conflict of interest through: 1. a review by the Audit Committee of related party transactions; 2. an annual review of each director’s situation, in order to analyze his or her independent status and the existence of any potential existing conflicts of interests; 3. its Board Internal Charter, according to which any director in a situation involving a risk of conflict of interest undertakes to resign from his or her position if the conflict situation is not solved; 4. the adoption of a Code of Conduct communicated to all employees. This Code establishes reinforced requirements as regards the prevention of situations with risks of conflict of interests. It is complemented by a policy defining the alert procedures (“whistleblowing”) available for employees, which are reported to the Audit Committee.
During its meetings in 2017, the main topics which were discussed were: ●● financial and compliance matters: approval of the quarterly, half-year and annual financial statements, approval of the half-year interim report, hybrid debt issuance, 2017 budget and operating plan, 2016 embedded value, review of the 2016 Registration Document and approval of the 2016 report of the Chairman of the Board, annual review of the system of governance and of the Group Policies; ●● risk matters: quarterly review of the risk dashboard, approval of the regulatory reports (RSR and SFCR), update on Solvency II, review of the internal model results, approval of the 2017 ORSA report; ●● governance and human resources matters: review of the Group compensation policy, approval of stock option and free share allocation plans, compensation of the executive corporate officer, review of the “say on pay”, human resources briefing and outlook, assessment of the Board of Directors and follow-up, annual deliberation on professional gender equality and equal pay, annual review of the fitness and properness of directors and the persons effectively running the Company, employee director appointment terms, director’s fees; ●● review of Corporate and Social Responsibility matters: review of the CSR strategy, creation of a committee dedicated to the corporate and social responsibility matters; ●● Shareholders’ Meeting: convening of the Shareholders’ Meeting and approval of the related reports; ●● business matters: 2017 investment strategy, presentation of the longevity business line in the UK; ●● other topics: annual review and authorization of related party agreements, approval of the modifications made to the Board Internal Charter, planned merger of SCOR SE, SCOR Global P&C SE and SCOR Global Life SE, approval of the Company’s statement with regard to the UK Modern Slavery Act.
Pursuant to the recommendations stated by the AFEP-MEDEF corporate governance code and in the Board Internal Charter of SCOR SE, an assessment of the Board of Directors and of its Committees was conducted at the end of 2017/beginning of 2018.
Fields Wicker-Miurin, member of the Compensation and Nomination Committee, managed this assessment by sending a questionnaire to the directors and by leading in-depth individual interviews with them. The questionnaire was about the composition of the Board, its organization, its functioning and the composition and functioning of its Committees. All the directors completed this questionnaire. Fields Wicker-Miurin presented her report during the meetings of the Compensation and Nomination Committee held on January 30, 2018, the non-executive directors’ session and the Board of Directors held on February 21, 2018.
The directors expressed their satisfaction on the organization, functioning and composition of the Board and its Committees. The ratings are at a high level and stable compared to last year. The directors praised the quality of governance, particularly with regard to compliance with the AFEP-MEDEF Code, directors’ attendance, the presence of independent directors in subsidiaries and the compliance with the policy on potential conflicts of interest of directors. They also highlighted the quality of the Company’s control of financial reporting and the quality of the documents and topics discussed at the seminar of the Strategic Committee.
REPORT ON CORPORATE GOVERNANCE 02Corporate officers, executives and employees 2.1.2.6. NEGATIVE DISCLOSURES ABOUT MEMBERS OF THE BOARD OF DIRECTORS AND THE EXECUTIVE COMMITTEE
As at the issuance date of the Registration Document, and to SCOR’s knowledge, there are no family relationships between the directors or between a director and a member of the Executive Committee.
To SCOR’s knowledge, during the last five years: ●● no director and no member of the Executive Committee has been convicted of fraud; ●● no director and no member of the Executive Committee has been associated with a bankruptcy, sequestration, or liquidation; ●● no director and no member of the Executive Committee has been the subject of an incrimination or official public sanction issued by statutory or regulatory authorities; ●● no director and no member of the Executive Committee 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.
To SCOR’s knowledge, there are no conflicts of interest between the duties of the directors and members of the Executive Committee with regard to SCOR and their private interests.
(1) Representing Malakoff Médéric Assurances, director. (2) Member of the Strategic Committee until April 27, 2017. (3) Member of the Strategic Committee from April 27, 2017.
The Committee may consult the Chief Financial Officer, the Head of Internal Audit, the Heads of the actuarial and compliance functions and the Statutory Auditors on these issues, including in the absence of the Chairman and CEO. It may also call upon outside experts. During the 2017 financial year, and for each meeting, it met with the Statutory Auditors and the Group Chief Financial Officer (during the review of the financial statements), in the absence of the Chairman and CEO. The review of the financial statements was completed by a presentation made by the Statutory Auditors highlighting the main results of their work and the accounting methods used, as well as by a presentation made by the Group Chief Financial Officer describing risk exposure and material off-balance sheet liabilities.
The discussions focused primarily on the following matters: ●● accounting and financial responsibilities: the review of the quarterly, half-year and annual financial statements, the review of the half-year interim report, the hybrid debt issuance, the review of the 2017 budget and operating plan, the review of the Statutory Auditors’ report, the review of the 2016 Registration Document and of the management report, the review of the financial resolutions for the Annual Shareholders’ Meeting, the review of some authorisations prior to their submission to the Board; (1) The attendance rate does not take into account the directors whose term ended on April 27, 2017.
The average attendance rate of the Committee members was 95%. The following chart states the attendance of the Audit Committee’s members in 2017: Board members Attendance rate (%)
The Committee discussed the following matters: main exposures and main risks of the Group, the Group’s risk appetite, the capital shield policy and its effectiveness, Solvency II compliance, the review of the follow-up letters (lettres de suite) received from the ACPR, the review of RSR and SFCR reports, the review of the Group Policies required by Solvency II, the internal model results, the review of the 2017 ORSA report, and the changes in prudential regulations.
The average attendance rate of the Committee Members was 100%. The following chart states the attendance of the members of the Risk Committee in 2017: Board members Attendance rate (%)
The Compensation and Nomination Committee is composed of Augustin de Romanet (Chairman), Michèle Aronvald (employee director), Thierry Derez, Vanessa Marquette, Bruno Pfister, Claude Tendil and Fields Wicker-Miurin.
The Committee discussed the following matters: ●● compensation matters: updating of the Group compensation policy, share and stock option allocation plans, compensation of the Chairman and Chief Executive Officer and of the other members of the Executive Committee, review of the “say on pay”, HR review and outlook, review of the succession plan of the key executives of the Group, review of the rules for granting directors’ fees; ●● governance matters: renewal of the Board of Directors of SCOR SE, review of the independence, fitness and properness of the directors and of the persons effectively running SCOR SE, assessment of the Board and its Committees and follow-up on the related action plan, review of the cost of the governance within the Group in 2016, review of the Board Internal Charter, annual deliberation on gender equality and equal pay, CSR strategy.
The average attendance rate of the Committee members was 100%. The following chart states the attendance of the members of the Compensation and Nomination Committee in 2017: Board members Attendance rate (%)
Except the employee director, Thierry Derez and Claude Tendil, the other members are independent.
No Corporate and Social Responsibility Committee meeting was held in 2017. The first meeting was held in February 2018.
It is tasked with assisting and advising the Board of Directors and proposing to the Board any necessary measures and decisions in the event of a crisis affecting the Company, the Group or one of its members, as well as following up on such measures and decisions.
This session met twice in 2017, under the chairmanship of the Lead Independent Director. On this occasion, non-executive directors discussed of possible follow-up actions to the annual evaluation of the Board and were informed of the deliberations of the Compensation and Nomination Committee regarding the performance of the executive corporate officer.
The Executive Committee is composed of executives of the Company and of its subsidiaries. It is responsible for implementing the strategy defined by the Board of Directors, under the Chief Executive Officer’s authority.
Capital Europe, before joining GE Insurance Solutions as Financial Planning and Analysis Manager for Global Property and Casualty Reinsurance. In 2003, he was appointed Chief Financial Officer of GE Frankona Group before becoming Chief Financial Officer of Converium Holding AG in July 2006. In September 2007, Paolo De Martin was appointed Group Chief Financial Officer of SCOR. In January 2014, Paolo De Martin, after a short sabbatical period, was appointed Chief Executive Officer of SCOR Global Life.
Benjamin Gentsch, a Swiss citizen, graduated with a degree in management from the University of Saint-Gall where he specialized in insurance and risk management. From 1986 to 1998, he held several positions at Union Reinsurance Company, where from 1990 to 1998 he directed treaty underwriting in Asia and Australia. In 1998, he joined Zürich Re as head of international underwriting responsible for strengthening the Company’s position in Asia, Australia, Africa and Latin America. He also supervised the “Global Aviation” reinsurance department and developed its “Global Marine” department. In September 2002, Benjamin Gentsch was appointed Chief Executive Officer of Converium Zürich, then Executive Vice- President in charge of Specialty Treaties. In September 2007, he was appointed Chief Executive Officer of SCOR Switzerland and Deputy Chief Executive Officer of SCOR Global P&C. In March 2016, he was appointed non executive director of Intercona Re.
Frieder Knüpling, a German citizen, holds degrees in mathematics and physics from the Universities of Göttingen and Freiburg. He worked as a lecturer and research assistant at the University of Freiburg and several other colleges, until he received a PhD in economics based on research into the econometric modeling of macroeconomic and financial data. From 1999 to 2002, he worked for Gerling-Konzern Globale Rückversicherungs-AG and its UK Life Reassurance subsidiary, dealing with pricing and valuation. As at 2003, he headed the Corporate Actuarial & Treasury department of the Revios Group. In 2007, Frieder Knüpling headed SCOR’s Corporate Actuarial Department, reporting to the Chief Risk Officer. He was appointed Deputy Chief Risk Officer of SCOR in December 2008. In July 2010, he was appointed Deputy Chief Executive Officer of SCOR Global Life and member of the SCOR Group Executive Committee. On October 1, 2012, he was appointed Deputy Group Chief Risk Officer and on January 17, 2014, he was appointed Group Chief Risk Officer. Frieder Knüpling holds degrees in Mathematics and Physics and a PhD in Economics. He is a fellow of the Deutsche Aktuarvereinigung (DAV) and a Chartered Enterprise Risk Analyst (CERA).
Mark Kociancic, a Canadian citizen, is a graduate of the University of Toronto and holds a Bachelor of Commerce degree. He also holds a Chartered Professional Accountant (CPA) designation and a Chartered Financial Analyst (CFA) designation. Upon graduation in 1992, Mark joined Ernst & Young within its Life and P&C insurance practice and has subsequently held progressively senior positions within the insurance industry with St Paul Guarantee, Avalon Risk Associates and Tokio Marine, prior to joining SCOR US as Senior Vice-President and Chief Financial Officer in May 2006. He was appointed SCOR Americas Hub Chief Financial Officer in June 2008 and was promoted to Executive Vice-President in July 2010. He was appointed Deputy Chief Financial Officer of SCOR Group in October 2012 and in May 2013 became Group Chief Financial Officer.
The total number of employees of the Group increased from 2,802 as at December 31, 2016 to 2,955 as at December 31, 2017. The distribution of personnel covers the various geographical areas to meet the strategic principles of the Group.
(4) The Asia-Pacific Hub covers employees in China, Hong Kong, India, Japan, Korea, Malaysia, Singapore, Taiwan and Australia. (5) SCOR Global Life SE holds 100% of the capital of ReMark. Due to its specific activity, business model and organization, ReMark’s human resources are managed independently from the Group.
2.2.1.1. PRINCIPLES AND RULES STATED FOR THE DETERMINATION OF COMPENSATION AND IN-KIND BENEFITS ATTRIBUTABLE TO MR. DENIS KESSLER AS CHAIRMAN AND CHIEF EXECUTIVE OFFICER FOR THE 2017 REPORTING PERIOD
In accordance with article L. 225-37-3 of the French Commercial Code, the compensation elements due or attributed to the executive corporate officer for the financial year ended December 31, 2017 are presented below. Those compensation items are compliant with the principles and rules stated for the determination of compensation and in-kind benefits attributable to Mr. Denis Kessler, Chairman and Chief Executive Officer for the 2017 reporting period and as approved by the 2017 Shareholders’ Meeting.
In accordance with the recommendations stated in the AFEPMEDEF corporate governance code (Section 24.3) and pursuant to its implementation guide, the compensation elements due or attributed to the executive corporate officer for the financial year ended December 31, 2017 are presented below.
Following the recommendation of the Compensation and Nomination Committee at its February 21, 2017 meeting, the Board of Directors at its February 21, 2017 meeting decided that the Chairman and Chief Executive Officer would receive a target variable annual compensation of EUR 1,200,000 (100% of his fixed gross annual amount), unchanged from last year.
The total variable annual compensation of the Chairman and Chief Executive Officer may not exceed 165% of his target variable annual compensation of EUR 1,200,000, and consequently cannot exceed 165% of his fixed annual compensation.
The variable compensation for any given year is paid in year y+1, after the financial statements of the Company for such given year are approved by the Board of Directors and will be subject, as of 2018 for the variable compensation relating to 2017, to the approval of the Shareholders’ Meeting.
For 2017, the variable compensation of the Chairman and Chief Executive Officer has been determined according to the following objectives: ●● 50% based on the achievement of a financial objective: ROE level achieved by SCOR, with a target of 800 bps above the five-year risk-free-rate (“Vision In Action” target); The Board of Directors determined a percentage of achievement for the financial objective of 51.67%.
N/A The Group compensation policy does not provide for multi-year variable compensation.
EUR 0 No exceptional compensation granted during the year, as in previous years.
In accordance with the authorization by the Shareholders' Meeting on April 27, 2016 in its 20th resolution, the Board of Directors decided at its February 21, 2017 meeting, on a proposal from the Compensation and Nomination Committee to allocate on March 10, 2017, stock options to the Chairman and Chief Executive Officer and to the other members of the Executive Committee. On this plan, 100,000 stock options have been granted to the Chairman and Chief Executive Officer. These stock-options are 100% subject to performance conditions: Half of the options will be exercisable after March 11, 2021, provided: (1) that the conditions set out in the Plan of March 10, 2017 are fulfilled and in particular that he remains a corporate officer of SCOR Group until March 10, 2021 inclusive, except as otherwise stated by the Plan; (2) that the Group’s ethical principles as described in its Code of Conduct are respected; therefore, in case of actual misconduct as per the Code of Conduct, for instance in the event of fraud, the beneficiary will lose all of his/her stock options (clawback policy); (3) that the average SCOR ROE over three years (from January 1, 2017 to December 31, 2019) is equal to the average of SCOR ROE strategic target (the “Target ROE”) over the period.
Aside from the mandatory conditions (1) and (2), if the observed average ROE (condition (3)) is lower or higher than the Target ROE, the options will be exercisable according to the sliding scale set out in the table below: Ratio between the observed average ROE and the Target ROE
Between 0 and up to -35 percentage points linear sliding scale
The achievement of performance conditions is assessed by the Compensation and Nomination Committee and the Board of Directors.
In accordance with the authorization by the Shareholders’ Meeting on April 27, 2016 in its 19th resolution, the Company’s Board of Directors decided at its February 21, 2017 meeting, on a proposal from the Compensation and Nomination Committee, to grant performance shares to the Chairman and Chief Executive Officer and to the other members of the Executive Committee. On this plan, the Chairman and Chief Executive Officer was granted 125,000 performance shares.
The stock options and performance shares granted to the executive corporate officer in 2017 represent 0.116% of the share capital, 8.70% of the total allocations in 2017, and 60% of his overall compensation.
In addition to the deferred amount, an amount of EUR 91,936 was paid by the Company in 2017 with regard to social security schemes and individual health coverage
Severance pay * No amount is payable in respect of the financial year ended
The Ordinary and Extraordinary Shareholders’ Meeting of May 3, 2012, in its 5th resolution, approved, in accordance with the provisions of Article L. 225-42-1 of the French Commercial Code, the commitments made by the Board of Directors for the benefit of the Chairman and Chief Executive Officer.
The Ordinary and Extraordinary Shareholders’ Meeting of May 3, 2012, in its 5th resolution, approved, in accordance with the provisions of Article L. 225-42-1 of the French Commercial Code, the following commitments made by the Board of Directors in favor of the Chairman and Chief Executive Officer: Like all the Group’s senior executives based in France and employed by the Group as at June 30, 2008, the Chairman and Chief Executive Officer is entitled to a guaranteed pension plan of 50% of his benchmark compensation, less any pension benefits acquired under other collective and mandatory pension schemes. Moreover, this amount may under no circumstances exceed 45% of the benchmark compensation, pursuant to the AFEP-MEDEF corporate governance code. It should be noted that, given his seniority within the Company, the Chairman and Chief Executive Officer reached the ceiling of 45% set by the plan. In this context, the legal provision which limits the annual increase in potential rights to 3% of the compensation of the beneficiary has no practical implications in his case.
The commitments made by SCOR concerning the defined benefit supplementary pension scheme of its Chairman and Chief Executive Officer represent, as at December 31, 2017, an estimated annual gross pension amount of EUR 936,821, based on seniority as at December 31, 2017. This amount represents 39.01% of the Chairman and CEO’s gross annual compensation, which consists of the annual base salary for 2017 (EUR 1,200,000) and the 2017 target variable salary component paid for 2016 (EUR 1,200,000).
The total pension benefits provision relating to the Chairman and CEO amounts to EUR 23 million based on his reference compensation. The provision has increased by EUR 1.3 million from December 31, 2016.
This increase mainly reflects the evolution of financial assumptions (update of discount rate) and the acquisition of an additional year of rights.
* Compensation, indemnities or benefits due or awarded in respect of the financial year which are or have been submitted to the Company’s Shareholders’ Meeting in accordance to the rules applicable to related party agreements and commitments.
Table of the personal objectives of the Chairman and Chief Executive Officer
SCOR’s solvency ratio, as defined by the internal model, stands at 213% at the end of 2017, i.e. 28 bps above 185%.
Achievement of strategic plan “Vision in Action”: ●● Achievement of the objectives of the ViA strategic plan for SCOR Global P&C
●● Achievement of the objectives of the ViA strategic plan for SCOR Global Investments
Despite an exceptional series of large natural catastrophes, SCOR’s posts strong results in 2017: ●● SCOR Global P&C: Gross premium growth between 2016 and 2017 is 8.8% at constant exchange rates, the combined normalized ratio is 94.3%
●● SCOR Global Life: Gross premium growth between 2016 and 2017 is 8.5% at constant exchange rates, the technical margin is 7.1%
Contribution to the fight against climate change including two components: ●● Development of a SCOR group policy to contribute to the fight against climate change
●● In terms of underwriting property and casualty insurance: implementation of guidelines for the underwriting of business strongly linked to coal including targeted exclusions
●● Implementation of a voluntary carbon offsetting program with funding for two projects (Zimbabwe, Peru)
Valuation of options as per method used in the consolidated financial statements
Number of options exercised during the period Date of plan Exercise price
Each of the performance conditions related to the plan dated March 5, 2013 set out below was fully met, bringing the share acquisition rate to 100%. In addition to the performance conditions described below, the strict compliance with the Group’s ethical principles as described in the Code of Conduct of SCOR Group was met.
SCOR financial strength by S&P rating minimum “A” in 2013 and 2014 A+ Yes
SCOR Group’s ROE >1,000 points above the risk-free rate on average in 2013 and 2014 1,051 bps Yes
Document for the details on share award rights granted to the Chairman and to the Executive Committee members. See Section 2.2.3.4 of this Registration Document to see the details of the performance conditions attached to the plans that vested in 2017 and their achievement rate.
Every year, the conditions of compensation for the executive corporate officer and directors are made public through the documents released for the Shareholders’ Meeting.
This compensation policy rests on the principles set out below, which are consistent with SCOR Group compensation policy principles in general and rigorously applied by the Compensation and Nomination Committee as part of its work, both in the creation and development of the compensation policy submitted to the Board with regard to the Chairman and Chief Executive Officer and in its attribution proposals: Exhaustiveness
The compensation policy was established in accordance with the recommendations of the AFEP-MEDEF Code as revised in November 2016.
The compensation policy constitutes a tool that enables the Group to attract, motivate and retain talent at the highest level, and to meet the expectations of shareholders and other stakeholders, notably in terms of transparency and the link between compensation and performance.
The fixed compensation of the Chairman and Chief Executive Officer, payable in 12 monthly installments, is determined on the basis of: ●● the level and complexity of his responsibilities; ●● his career path, professional experience and expertise; ●● market analyses with regard to comparable functions (external competitiveness); ●● consistency with regard to other Group functions (internal equality).
The Board of Directors has decided that the fixed compensation of the Chairman and Chief Executive Officer may only evolve in the event of a significant development in his scope of responsibility, or a discrepancy in terms of his positioning on the market. In these specific situations, any adjustment to the fixed compensation, along with the motives behind such adjustment, will be made public.
For the financial year 2018, the Board of Directors decided at its February 21, 2018 meeting that the fixed compensation would remain unchanged at EUR 1,200,000.
As a director of SCOR SE, the Chairman and Chief Executive Officer receives directors’ fees. These fees are attributed under the conditions set out in the Section 2.2.1.3 – Directors’ fees and number of shares held by directors of the present document.
The target variable annual portion of the Chairman and Chief Executive Officer rests on transparent and demanding objectives tailored to the Group’s activity sector.
The total variable annual compensation of the Chairman and Chief Executive Officer may not exceed 165% of his target variable annual compensation, and consequently it cannot exceed 165% of his fixed annual compensation.
Should the Chairman and Chief Executive Officer leave during the current year: ●● his variable compensation relating to the previous year will be payable during the current year; ●● in addition, in the event of dismissal, the amount of his variable compensation for the current year will be determined on the basis of the variable compensation for the prior year and prorated on the basis of the departure date for the current year.
The Board of Directors has decided that, in the event that a new Chief Executive Officer is appointed, these same principles will apply, it being specified that if the appointment is made during the current year, the amount due will be prorated based on presence. Nevertheless, if an appointment is made during the second half of the year in question, performance will be assessed at the discretion of the Board of Directors on the proposal of the Compensation and Nomination Committee.
The Board of Directors has decided that the Chairman and Chief Executive Officer may not benefit from exceptional compensation for the fiscal year ended on December 31, 2018.
The performance shares require a vesting period of three years after the grant date and are subject to performance conditions over three calendar years, i.e. 2018, 2019 and 2020 for the plans granted in 2018.
The Board of Directors has decided to subject all stock option and performance share allocations made to the Chairman and Chief Executive Officer to performance conditions, in line with the main strategic objectives of SCOR SE as set out below.
Other than in specific cases (1), the definitive acquisition of performance shares and the exercise of stock options by the Chairman and Chief Executive Officer are subject to a presence condition until the end of the acquisition period.
Nevertheless, such a system may be envisaged if regulatory developments or any other circumstance make it restrictive or impossible for the Company to use a share-based instrument.
Following the Shareholders’ Meeting of April 27, 2017, the Board of Directors, on the recommendation of the Compensation and Nomination Committee, decided to renew the terms of office of Denis Kessler as Chairman of the Board of Directors and Chief Executive Officer of the Company. On February 21, 2018, the Board of Directors authorized the modification of the severance pay commitment, as follows, with a view to a new decision submitted to the 2018 Shareholders’ Meeting approving the financial statements for 2017.
The Board of Directors, upon the recommendation of the Compensation and Nomination Committee, will assess whether or not the performance conditions have been met.
This guarantee is calculated based on his average compensation received over the last five years within the Group. The Chairman and Chief Executive Officer is entitled to this supplementary pension, subject to still being in the Company as a corporate officer or an employee of the Company at the time the benefits are granted.
To this end, an individual insurance policy has been underwritten to complement the “all causes” death or permanent disability insurance policy for senior executives, dated June 30, 1993, as renewed or renegotiated annually, and whose last version is compliant with the collective and compulsory welfare plan, specific to SCOR, as modified with effect on July 1, 2014, which benefits from now on an objective category of employees who have an annual gross base compensation equal to or exceeding three times the social security ceiling. It is specified that these individual and collective “all causes” death insurance policies are renewed or renegotiated on an annual basis so that the Chairman and Chief Executive Officer will benefit from any policies that may replace the existing ones.
The members of the Executive Committee do not receive directors’ fees in respect of their directorships in companies in which SCOR holds more than 20% of the capital.
Like all senior executives employed in France, the members of the Executive Committee who joined SCOR before June 30, 2008 and are employed in France, are entitled to a guaranteed pension plan conditional upon a minimum five years of service with the Group, the payment of which is based on their average compensation over the last five years. This pension plan was closed to employees hired after June 30, 2008.
The total commitment of the Group for defined benefit pension plans in France, Germany, the United States, the United Kingdom and Switzerland for the Executive Committee members (including the Chairman and Chief Executive Officer) amounts to EUR 58 million as at December 31, 2017, i.e. 14% of the total commitment of the Group for pension plans of EUR 424 million.
2.2.2.2. COMPENSATION OF THE EXECUTIVE COMMITTEE MEMBERS (OTHER THAN THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER) FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2017
The following table presents the aggregate gross compensation in respect of financial years 2017, 2016 and 2015 due and paid to the members of the Executive Committee (including and excluding the executive corporate officer): In EUR Amount due Amount paid Amount due Amount paid Amount due Amount paid
2.2.3.1. STOCK OPTIONS HELD BY THE EXECUTIVE CORPORATE OFFICER AND THE MEMBERS OF THE EXECUTIVE COMMITTEE AS AT DECEMBER 31, 2017
The table below presents the stock option plans granted to the Executive Committee and the executive corporate officer as at December 31, 2017: Number of shares underlying granted
For more information on the stock option plans, see Appendix C – 5. Notes to the corporate financial statements, Section 5.3.5 – Stock options.
REPORT ON CORPORATE GOVERNANCE02 Executive compensation and share ownership 2.2.3.2. FREE ALLOCATION OF SHARES TO THE MEMBERS OF THE EXECUTIVE COMMITTEE AND THE EXECUTIVE CORPORATE OFFICER AS AT DECEMBER 31, 2017
The table below presents the share award rights granted to the Executive Committee and the executive corporate officer as at December 31, 2017: Plan Share award rights
(1) These shares are allocated in non-qualified plans. (2) This collective free share plan is for employees of the Company that are residents in France, under the collective agreement signed on July 20, 2012 as part of the negotiations with the social partners of France, concerning the profit-sharing arrangement established by the July 28, 2011 amending social security finance act for 2011. This plan provides for an identical allocation of five free shares without a presence condition or a performance condition.
REPORT ON CORPORATE GOVERNANCE02 Executive compensation and share ownership 2.2.3.3. POTENTIAL VOLUME OF NEW SHARES FROM OUTSTANDING SHARE-BASED COMPENSATION PLANS AS OF DECEMBER 31, 2017
●● of which number of potential new shares from outstanding stock option plans (options allocated but not vested + options vested but not exercised) 5,467,076
Notably, no new shares will be issued in relation to outstanding share-based compensation in the form of free shares, as these shares are derived exclusively from the purchase of existing shares and not from the issuance of new shares.
(shares allocated but not vested on December 31, 2017, i.e. 7,222,173 shares) and, (ii) the unused part of the authorizations granted by the Shareholders’ Meeting of April 27, 2017 in its 22nd resolution and by the Shareholders’ Meeting of April 27, 2016 in its 25th resolution concerning the free allocation of outstanding shares (5,372,592 shares).
The Company’s fully diluted issued share capital, as defined below, stood at 218,165,437 shares as of December 31, 2017, broken down as follows: Fully diluted issued share capital 218,165,437
(1) The free share allocation plans currently in force only allocate outstanding shares. (2) 19,198,044 shares underlying the warrants issued on December 16, 2016 to BNP Paribas under the contingent capital facility with an exercise period starting on January 1, 2017 and expiring on May 1, 2020.
If, despite the absence of the dilutive effect mentioned above, free shares were taken into account in the calculation of the potential volume of new shares from outstanding share-based compensation plans, the fully diluted share capital would stand at 230,760,200 on December 31, 2017.
As of December 31, 2017, the potential volume of new shares from outstanding share-based compensation plans linked to Group executive and employee compensation instruments stands at 3.13% of the fully diluted share capital.
Following the authorization by the Shareholders’ Meeting on April 27, 2016 and on the proposal of the Compensation and Nomination Committee meeting of February 21, 2017, the Board of Directors’ meeting of February 21, 2017, decided to allocate, on March 10, 2017, stock options to the Chairman and Chief Executive Officer and to the other members of the Executive Committee.
The Board of Directors’ meeting of February 21, 2017, on the proposal of the Compensation and Nomination Committee meeting of February 21, 2017, decided to allocate 100,000 stock options to the Chairman and Chief Executive Officer and 380,000 stock options to the other members of the Executive Committee on March 10, 2017.
Those options can be exercised at the earliest four years after the grant date, if the presence condition (four years) is respected. The exercise price is calculated without a discount, based on the weighted average price of SCOR’s shares on Euronext Paris over the 20 trading days preceding the grant date. The stock options can be exercised on one or more occasions from March 11, 2021 to March 10, 2027 inclusive. After this date, the purchase right shall expire.
The exercise of all of the stock options allocated in 2017 is subject to performance conditions.
The final vesting of the remaining half of the options is subject to the fulfilment of the following conditions: (1) that the conditions set out in the Plan are fulfilled and in particular that the beneficiary remains an employee or a corporate officer of the SCOR Group until March 10, 2021 inclusive, except as otherwise provided by the Plan; (2) that the beneficiary respects the Group’s ethical principles as described in its Code of Conduct; (3) that the average solvency ratio over three years (from January 1, 2017 to December 31, 2019) is at least equal to the average SCOR solvency strategic target over the same period (the “Target Solvency Ratio” (1)).
Aside from the mandatory conditions (1) and (2), if the observed average solvency ratio (condition (3)) is lower than the Target Solvency Ratio, the options will vest in accordance with the sliding scale set out in the table below: Difference between the average solvency ratio and the Target Solvency Ratio Proportion of the options finally vested in line with this criterion
The Partners are key executives, managers, experts, and high potential employees formally identified across the Group. Partners are given specific responsibilities in terms of significant achievements, high impact project management and/or leadership. Therefore, they benefit from a specific and selective program in terms of information sharing, career development and compensation schemes. Partners represent approximately 25% of the total number of employees in the Group.
The exercise of all of the stock options allocated is subject to performance conditions.
The final vesting of half of the options granted is subject to the fulfilment of the following conditions: (1) that the conditions set out in the Plan are fulfilled and in particular that the beneficiary remains an employee or a corporate officer of the SCOR Group until December 1, 2021 inclusive, except as otherwise provided by the Plan; (2) that the average SCOR ROE over three years (from January 1, 2017 to December 31, 2019) is equal to the average SCOR ROE strategic target (the “Target ROE”) over the same period.
In any case, if the average ROE is lower than 5%, the portion of stock options that could be exercised based on this criterion would be at 0%.
The final vesting of the remaining half of the options is subject to the fulfilment of the following conditions: (1) that the conditions set out in the Plan are fulfilled and in particular that the beneficiary remains an employee or a corporate officer of the SCOR Group until December 1, 2021 inclusive, except as otherwise provided by the Plan; (2) that SCOR average solvency ratio over three years (from January 1, 2017 to December 31, 2019) is at least equal to the average SCOR solvency strategic target over the same period (the “Target Solvency Ratio” (1)).
In addition, notwithstanding the total or partial achievement of the performance conditions described above, the right to exercise all or some options would be subject, in any event, to strict compliance with the Group’s ethical principles as set out in the Group’s Code of Conduct and to the satisfying completion of training in regards to corporate social responsibility (CSR).
The table below presents the total number of stock options allocated in 2016 and 2017 by category of beneficiary within the Group: Total number of stock options allocated in 2017
A table showing features of the SCOR stock option plans can be found in Section 4.6 – Notes to the consolidated financial statements, Note 16 – Stock options and share allocations.
Registration Document, bringing the 2015 shares acquisition rate to 100%. In addition to the performance conditions described below, the strict compliance with the Group’s ethical principles as described in the Code of Conduct of SCOR Group is required.
Solvency ratio at the end of each quarter ≥150% for 2015 and 2016 years Ratio above 150% each quarter Yes
ROE SCOR > 1000 points above the risk-free rate on average in 2015 and 2016 1,036 bps Yes
Pursuant to provisions of Article L. 225-197-4 of the French Commercial Code, information provided in this section constitutes the special report of the Board of Directors on the allocation of existing free shares in order to inform the Shareholders’ Meeting of transactions completed under the provisions of Articles L. 225-197-1 to L. 225-197-6 of the same code.
Moreover, the Shareholders’ Meeting also decided that (i) the total number of free shares granted under this authorization may not exceed 3,000,000 shares, (ii) the allocation of shares to their beneficiaries will be definitive only after a vesting period of a minimum set at three years (iii) the beneficiaries will no longer be subject to an obligation to hold the shares, that the Shareholders’ meeting decided to delete.
On April 27, 2017, the Shareholders’ Meeting of the Company, in its 22nd resolution, authorized the Company’s Board of Directors, under the provisions of Articles L. 225-197-1 to L. 225-197-6 of the French Commercial Code, to grant, upon a proposal of the Compensation and Nomination Committee, on one or more occasions, to employees of the Company and of companies or groups affiliated with it pursuant to Article L. 225-197-2 of the French Commercial Code, as well as the executive corporate officer, free allocations of existing or yet-to-be-issued shares of the Company and resolved that the Company’s Board of Directors would determine the identity of the beneficiaries of the allocation and the conditions and criteria for the allocation of the shares.
The Ordinary and Extraordinary Shareholders’ Meeting also decided that (i) the total number of free shares granted under the conditions and, if applicable, subject to the fullfillment of the performance conditions set by the Board of Directors further to a proposal from the Compensation and Nomination Committee pursuant to this authorization may not exceed 3,000,000 shares, (ii) the allocation of shares to their beneficiaries will be definitive only after a vesting period of a minimum set at three years.
At the same time, 240,000 performance shares were awarded on February 21, 2017 to the non-French tax resident members of the Executive Committee as part of a so-called non-qualified plan.
Refer to Section 2.2.3.1 of the present Registration Document for the details of the performance shares granted to the members of the Executive Committee.
The final vesting of half of the shares is subject to the fulfilment of the following conditions: (1) that the conditions set out in the Plan of February 21, 2017 are fulfilled and in particular that the beneficiary remains an employee or a corporate officer of the SCOR Group until February 21, 2020 inclusive, except as otherwise stated by the Plan; (2) that the beneficiary respects the Group’s ethical principles as described in its Code of Conduct; (3) that the average SCOR ROE over three years (from January 1, 2017 to December 31, 2019) is equal to the average SCOR ROE strategic target (the “Target ROE”) over the same period.
The final vesting of half of the shares granted is subject to the fulfilment of the following conditions: (1) that the conditions set out in the Plan of February 21, 2017 are fulfilled and in particular that the beneficiary remains an employee or a corporate officer of the SCOR Group until February 21, 2020 inclusive, except as otherwise stated by the Plan; (2) that the beneficiary respects the Group’s ethical principles as described in its Code of Conduct; (3) that the average solvency ratio for three years (from January 1, 2017 to December 31, 2019) is at least equal to the average SCOR solvency strategic target over the same period (the “Target Solvency Ratio” (1)).
Following the authorization by the Shareholders’ Meeting on April 26, 2016, the Company’s Board of Directors’ meeting of February 21, 2017, on the proposal of the Compensation and Nomination Committee meeting of February 21, 2017, decided to allocate 50,000 performance shares to a non-French tax resident member of the Executive Committee in a non-qualified Long Term Incentive Plan (LTIP).
This compensation scheme reflects best market practices and aims to involve and unite SCOR’s key employees in the Group’s long-term development. The LTIP is entirely based on SCOR performance shares.
All the shares under the LTIP are subject to the satisfaction of a presence condition and of performance conditions defined as follows.
Aside from the mandatory conditions (1) and (2), if the observed average ROE (condition (3)) is lower or higher than the Target ROE, the shares will vest according to the sliding scale set out in the table below: Ratio between the observed average ROE and the Target ROE Proportion of the shares finally vested via this criterion
Following the Board of Directors’ meeting of October 24, 2017, 266,868 performance shares were granted on December 1, 2017 to certain specific Partners and Non-Partners (216 employees) of the Group’s French tax residents.
All the shares awarded to the Executive Global Partners and Senior Global Partners and half of the allocations awarded to the other Partners (below Senior Global Partners), are subject to the satisfaction of performance conditions (for the description of performance conditions, refer to the section related to February 21, 2017 Long Term Incentive Plan).
Following the authorization given by the Extraordinary Shareholders’ Meeting on April 27, 2016, the Board of Directors’ meeting of October 24, 2017, on the proposal of the Compensation and Nomination Committee meeting of October 24, 2017, decided to grant on December 1, 2017 performance shares in a Long Term Incentive Plan (LTIP) to certain Partners and to specific Non-Partners.
Following the Board of Directors’ meeting of October 24, 2017, 84,842 performance shares were granted under a Long Term Incentive Plan on December 1, 2017 to certain specific Partners and Non-Partners (145 employees) of the Group’s French tax residents.
At the same time, 147,396 performance shares were granted on December 1, 2017 to certain non-French tax resident Partners and specific Non Partners of the Group (332 employees) under a non-qualified plan Long Term Incentive Plan.
The table below presents the total number of shares allocated in 2016 and 2017 by category within the Group, all types of plans included: Total number of LTIP shares allocated in 2017
Members of the Executive Committee 50,000 1 380,000 8 40,000 1 340,000 7
SCOR Global P&C’s combined ratio ≤100% on average in 2015 and 2016 92.1% Yes
In 2017, the Compensation and Nomination Committee acknowledged the partial validation of all the performance conditions attached to the September 1, 2011 Long Term Incentive Plan, bringing the share acquisition rate to 95%. In addition to the performance conditions described below, the strict compliance with Group’s ethical principles as described in the Code of Conduct of SCOR Group was required.
Difference between the average solvency ratio over 2011-2016 and the Target Solvency Ratio higher than or equal to 0 percentage point +34bps 100%
(1) These shares are allocated under non-qualified plans. (2) The acquisition of these shares is subject to performance conditions. The performance shares granted before the Extraordinary Shareholders’ Meeting of December 18, 2015 are subject, for half of the grant or all of the grant, depending on the employee’s level within the organization, to performance conditions relating to the solvency ratio, the combined ratio of SCOR SE, the technical margin of SCOR Global life and the ROE. Since the Extraordinary Shareholders’ Meeting of December 18, 2015, the performance conditions relate to the ROE and the Solvency Ratio. All the performance shares granted since 2011 as part of LTIP plans are subject to ROE and Solvency ratio performance conditions. The performance conditions are assessed after a two-year vesting period for performance shares granted before the Extraordinary Shareholders’ Meeting of December 18, 2015, after a three-year vesting period for performance shares granted as of the Extraordinary Shareholders’ Meeting of December 18, 2015, and after a six-year vesting period for all LTIP performance shares. The acquisition rates for performance shares definitively acquired as at December 31, 2016 are 95% for the LTIP granted as of September 1, 2011, and 100% for the other plans.
During 2017, the rights vested by the ten employees of the Company and of any company included in the scope of consolidation with the highest number of shares thus obtained represent 394,600 shares. Those rights relate, for non-French tax residents, to the performance share plans of October 2, 2013 and March 5, 2013 whose transfer occurred on October 3, 2017 and March 6, 2017, and for French tax residents to the Long Term Incentive Plan of September 1, 2011 whose transfer occurred on September 2, 2017.
For the number of stock options of the issuer and of the companies referred to previously and exercised during the financial year 2017 by the ten employees of the issuer or these companies, with the highest number of shares thus purchased or subscribed, as well as the stock options granted during the financial year by the issuer and by any company included in the scope of allocation of the options to the ten employees of the issuer and of any company included in such scope with the highest number of stock options thus granted, see the table in Section 2.2.3.1 – Stock options held by the executive corporate officer and the members of the Executive Committee as at December 31, 2017.
On April 27, 2017, the Shareholders’ Meeting of the Company, in its 23rd resolution, delegated its authority to the Company’s Board of Directors in order to increase the share capital by issuing shares reserved for employees of the Company and of French and foreign companies affiliated with it pursuant to Article L. 225-180 of the French Commercial Code, who are participants in savings plans and/or mutual funds. This new authorization replaces the authorization granted by the Shareholders’ Meeting of April 27, 2016.
The table below presents the acquisitions, sales, subscriptions or exchanges of SCOR SE shares as well as transactions involving securities linked to SCOR SE carried out by directors, executive corporate officer and persons discharging managerial responsibilities in 2017.
Acquisition of shares for a total amount of EUR 8,537,812.5 Subscription of shares for a total amount of EUR 2,139,150 Sale of shares resulting from the exercise of stock options for a total amount of EUR 4,588,450 Collateralization of shares for a total amount of EUR 125,000
Sale of shares for a total amount of EUR 3,412,094.54 Acquisition of shares for a total amount of EUR 1,684,800 Subscription of shares for a total amount of EUR 879,000 Sale of shares resulting from the exercise of stock options for a total amount of EUR 1,705,300
(1) Pursuant to the obligation for each director to hold a number of shares with a value of at least EUR 10,000 until his term as director.
Distribution of capital (number of shares, % of capital and voting rights) – (i) shareholders with more than 2.5% of the registered capital and/or voting rights and (ii) shareholders who are members of the Board of Directors (on the basis of a study of identifiable share bearers (“Titres aux Porteurs Identifiables” – “TPI”) conducted by the Company as at December 31, 2015): As at December 31, 2015 Number of shares % of capital % voting rights (1)
(3) BlackRock Inc.’s aggregated number of shares, including BlackRock Institutional Trust Company, amounted to 9,772,590 representing 5.07% of the capital and 5.25% of the voting rights.
(4) Employee shares carrying voting rights, excluding sold or transferred employee shares.
(5) This shareholding notably includes performance shares granted in accordance with the authorizations of the SCOR SE Shareholders’ Meeting, prior to the publication of Law No. 2015-990 of August 6, 2015 and held as registered shares by employees as at December 31, 2015. Employee shareholdings, as defined in Article L. 225-102 of the French Commercial Code, amount to 0.34% of the capital and 0.35% of voting rights.
Pursuant to the shareholders’ notifications received by SCOR, there was no shareholder other than those indicated in the table above holding, directly or indirectly, alone or in concert, more than 2.5% of the share capital and/or voting rights of the Company as at December 31, 2017, December 31, 2016 and December 31, 2015.
The results of the TPI study conducted as at December 31, 2017 are presented in the following table: TPI Date December 2014 December 2015 December 2016 December 2017
SCOR discloses below the threshold declarations sent by the significant shareholders in 2017. SCOR is not responsible for ensuring the completeness of these declarations.
Increase of the share capital resulting from the exercise of stock-options as from January 1 to December 31, 2014
April 27, 2017 Decided by the Board of Directors on April 27,
Given the exercise of 335,640 options for the subscription of shares since December 31, 2017, on the date of the Registration Document, SCOR SE’s existing share capital amounts to EUR 1,526,840,464 divided into 193,835,957 shares with a nominal value of EUR 7.8769723 each.
DELEGATIONS OF AUTHORITY GRANTED BY THE EXTRAORDINARY SHAREHOLDERS’ MEETING OF APRIL 27, 2017
Number of shares authorized at the date of the Registration Document
Duration of authorization and expiration date 13th resolution (Delegation of authority granted to the Board of Directors for the purpose of deciding upon the incorporation of profits, reserves or premiums into the share capital) 25,390,466 shares 25,390,466 shares 26 months 14th resolution (Delegation of authority granted to the Board of Directors for the purpose of deciding on the issuance of shares and/or of securities granting access to the capital or giving entitlement to debt instruments, with pre-emptive subscription rights) 77,013,827 shares 77,013,827 shares 26 months 15th resolution (Delegation of authority granted to the Board of Directors for the purpose of deciding on the issuance, in the context of a public offering, of shares and/or of securities granting access to the capital or giving entitlement to debt instruments, without pre-emptive subscription rights) 19,253,456 shares 19,253,456 shares 26 months 16th resolution (Delegation of authority granted to the Board of Directors for the purpose of deciding on the issuance, in the context of an offer referred to in paragraph II of Article L. 411-2 of the French Monetary and Financial Code, of shares and/or of securities granting access to the capital or entitling the holder to debt instruments, without pre-emptive subscription rights) 19,253,456 shares 19,253,456 shares 26 months 17th resolution (Delegation of authority granted to the Board of Directors for the purpose of deciding on the issuance of shares and/or securities granting access to the capital or entitling the holder to debt instruments, as compensation for shares contributed to the Company in the context of any public exchange offer launched by the Company, without pre-emptive subscription rights) 19,253,456 shares 19,253,456 shares 26 months 18th resolution (Delegation of authority granted to the Board of Directors for the purpose of issuing shares and/or securities granting access to the capital or entitling the holder to debt instruments, as compensation for shares contributed to the Company in the context of contributions in kind within a limit of 10% of the share capital, without pre-emptive subscription rights) 19,253,456 shares 19,253,456 shares 26 months 23rd resolution (Delegation of authority granted to the Board of Directors in order to issue shares reserved for the members of savings plans (plans d’épargne), without pre-emptive subscription rights) 3,000,000 shares 3,000,000 shares 18 months
AUTHORIZATIONS GRANTED BY THE EXTRAORDINARY SHAREHOLDERS’ MEETING OF APRIL 27, 2017 19th resolution (Authorization granted to the Board of Directors for the purpose of increasing the number of shares issued in accordance with the 14th, 15th and 16th resolutions in the event of over-subscription to the share capital increase, with or without cancellation of pre-emptive subscription rights)
This resolution can only be used with the 14th, 15th and 16th resolutions and is in any case capped by the 24th resolution 26 months 21st resolution (Authority to issue shares for stock option plans) 1,500,000 shares 874,590 shares 24 months 22nd resolution (Authorization granted to the Board of Directors to grant shares under free share allocation plans) The authorization is limited to existing shares (1)
(1) The authorisation of the Ordinary and Extraordinary Shareholders’ Meeting of April 27, 2017 is limited to 3,000,000 existing shares (the remaining amount being on December 31, 2017: 3,000,000 shares) as the authorisation of the Ordinary and Extraordinary Shareholders’ Meeting of April 27, 2016 under its 20th resolution (the remaining amount being on December 31, 2017: 2,372,590 shares).
Stock buyback program in force on the date of filing this Registration Document (program authorized by the Ordinary and Extraordinary Shareholders’ Meeting of April 27, 2017)
On April 27, 2017, the Shareholders’ Meeting, in its 12th resolution, authorized the Board of Directors, with the option to sub-delegate, to trade on the Company’s shares in the framework of the 2017-2018 annual share repurchase program. The program allows to buy, sell and transfer Company shares pursuant, inter alia, to the provisions of Regulation (EU) No. 596/2014 of the European Parliament and of the Council of April 16, 2014, Articles L. 225-209 et seq. of the French Commercial Code and to the General Regulation (Règlement général) of the French Financial Markets Authority (Autorité des marchés financiers).
The description of the stock buyback program implemented under the 12th resolution of the Annual Shareholders’ Meeting of April 27, 2017 was published by the Company on April 27, 2017 under conditions set forth by the applicable regulation, notably on the Company’s website. The report from the Board of Directors of the Company to the Annual Shareholders’ Meeting to be held in the first half of 2018 on the use of the 12th resolution will be made available to SCOR shareholders under the conditions set forth by law.
Summary of the transactions carried out by SCOR SE on its own shares in the course of the financial year 2017
In the context of the abovementioned buyback program, SCOR carried out, between January 1, 2017 and December 31, 2017: ●● the purchase of 2,576,717 treasury shares; ●● the sale of 2,217,063 treasury shares; ●● the transfer of 1,618,775 treasury shares; ●● the cancellation of 554,112 treasury shares.
Objectives of the transactions carried out in the course of the financial year 2017 and allocation of the treasury shares
The stock buyback authorization described in the above paragraph will expire on October 26, 2018 at the latest, unless the Shareholders’ Meeting convened on April 28, 2018 approves the resolution described below, in accordance with the provisions of articles L. 225-209 and subsequent of the French Commercial Code.
2. The maximum number of shares that could be bought back under this authorization would be set at 10% of the number of shares comprising the Company share capital as of the date of such purchases, it being specified that (i) when the shares are purchased to enhance liquidity of shares in the conditions set forth by applicable laws and regulations, the number of shares taken into account for calculation of the 10% limit shall correspond to the number of shares purchased less the number of shares resold during the period covered by the authorization, and (ii) the number of treasury shares shall be taken into account so that the Company never holds shares in excess of 10% of its share capital.
4. Such transactions would be carried out, under the conditions authorized by the stock exchange authorities, by any means, including on a regulated market, on a multilateral trading facility, via a systematic internalizer or over-the-counter, including, inter alia, by buying or selling blocks, by applying derivative financial instruments, listed on a regulated stock exchange or over-the-counter, or by the implementation of optional strategies and, if applicable, by any third party authorized for such purpose by the Company.
7. All powers would be granted to the Board of Directors, with the option to sub-delegate under the conditions provided for by law, in order to carry out all adjustments to the maximum price, including in the event of a capital increase by capitalization of reserves and the allocation of free shares, as well as in the event of a split or a reverse stock split of Company shares.
As part of the implementation of a contingent capital facility program, SCOR issued, on December 16, 2016, 9,599,022 Warrants for the benefit of BNP Paribas, each allowing BNP Paribas to subscribe, as from January 1, 2017 and no later than May 1, 2020, to two new SCOR shares (within the limit of an aggregate amount of subscription of EUR 300 million – issuing premiums included, without exceeding 10% of SCOR’s share capital) when the aggregated amount of (i) the estimated ultimate net losses resulting from eligible natural catastrophes incurred by the Group (in its capacity as an insurer/reinsurer) between January 1, 2017 and December 31, 2019 or (ii) the ultimate net claims amount recorded by SCOR Group Life segment (in its capacity as an insurer/ reinsurer) over two consecutive semesters over the period from July 1, 2016 and December 31, 2019 reaches certain contractual thresholds. In addition, subject to no drawdown having already been conducted under the facility, if SCOR’s daily volume-weighted average share price falls below EUR 10 an individual tranche of EUR 150 million will be drawn down out of the EUR 300 million facility.
See: ●● Section 2.2.3 – Stock options and performance shares; ●● Section 2.3.1.6 – Share capital; ●● Section 4.6 – Notes to the consolidated financial statements, Note 12 – Information on share capital, capital management, regulatory framework and consolidated reserves; ●● Section 4.6 – Notes to the consolidated financial statements, Note 14 – Provisions for employee benefits; ●● Section 4.6 – Notes to the consolidated financial statements, Note 16 – Stock options and share allocations; ●● Appendix C – Notes to the corporate financial statements, 5.3.5 – Stock options; and
●● Appendix C – Notes to the corporate financial statements, 5.2.3 – Shareholders’ equity.
●● Appendix C – Notes to the corporate financial statements, 5.3.5 – Stock options.
REPORT ON CORPORATE GOVERNANCE02 Major shareholders and related party transactions 2.3.2. RELATED PARTY TRANSACTIONS AND AGREEMENTS
Transactions with related parties as required by the regulations adopted under EC regulation No. 1606/2002, entered into by the Group appear in Section 4.6.22, Note 22 – Related party transactions.
The annual review of the regulated agreements and commitments was made by the Board of Directors on February 21, 2018 which decided, upon the recommendation of the Compensation and Nomination Committee, (i) to maintain the additional pension plan commitment subject to Article 39 of the French General Tax Code (Code général des impôts) for the benefit of the Chairman and Chief Executive Officer of the Company as amended by the Board of Directors of April 27, 2017 in particular with the view to bring it in conformity with the French law no. 2015-990 of August 6, 2015 by introduction of performance conditions for the acquisition of future pension rights by the Chairman and Chief Executive Officer of the Company, (ii) to maintain the severance payment commitment for the benefit of the Chairman and Chief Executive Officer of the Company subject to certain amendments, notably the alignment of the performance conditions with those of the current strategic plan of the Group, and (iii) to submit, according to Article L 225-42-1 of the French Commercial Code (Code de commerce), the amendments to the said regulated commitments for approval to the next annual Shareholders’ Meeting of the Company. The amendments are described in the report of the Board of Directors on the draft resolutions included in the convening brochure sent to the shareholders in the framework of the next annual Shareholders’ Meeting of the Company. These amendments to the regulated commitments are mentioned in Section 2.3.3 – Special report of the Statutory Auditors on regulated agreements and commitments.
REPORT ON CORPORATE GOVERNANCE 02Major shareholders and related party transactions 2.3.3. SPECIAL REPORT OF THE STATUTORY AUDITORS ON RELATED PARTY AGREEMENTS AND COMMITMENTS
This is a translation into English of a report issued in French and it is provided solely for the convenience of English-speaking users. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France.
We performed those procedures which we considered necessary to comply with professional guidance issued by the national auditing body (Compagnie nationale des Commissaires aux comptes) relating to this type of engagement. These procedures consisted in verifying that the information provided to us is consistent with the documentation from which it has been extracted.
The participant who leaves the Group to retire will be entitled to an additional pension if, at the time of his departure, he meets the conditions set by the regulations, which includes having acquired a seniority of at least five years at the time of said departure, and having liquidated all pension benefits from mandatory retirement plans.
On July 27, 2011, the Board of Directors authorized an amendment to the Supplementary Retirement Plan Regulations relating to the age condition and retirement age requirement (minimum age of 62 or full pension, compared to the age of 60 before).
On April 27, 2017, the Board of Directors authorized an amendment to the Supplementary Retirement Plan Regulations, notably to bring it into line with the “Macron Law” No. 2015-990 of August 6, 2015 on Growth, Business improvement and Equality of economic opportunities: ●● introduction of an annual limit of 3% of the reference income instead of 5% for the increase of the future conditional rights of the Chairman and Chief Executive Officer; ●● introduction of conditions related to the performance of the Chairman and Chief Executive Officer for the acquisition of future rights; ●● extension of the eligibility for the reversionary pension of the supplementary retirement plan, limited to the married or divorced spouse, to the other legal schemes of joint living, subject to the absence of a spouse or former eligible spouse.
●● This acquisition of additional contingent rights by new year of seniority in the Company is also subject to a condition related to the performance of the beneficiary considered as fulfilled if the variable portion of the remuneration of the Chief Executive Officer, paid in N + 1. in respect of the year N during which the new seniority year was acquired, reaches 100% of the target amount of this variable portion. In the event that the variable portion does not reach 100% of the target amount, the calculation of the newly acquired rights is made pro rata. The acquisition of any additional conditional rights is also subject to absolute compliance with the Group’s ethical principles as described in the SCOR Group Code of Conduct.“
The modifications of the aforementioned commitment made to the benefit of the Chairman and Chief Executive Officer have been published on the Company’s website within five days of their adoption.
Your Board of Directors gave the following reasons: following the implementation of the Macron law concerning the supplementary retirement commitment with defined benefits for the Chairman and Chief Executive Officer, by the need to modify the current commitment in order to integrate, on the one hand, the annual limit of 3% of the reference income for the increase of the future conditional rights of the Chairman and Chief Executive Officer and, on the other hand, the performance conditions for the acquisition of future rights by the Chairman and Chief Executive Officer as required by law.
With M. Denis Kessler, Chairman and Chief Executive Officer of your Company (in case of forced departure)
Pursuant to a decision dated February 21, 2018, made pursuant to Article L. 225-42-1 of the French Commercial Code and in accordance with the provisions of Article L. 225-40 of the French Commercial Code, on the basis of the recommendations of the
Compensation and Nomination Committee of January 30, 2018, the Board of Directors authorized the adoption of an amendment to the regulated agreement relating to the commitments made for the benefit of the Chairman and Chief Executive Officer, whose terms below, aiming in particular at aligning the performance conditions to which this allowance is subject to those provided for in the Group’s current strategic plan: In the event of the termination of his duties as Chief Executive Officer, the items likely to be due to him will be determined according to the following situations: (i.) in the case of dismissal for misconduct, non-renewal of the term of office of Chief Executive Officer, resignation (other than as a result of a forced departure referred to in paragraphs (ii) and (iii) below) or following a notoriously negative performance of the Company (failure to meet performance condition (C_n) as described below), no severance pay would be due; (ii.) in the event of a forced departure or dismissal prior to the twelve months preceding the end of his term as Chief Executive Officer, typically for divergent views on the Group’s strategy, the Chief Executive Officer would receive severance pay equal to the sum fixed and variable components of his gross annual compensation paid in the twenty-four (24) months preceding his departure from the Group. No severance pay would be payable in the event of non-fulfillment of performance condition (C_n) defined below.
In case of forced departure or dismissal during the twelve (12) months preceding the end of his term as Chief Executive Officer, no severance pay would be due; (iii.) In the event that the Chairman and Chief Executive Officer is dismissed or his departure is imposed due to a hostile offer resulting in a change of control in the SCOR Group, the Chairman and Chief Executive Officer will benefit from an indemnity limited to the amount of fixed and variable compensation paid to him by the Group during the last twenty-four months preceding the date of his departure from the Group. No severance pay would be payable in the event of non-fulfillment of the performance condition (C_n) defined below.
The performance condition (C_n) set by the Board of Directors on the recommendation of the Compensation and Nomination Committee, will be met if the two criteria below are met: (A) SCOR’s average return on equity «ROE» for the three financial years preceding the date of departure of the Chief Executive Officer exceeds 50% of the average SCOR’s strategic objective’s ROE (defined in the strategic plan) calculated over the same period (the «Target ROE»); and
The changes to the commitment made to the Chairman and Chief Executive Officer have been published on the Company’s website within five days of their adoption.
Your Board of Directors gave the following reasons: following the recommendation of the Compensation and Nomination Committee, by the fact that the terms and conditions of the severance pay commitment of the Chairman and Chief Executive Officer must be modified so as to update the performance conditions that are no longer appropriate to the current «Vision in Action» strategic plan.
AGREEMENTS AND COMMITMENTS PREVIOUSLY APPROVED BY THE GENERAL MEETING OF SHAREHOLDERS
3.2. STRATEGIC RISKS 123 3.2.1. Risks related to the macroeconomic environment affecting SCOR’S strategy 123 3.2.2. Risks related to the competitive environment 124 3.2.3. Risks related to legal and regulatory developments 125 3.2.4. Downgrade risk 126 3.2.5. The valuation of SCOR’S intangible assets and deferred tax assets may significantly affect its shareholders’ equity and the price of its securities 127 3.2.6. Other strategic risks 128 3.3. UNDERWRITING RISKS RELATED TO THE P&C AND LIFE REINSURANCE BUSINESSES 130 3.3.2. Life reinsurance 134 3.3.3. Interdependence and accumulation risks between SCOR’S areas of business 136 3.3.4. Risks related to reserves 137 3.3.5. Retrocession and other risk mitigation techniques 139 3.4. MARKET RISKS 140 3.4.1. Overview of market risks 140 3.4.2. Management of market risks 141 3.4.3. Sensitivity to market risks 142 3.5. CREDIT RISKS 144 3.5.1. Overview of credit risks 144 3.5.2. Management of credit risks 145 3.6. LIQUIDITY RISKS 147 3.6.1. Overview of liquidity risks 147 3.6.2. Management of liquidity risks 148 3.6.3. Maturity profiles 148 3.6.4. Financial liabilities 149 3.7. OPERATIONAL RISKS 150 3.7.1. Overview of operational risks 150 3.7.2. Management of operational risks 152 3.8. INTERNAL CONTROL AND RISK MANAGEMENT PROCEDURES 152
RISK FACTORS AND RISK MANAGEMENT MECHANISMS 03Strategic risks 3.2. STRATEGIC RISKS
The main risks are the uncertain economic recovery that may affect SCOR’s growth, in both emerging and advanced economies, and the poor returns on financial markets exacerbating the adverse competitive environment.
The Group’s operating result could be materially affected by the economic and financial situations in France and other countries in continental Europe, the United Kingdom, the United States of America and elsewhere around the world, particularly in Latin America and Asia Pacific. Any protracted deterioration in macroeconomic trends could have an adverse effect on SCOR’s business and operating result. Even though the global economy is experiencing a synchronized expansion, several imbalances accumulated since the 2008 crisis pose significant risks. In particular, the growing debt of governments in advanced economies and of private companies in emerging countries could generate significant adjustments if the main central banks were to significantly raise interest rates. As a result, financial markets could enter a period of high volatility, which could lead to adverse consequences such as waves of company defaults, or a major liquidity crisis. Although growth in the Eurozone has become more robust, thanks to both internal and external momentum, its maintenance may become increasingly difficult due to several challenges; for example, the ongoing Brexit negotiations, continuing economic disparities between EU countries and increased political risks. Increases in Eurozone members’ sovereign yields or even sovereign defaults may result from these challenges. SCOR cannot predict whether any of the government securities that it holds in its investment portfolio will be adversely affected in the future by ratings downgrades or potential sovereign debt market tensions. For further information on investments, see Section 1.3.5.4 – Net investment income and investment income on invested assets and Section 4.6 – Notes to the consolidated financial statements, Note 7 – Insurance business investments.
The global economy is also at risk from the exit strategies from the unconventional policies of central banks, which are either not defined or will have unknown consequences; for example, on one hand, an extreme normalization by the FED could spur a rise in interest rates along the entire yield curve. Financing conditions could thus deteriorate across sectors and economies. In particular, emerging and developing economies may suffer from capital outflows in the wake of a faster than expected US monetary normalization. On the other hand, significant delays in the normalization of exceptionally accommodating monetary policies might increase biases in the price of many assets, with the possibility of asset bubbles developing and then bursting in some markets and/or leading to a resurgence of high inflation for a protracted period.
3.2.2.1. SCOR OPERATES IN A HIGHLY COMPETITIVE SECTOR AND WOULD BE ADVERSELY AFFECTED BY LOSING COMPETITIVE ADVANTAGE OR IF ADVERSE EVENTS HAD AN IMPACT ON THE REINSURANCE INDUSTRY
3.2.2.2. CONSOLIDATION IN THE INSURANCE AND REINSURANCE INDUSTRIES COULD ADVERSELY IMPACT SCOR
Similarly, changes in tax legislation and regulations, or in their interpretation, may have a negative impact on SCOR’s performance, including financial results, and business model (such as unfavorable changes in deferred taxes resulting from the Tax Cuts and Jobs Acts enacted in United States). Refer to Section 1.3.3 – Significant events of the year.
Many of the Group’s reinsurance treaties contain a requirement to put in place letters of credit (LOC) as a general requirement or when triggered by a downgrade of SCOR or one of its subsidiaries. In certain circumstances, the cedent has the right to draw down on a LOC issued by a bank in SCOR’s name.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS 03Strategic risks 3.2.4.2. MANAGEMENT OF DOWNGRADE RISK
3.2.5. THE VALUATION OF SCOR’S INTANGIBLE ASSETS AND DEFERRED TAX ASSETS MAY SIGNIFICANTLY AFFECT ITS SHAREHOLDERS’ EQUITY AND THE PRICE OF ITS SECURITIES
3.2.5.1. RISKS RELATED TO THE VALUATION OF SCOR’S INTANGIBLE ASSETS AND DEFERRED TAX ASSETS
The recognition of deferred tax assets, i.e. the likelihood of recognizing sufficient profits in the future to offset losses, depends on the performance of each entity concerned as well as applicable tax laws, regulatory requirements and accounting methods. The occurrence of events, such as operational earnings lower than currently projected or losses continuing over a longer period than originally planned or changes in tax legislation, regulatory requirements, or accounting methods could lead to the derecognition of part of the deferred tax assets for accounting and/or regulatory purposes.
Disruptions, uncertainty or volatility in the capital and credit markets may also limit the Group’s access to capital required to operate its business, most significantly its insurance operations. Such market conditions may limit its ability to: ●● replace, in a timely manner, maturing debts; ●● access the capital needed to grow its business; ●● satisfy statutory capital requirements and maintain a solvency ratio in line with its risk appetite framework.
SCOR efficiently manages its capital allocation and fungibility between subsidiaries within the legal and regulatory constraints. SCOR is continuously leveraging, in its day-to-day activity, on various tools that are core to the reinsurance activity (such as intra-group retrocession, intra-group financing, portfolio transfer, capital transfer or collateral posting).
AEGON’s insolvency might impair the value of business acquired (VOBA) of SCOR Global Life
Due notably to the size and complexities of acquisitions, and despite pre-acquisition due diligence work carried out, there may be a risk that not all financial elements (including litigation related to prior periods) have been fully and/or correctly evaluated. Unknown or unexpected financial risks could emerge, which may have significant consequences on the initially estimated impact of the relevant acquisition on the combined Group.
SCOR retains outside legal, accounting, tax, actuarial, regulatory and financial counsel for its due diligence, valuation and integration assessments and execution, led by experienced employees in various multi-jurisdictional disciplines, including but not limited to underwriting, structuring, valuation, accounting, tax, actuarial, risk management, legal, audit, strategy, claims management, regulatory, rating agencies, and asset management. SCOR’s overnance is overseen by a Group Steering Committee, chaired by its Chief Executive Officer and includes various members of SCOR’s Executive Committee. All progress, assessments and any offers made to third parties are generally presented and approved by the Strategic Committee of SCOR’s Board of Directors.
SCOR writes direct insurance, primarily on a business-to-business basis to cover large corporate risks through the Business Solutions domain of the P&C division and through the participation in Lloyd’s syndicates including the Channel Syndicate, for which SCOR is the sole capital provider as well as through some participations in Business Ventures and Partnerships.
This is the risk that the P&C claims inflation is higher than assumed in the calculation of the reserves and mostly affects the long-tail lines of business, such as all casualty, professional liability and financial lines, inherent defect and construction warranty, medical malpractice, motor (first and third-party liability) and workers’ compensation. Claims inflation is influenced by, but not directly linked to general inflation.
For casualty business, the frequency and severity of claims and the related amounts of indemnity paid can be affected by several factors. The most significant factors are the changing legal and regulatory environment, including changes in civil liability law and jurisprudence.
Man-made catastrophes refer to negligent or deliberate human actions, e.g. conflagration, a large explosion and fire at a major industrial site, and terrorism. These events can cause great damage to property and lives. Malicious man-made events often target large cities and illustrious landmarks such as international airports and governmental facilities.
SCOR is also exposed to man-made casualty catastrophes whose underlying nature and key specificities can vary widely, from commonly used products (with Asbestos as a typical example) or massive product liability losses emanating from items produced by a single manufacturer, to a single disastrous event (e.g. Deepwater Horizon oil rig explosion).
RISK FACTORS AND RISK MANAGEMENT MECHANISMS03 Underwriting risks related to the P&C and Life reinsurance businesses 3.3.1.3. OTHER RISKS
In addition to the two main underwriting risks of SCOR’s P&C Division as listed above, other factors could have an adverse impact, such as systemic crisis, cyclicality of the business and concentration risks related to its broker business.
●● Underwriting and pricing guidelines, defined by the P&C division, specify the underwriting capacities delegated to each underwriter in each entity, as well as the underwriting rules and principles to be complied with. These guidelines are subject to a regular review and approval process. SCOR’s underwriting guidelines are more restrictive regarding certain areas with difficult or uncertain legal environments.
– Underwriting guidelines in place within the P&C division specify (i) the underwriting rules and principles to be complied with: (ii) the underwriting capacities individually delegated to the underwriters in each of the markets and lines of business in which the Group operates as well as (iii) the relevant maximum acceptable commitments per risk and per event. They are reviewed and updated annually by the Underwriting Management function and approved by the Chief Executive Officer and Chief Risk Officer of SCOR’s P&C division.
●● The claims handling function is performed by the claims teams, which review, process and monitor reported claims. SCOR P&C division’s Claims & Commutations Department is in charge of the implementation and overview of the overall claims handling and commutation management policy for the P&C division, implementing worldwide control and reporting procedures and managing commutation of portfolios and commitments. It supports and controls the day-to-day activity and takes over the direct management of large, litigious, serial and latent claims. In addition, periodic audits are conducted on specific claims and lines of business, and claims processing and procedures are examined at the ceding companies’ offices with the aim of evaluating their claims adjustment process, valuation of case reserves and overall performance. When needed, recommendations are given to underwriters and local management.
●● Risks specific to the administration of contracts are subject to checks performed at the subsidiary and branch level. SCOR’s Group Information System includes multiple automatic checks and additional tools.
●● Cross reviews are conducted by the P&C division’s Risk Management, to assess the quality of underwriting, pricing and claims handling of particular business units or certain lines of business, to identify and assess risks, to evaluate the appropriateness and effectiveness of controls and to propose risk management measures, including mitigating actions.
This risk refers to potential negative deviations in future mortality relative to current best-estimate assumptions, due to a higherthan -anticipated number of deaths (i.e. increased mortality rates) among the portfolio of lives reinsured by SCOR. This could result from inherent volatility, initial mispricing (level risk) or an adverse long-term trend.
The risk to the (re)insurer is of policyholders deliberately deciding among other things to: ●● take out a policy in the knowledge that either their chance of claiming is high or higher than average; ●● terminate a policy in the knowledge that their chance of claiming is low or lower than average, or; ●● choose and exercise a policy option which increases the policyholder’s expected benefit.
In addition to the main underwriting risks of SCOR’s Life division, as listed above, other factors could have an adverse impact, whether related to policyholder behavior such as resale or purchase of policies by third parties with no insurable interest, or other risk factors such as risks related to product guarantees.
●● Lapse risks are mitigated through appropriate reinsurance treaty clauses, as well as product, client and market diversification.
●● Underwriting of the Life business within the Group is under the worldwide responsibility of SCOR’s Life division. Clients are worldwide insurance companies. They are served by SCOR’s specialized underwriters and actuaries who are familiar with the specific features of the markets in which they operate, particularly with local lines of business and policy conditions, as well as the technical specifics such as mortality tables, morbidity incidence rates and persistency rates. In the Life underwriting process, consideration is typically given to the quality of the client’s medical and financial underwriting standards, the target clientele of the ceding company, as well as past experience to the extent credible data is available.
●● Life reinsurance treaties are underwritten by Life reinsurance experts familiar with the specific features of their markets. The ife business is underwritten following internal underwriting and pricing guidelines. Mandates for underwriting Life reinsurance business are assigned to teams on a mutually exclusive basis.
●● In order to ensure that the Life division is continually up-to-date with biometric trends and scientific developments, the expertise of seven dedicated Research & Development centers is used to analyze and assess the key factors underlying mortality, longevity, morbidity and policyholder behavior. These Research & Development Centers provide recommendations for the implementation of the research results into the pricing, underwriting and determination of exposure limits.
●● Guidelines and other documents defined by the Life division specify the underwriting rules and principles to be complied with, underwriting capacities delegated to the underwriters and pricing actuaries in each of the markets in which the Group operates, as well as maximum acceptable commitments per risk and per event. These guidelines outline contract types and terms and conditions of acceptance. Furthermore, they set out the level of retention of the Life division for various risks and types of cover (for more information, see Section 3.3.5 – Retrocession and other risk mitigation techniques). Revisions and updates follow a formalized approval process.
●● Claims handling is performed by local claims teams that handle and monitor claims. Claims exceeding a predefined threshold are reviewed by the Life division’s global medical underwriting and claims research center (CREDISS). In addition, where deemed appropriate, audits are conducted on claims or specific lines of business at the ceding companies’ offices.
●● In addition, cross reviews are commissioned by the Life division’s Chief Executive Officer to evaluate, on the one hand, the quality of underwriting, pricing, medical underwriting and claims handling of particular market areas or lines of business and, on the other hand, to identify and assess risks, to evaluate the appropriateness and effectiveness of controls and to propose risk-management actions.
SCOR is also exposed to insurance risks in its investment portfolio either through publicly traded securities (e.g. CAT bonds), or Over-The-Counter (OTC) contracts (e.g. collateralized reinsurance). Such investments could be impacted by the occurrence of underwriting risks as described in the above paragraphs (e.g. natural catastrophe, mortality etc.) that could significantly result in changes in value, or even the full loss of the amount invested. In the case of publicly traded securities, these risks could also have a significant impact on the liquidity of these instruments.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS 03Underwriting risks related to the P&C and Life reinsurance businesses 3.3.4. RISKS RELATED TO RESERVES
Within SCOR’s P&C division, in order to ensure an adequate and efficient monitoring of the reserves, a report is established on a yearly basis by the Group Actuarial Department, where the Group Chief Actuary, reporting to the Group Chief Risk Officer, gives his opinion on the year-end booked reserves’ adequacy. The main objective of this report is to provide SCOR’s Executive Committee and Audit Committee with an overall opinion on the adequacy of the P&C division’s reserves but also to highlight the inherent uncertainties surrounding this assessment. The monitoring of the reserves by the division’s and Group’s Actuarial Department is centered on three mechanisms: ●● a quarterly follow-up of the claims activity and review of reserves for each segment through adequate reporting procedures; ●● an annual internal actuarial analysis, including a review of all segments together with a full analysis of the segments that may have a substantial impact on SCOR’s balance sheet. This analysis is performed by the P&C division’s reserving actuaries and reviewed by the Group Actuarial Department which performs as well its own full analysis. These analyses are recorded in an annual actuarial report; ●● regular external reviews of the P&C division’s reserves adequacy are performed including those required by local regulators (Canada, Australia, Hong Kong, South Africa, China and SCOR Lloyd’s syndicate).
RISK FACTORS AND RISK MANAGEMENT MECHANISMS03 Underwriting risks related to the P&C and Life reinsurance businesses
In compliance with applicable regulatory requirements and in accordance with industry practices, the Group maintains IBNR reserves in addition to outstanding claims reserves. These reserves represent: ●● the estimated final amount that may be paid by the Group on losses or events that have occurred, but are not yet reported to the ceding company or to the SCOR entity concerned; and
●● the estimated cost variation on claims already reported to the Group.
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 reflect reinsurance treaty terms and conditions, and any changes in claims processing that may potentially affect the Group’s commitment over time.
The monitoring of the reserves by the division’s and Group’s Actuarial Department is centered on three mechanisms: ●● a quarterly follow-up of the claims activity and review of reserves for each segment through adequate reporting procedures; ●● an annual internal actuarial analysis, including a review of all segments together with a full analysis of the segments that may have a substantial impact on SCOR’s balance sheet.
During periods of declining interest rates, income from investments is likely to fall due to investment of net cash flows and reinvestments of redemptions at rates lower than those of the existing portfolio (dilutive effect of new investments). During such periods, there is therefore a risk that SCOR’s return on equity objectives are not met. For callable bonds for which the issuer has an option to redeem earlier than the ultimate maturity, the probability of having to reinvest the early proceeds at lower interest rates is increased.
SCOR publishes its consolidated financial statements in euros, but a significant part of its income and expenses, as well as of its assets and liabilities, are denominated in currencies other than the Euro. Consequently, fluctuations in the exchange rates used to convert these currencies into euros may have a significant impact on its reported net income and net equity from year to year.
As a result, changes in the exchange rates used to convert foreign currencies into Euros, particularly the fluctuation of the US dollar against the Euro, have had and may have in the future, an adverse effect on the Group’s consolidated shareholders’ equity. SCOR does not fully hedge its exposure to this risk. The impact of the fluctuation in the exchange rates used to translate foreign currencies into Euros on its consolidated shareholders’ equity is described in Section 4.5 – Consolidated statements of changes in shareholders’ equity.
The Group’s exposure to the equity market results from direct purchases of stocks or investments in equity funds and in convex equity strategies such as convertible bonds.
In addition, SCOR has entered into interest rates swaps to cover its exposure to financial liabilities with variable interest rates. For further details on these swaps, see Section 4.6 – Notes to the consolidated financial statements, Note 7.9 – Derivative instruments.
For further information on the sensitivity of the Group’s consolidated income and consolidated equity to interest rate risk, see Section 3.4.3 – Sensitivity analysis to market risks.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS03 Market risks 3.4.2.2. MANAGEMENT OF CURRENCY RISKS
Income (2) (3) Equity (2) (3) Income (2) (3) Equity (2) (3) Income (2) (3) Equity (2) (3)
(1) Excludes investments in hedge funds which normally do not have a uniform correlation to equity markets and securities where SCOR has a strategic investment including where the Group has a substantial shareholding but does not meet the “significant influence” criteria in IAS 28.
(2) The reduction in equity represents the estimated net asset impact including the additional impairment recognized in the income statement. (3) Net of tax at an estimated average rate of 23% in 2017 (27% in 2016 and 21% in 2015).
RISK FACTORS AND RISK MANAGEMENT MECHANISMS03 Credit risks 3.5. CREDIT RISKS
3.5.1.4. CREDIT RISK RELATED TO FUTURE CASH FLOWS OF LIFE REINSURANCE TREATIES
For special, highly-technical risk categories such as terrorism, nuclear, aviation or pollution, SCOR chooses to participate in various market dedicated groups of insurers and reinsurers (“pools”) aimed at pooling the relevant risks among the members of each group pools which offer best available expertise and risk sharing at market level. In the event of a total or partial default by one of the members of a group, it could be required to assume, in the event of joint liability of the members, all or part of the liabilities of the defaulting member.
3.5.2.1. MANAGEMENT OF CREDIT RISK RELATED TO BOND AND LOAN PORTFOLIOS
SCOR selects retrocessionaires carefully, taking into account their financial strength, and regularly monitors the Group’s exposure to retrocessionaires taking into account all relevant accounting balances (estimated and actual claims, premiums, reserves, deposits and pledges) and provides summary reports to the Divisional and Group Risk Committees on a regular basis. SCOR typically requires that unrated retrocessionaires pledge assets or provide other forms of collateral (cash deposits or letters of credit) to the value of their maximum potential contract liability, even though the actual retrocessionaire liability to SCOR in the balance sheet is lower.
3.5.2.4. MANAGEMENT OF CREDIT RISK RELATED TO FUTURE CASH FLOWS FROM LIFE REINSURANCE TREATIES
SCOR monitors the development of its cedents financial situation through regular contact, which enables to SCOR to take appropriate action when deemed necessary. In addition, credit risk on future cash flows from Life reinsurance policies is mitigated by industry-wide protection solutions in several countries, such as “Protektor” in Germany.
SCOR selects bank counterparties according to their rating and credit quality. Concentration risk from cash deposits at banks is mitigated by setting counterparty exposure limits. SCOR takes into consideration the public assistance (e.g., loans, guarantees of deposits, nationalizations) which certain banks may benefit from during a financial crisis, as they are important in the economy of their respective country.
SCOR needs liquidity to pay claims, operating expenses, interest payments and redemptions on its debts and declared dividends on its share capital. Without sufficient liquidity, the Group may be forced to curtail its operations, and business will suffer. In the case of catastrophe claims, in particular, it may need to settle amounts which exceed the amount of available liquidity in a reduced timeframe. SCOR’s liquidity needs to cover catastrophe exposures is calibrated using the Group’s gross (before retrocession) Nat Cat annual loss distributions, on top of other regular liquidity needs as listed above.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS03 Liquidity risks 3.6.2. MANAGEMENT OF LIQUIDITY RISKS
SCOR’s liquidity position is closely monitored from two points of view: timing and transferability.
Short-term liquidity, or cash management, includes the day-to-day cash requirements under normal business conditions.
Liquidity considerations over the long-term are assessed in a way which takes into consideration the possibility of various unexpected and potentially adverse business conditions where assets may not be sold for current market values. SCOR estimates the level of its immediately tradeable assets (i.e. non-pledged assets) which could be sold within a reasonable timeframe.
In addition, SCOR monitors the level of transferability of immediately tradeable assets between entities, depending on local and regulatory constraints.
P&C insurance contact liabilities In EUR million 0 – 1 year 1 – 3 years 3 – 7 years > 7 years Total
The projections for insurance contract liabilities of the SCOR Global Life segment have been prepared on a best estimate basis. The amounts below represent the estimated maturity profile of the assumed contract liabilities. For long-term Life reinsurance, benefit payments are typically settled net of premiums (for treaties with periodic premium payments). Where contract liabilities require to deposit cash to the cedent as collateral, the settlement normally also includes certain other account items, primarily the release of the deposits. For contracts where funds withheld are used to offset the amounts settled between SCOR and its cedents, funds withheld to cover the life insurance contract liabilities in the table below mature at the same date as the respective Life insurance contract liabilities.
Interest rate ranges < 1 year 1 – 5 years > 5 years (1) Total (2)
(1) Accrued interest on perpetual debt as at December 31, 2017 of EUR 12 million (2016: EUR 13 million). (2) Of the amounts above, EUR 16 million (2016: EUR 84 million) relate to variable rate debt. These amounts exclude debt which has been swapped from a variable interest rate to a fixed interest rate.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS03 Operational risks 3.7. OPERATIONAL RISKS
In addition, SCOR may be involved in legal and arbitration proceedings due to non-protective terms of a contract, denounced either by third parties or internally which could lead to an unfavorable outcome. There are no other governmental, judicial or arbitration proceedings, including any proceedings SCOR would be aware of, pending or which SCOR could be threatened with, likely to have or having a significant impact on SCOR’s financial situation or profitability over the last 12 months. For information on this issue, see Section 4.6 – Notes to the consolidated financial statements, Note 25 – Litigation.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS 03Operational risks 3.7.1.4. RISKS RELATED TO EXTERNAL EVENTS
As an international group, SCOR must comply with national and international laws, regulations and accounting standards. This includes all applicable economic sanctions, programs relating to anti-corruption, anti-money laundering, in addition to anti-terrorism laws, and laws and regulations applicable to its operations. Laws and regulations applicable to some of SCOR’s operations refer inter alia to the economic trade sanctions laws and regulations administered by the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) and to certain laws administered by the United States Department of State. Other directives with which SCOR complies apply to anti-money laundering, corruption, terrorism financing and insider trading (e.g. the European Regulation of April 2014 on market abuses). Regarding anti-corruption laws and regulations, SCOR must comply with the Foreign Corrupt Practices Act (FCPA) and other laws such as the UK Bribery Act that bar corrupt payments or unreasonable gifts to foreign governments or officials. In addition, SCOR must now also comply with the provisions of the Sapin II law, which requires large companies (i.e. with revenues exceeding EUR 100 million and with at least 500 employees) to implement plans that prevent corruption, with sanctions in case of non-compliance.
Following Brexit, the direct P&C insurance activities for European Economic Area (EEA) clients currently carried by SCOR UK may need to be carried in the future by a legal entity based in the EEA in case insurers based in the United Kingdom would lose their European passport. In order to prepare for such an event SCOR has decided to create a P&C insurance company in France to serve its continental clients, while maintaining the insurance company SCOR UK for its other clients. Also, SCOR stands ready to ask the Prudential Regulation Authority for any required approvals in order to allow the continuation of the activity of its reinsurance branches in the United Kingdom.
SCOR is also exposed to external fraud which is characterized by the fraudulent misappropriation of certain SCOR assets by third parties. External frauds may be perpetrated by various means including cyber-attacks, and usually target cash or data. Should they succeed in bypassing the controls or protection measures in place, this could generate a direct loss for the Group.
SCOR is exposed to cyber-attacks which can be very diverse in their sophistication and execution. The main targets are system functions, data and cash management. Immediate repercussions include: ●● systems could be slowed down, corrupted or stopped potentially resulting in loss of productivity, corrupted data and remediation costs; ●● data could be stolen, deleted or corrupted, or made public in contradiction with SCOR’s regulatory or contractual obligations.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS03 Internal control and risk management procedures 3.7.2. MANAGEMENT OF OPERATIONAL RISKS
At legal entity level, depending on local requirements, specific operational risk management processes are implemented, where relevant.
On risks which may develop rapidly, such as external fraud, SCOR frequently adapts its risk management, for example by organizing specific training programs and sending regular warnings and detailed instructions to its employees.
Some of the above operational risks are transferred in whole or in part to direct insurers as follows: ●● the properties and other assets of SCOR and its subsidiaries are covered locally through property damage policies; ●● risks which are mostly covered at Group level include civil liability risks related to the operation of the company caused by employees and real estate, professional liability risks, civil liability risks of directors and officers, and cyber risks.
In application of Article 28 of the EC Commission Regulation No. 809/2004, the following information is incorporated by reference in this Registration Document: ●● The consolidated financial statements as at December 31, 2016 are included from pages 143 to 222 and the Statutory Auditors’ report on these consolidated financial statements as at December 31, 2016 is included from pages 223 to 224 of the Registration Document filed with the AMF on March 3, 2017 under Number D.17-0123 (and from pages 143 to 222 and from pages 223 to 224, respectively, of the free translation into English of the above mentioned Registration Document. The translation is available on SCOR’s website www.scor.com).
●● The consolidated financial statements as at December 31, 2015 are included from pages 153 to 231 and the Statutory Auditors’ report on these consolidated financial statements as at December 31, 2015 is included from pages 232 to 233 of the Registration Document filed with the AMF on March 4, 2016 under Number D.16-0108 (and from pages 143 to 219 and from pages 220 to 221, respectively, of the free translation into English of the above mentioned Registration Document. The translation is available on SCOR’s website www.scor.com).
The consolidated financial statements for the year ended December 31, 2017 are presented below: 4.1. CONSOLIDATED BALANCE SHEET
Shareholders’ equity – Group share Note 12 6,195 6,661 Share capital 1,524 1,517 Additional paid-in capital 839 833 Revaluation reserves 156 134 Consolidated reserves 3,508 3,761 Treasury shares (179) (224) Net Income for the year 286 603 Share-based payments 61 37 Non-controlling interests 30 34 TOTAL SHAREHOLDERS' EQUITY 6,225 6,695 Financial liabilities Note 13 2,702 2,757 Subordinated debt 2,211 2,256 Real estate financing 479 491 Other financial liabilities 12 10 Employee benefits and other provisions Note 14 204 262 Contract liabilities Note 15 29,006 28,715 Insurance contract liabilities 28,751 28,513 Investment and financial reinsurance contract liabilities 255 202 Other liabilities 5,097 4,864 Derivative instruments Note 7 28 90 Accounts payable on assumed insurance and reinsurance transactions Note 8 757 792 Accounts payable on ceded reinsurance transactions Note 8 1,215 1,306 Deferred tax liabilities Note 17 338 354 Tax payables 100 129 Miscellaneous liabilities 2,659 2,193 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 43,234 43,293
CONSOLIDATED FINANCIAL STATEMENTS 04Consolidated statement of income 4.2. CONSOLIDATED STATEMENT OF INCOME
Effect of changes in foreign exchange rates (521) (1) 75 316
Change in scope of consolidation (cash and cash equivalents of acquired/disposed companies) 1 (2) - -
Net cash flows provided by/(used in) investing activities (1,280) (368) (533)
Cash used to redeem financial liabilities Note 13 (30) (899) (7) (181)
Other cash flows provided by/(used in) financing activities (35) (88) (8) 134 (9)
Net cash flows provided by/(used in) financing activities (467) (895) 417
CONSOLIDATED FINANCIAL STATEMENTS 04 Consolidated statement of changes in shareholders’ equity 4.5. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Taxes recorded directly in equity - - (4) (14) - - - - (18)
Remeasurements of post-employment benefits - - - 12 - - - - 12
Comprehensive income net of tax - - 22 (514) - 286 - (1) (207)
EUR 6 million in additional paid-in capital). This resulted in the creation of 554,112 shares during the year ended December 31, 2016. These movements were offset by a reduction in Group capital through the cancellation of treasury shares for EUR 16 million (EUR 5 million in share capital and EUR 11 million in additional paid-in capital).
CONSOLIDATED FINANCIAL STATEMENTS 04 Consolidated statement of changes in shareholders’ equity
Net income for the year ended December 31, 2015 - - - - - 642 - - 642
Taxes recorded directly in equity - - 16 (3) - - - - 13
NOTE 12. INFORMATION ON SHARE CAPITAL, CAPITAL MANAGEMENT, REGULATORY FRAMEWORK AND CONSOLIDATED RESERVES 197
The consolidated financial statements were presented by Group Management to the Audit Committee. Management and the Audit Committee report to the Board of Directors, which approved the consolidated financial statements on February 21, 2018.
The impact of the referendum on Britain’s membership in the European Union has led to heightened financial market volatility and increased political and economic uncertainty. Its impact on SCOR’s business and operations is currently expected to be limited.
Please refer to section 1.3.3. of the Registration Document for a description of the significant events 2017.
Movements in the translation adjustment are primarily due to the translation of financial statements of subsidiaries and branches not using EUR as their functional currency. As at December 31, 2017, 2016 and 2015, the Group has one net investment hedge in place.
The following standards relevant to SCOR and expected to have a material impact on its consolidated financial statements have been issued by the International Financial Reporting Standards Board but are not yet effective or have not been endorsed by the European Union: ●● On July 24, 2014, the IASB published IFRS 9 – Financial Instruments. The final version of IFRS 9 replaces the previously published versions of IFRS 9 on classification and measurement and hedge accounting. It also replaces IAS 39 – Financial Instruments: Recognition and Measurement and covers classification and measurement, impairment and hedge accounting. IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with earlier application permitted.
●● On January 13, 2016, the IASB published IFRS 16 – Leases. The European Union endorsed IFRS 16 on October 31, 2017. The Standard will replace the current guidance in IAS 17 – Leases, and is applicable from January 1, 2019. Earlier application is permitted, subject to endorsement by the EU and provided IFRS 15 – Revenue from Contracts with Customers, is also applied. IFRS 16 will significantly change the accounting by lessees, who will recognize a lease liability reflecting the present value of future lease payments and a right-of-use asset for lease contracts on the balance sheet. Exemptions are optional for certain short-term leases and leases of low-value assets. Lessees will recognize depreciation of the right-of use asset and interest expense, calculated in accordance with the effective interest rate method, on the lease liability in their income statement. For lessors, accounting remains broadly unchanged from IAS 17. Transition to the new principles for lease accounting can be done either fully retrospectively or by adopting a simplified approach that includes certain reliefs related to the measurement of the right-of use asset and the lease liability and does not require a restatement of comparatives. SCOR is currently assessing the impacts of IFRS 16 on its financial position and performance as well as on disclosures in detail. The main impact is expected to result from leased office space used by the Group.
CONSOLIDATED FINANCIAL STATEMENTS 04 Notes to the consolidated financial statements group of contracts, including a risk adjustment. The unearned profit is called CSM (Contractual service margin). Contracts that are onerous on initial recognition require an immediate loss recognition. Insurance contracts will be re-measured based on current market information at each reporting date. Under IFRS 17, the performance of the Group will mainly be depicted through the insurance service result (the profit earned from providing (re) insurance coverage) and the financial result (investment income from managing insurance assets and insurance finance expense from discounting insurance obligations). Gross written premiums will no longer be presented on the face of the income statement. Presentation of balance sheet and income statement will change under IFRS 17 compared to current practice. The new Standard also requires additional disclosures and reconciliations to enable users of the Financial Statements to understand the amounts recognized on the balance sheet and in total comprehensive income as well as the risks embedded in insurance contracts that the Group issues. IFRS 17 is expected to require significant changes in systems and processes at potentially substantial cost. SCOR has conducted an impact study including financial modeling exercises to prepare the detailed implementation roadmap for IFRS 17 and to enable further information on the expected impacts of the new accounting standard for insurance contracts on the SCOR Group. The implementation project is expected to begin in early 2018.
All material entities over which SCOR has control are fully consolidated. SCOR controls an entity when it is exposed to, or has rights to, variable returns from its investment in the entity and has the ability to affect those returns through its power to direct the entity’s activities.
Critical judgments are sometimes required to determine the consolidation method for certain entities in which the Group holds less than 50% of the voting rights. As such, despite holding less than 50% of its voting rights, the Group determines that it continues to control MRM as it exerts de facto control as defined by IFRS 10 in light of the proportion of voting rights it holds, and of the wide dispersion of the other vote holders.
Investment funds and real estate entities are fully consolidated or recorded using the equity method in accordance with the aforementioned rules. Non-controlling interests in fully consolidated investment funds are presented in “Other liabilities” as the third-party holders have an unconditional right to sell their holdings to SCOR. 100% of assets (including insurance business investments and cash and cash equivalents), liabilities, cash flows and income statement of the fully consolidated funds, are therefore reflected in SCOR’s consolidated financial statements.
General Security Indemnity Company of Arizona US 100 100 100 100 Full
SCOR Global Life USA Holdings Inc. US 100 100 100 100 Full
SCOR Global Life USA Reinsurance Company US 100 100 100 100 Full
SCOR Reinsurance Asia Pacific Pte Ltd. Singapore 100 100 100 100 Full
Aggregate amount of the reporting entity’s share of net income/(loss) (1) 6
Share of retrocessionaires in insurance and investment contract liabilities - - - - - - 6
In February 2015, SCOR sponsored a catastrophe bond, Atlas IX Series 2015-1, which provides the Group with a multi-year risk transfer capacity of USD 150 million for US Named Storm and US and Canada Earthquake events. This transaction replaced the US tranches of Atlas VI Series 2011-1. The issuer of the cat bond, Atlas IX Capital Limited, is an Irish private limited company, incorporated on August 2, 2013. The risk period for Atlas IX 2015-1 runs from February 11, 2015 to December 31, 2018. The instrument is accounted for as a derivative instrument.
Earthquake events. The risk period for Atlas IX 2016-1 runs from January 13, 2016 to December 31, 2019.
The Group did not enter into any acquisition or disposal of consolidated subsidiaries in 2016 or 2015.
The consideration paid in cash by SCOR amounted to EUR 178 million.
No pro forma information is required since the financial situation of the Group will not be significantly impacted by the consolidation of Château Mondot S.A.S.
Impact of Château Mondot S.A.S. acquisition on consolidated statement of cash flows
Change in ceded unearned premiums reserves - 8 - 8 (2) (12) - (14) 1 28 - 29
Change in fair value of investments (2) 4 - 2 1 5 - 6 1 11 - 12
For SCOR Global P&C, 2017 has been marked by an exceptional series of large natural catastrophes that occurred during the 2nd half of the year, including the American hurricanes, earthquake and wildfires. Natural catastrophes resulted in total net estimated losses of EUR 768 million as at December 31, 2017.
Contract liabilities and share of retrocessionaires in contract liabilities for SCOR Global Life, allocated on the same basis as gross written premiums, are as follows: As at December 31, 2017 As at December 31, 2016
The distribution of gross written premiums by geographic region for SCOR Global P&C, based on the country in which the ceding company operates for treaty business and location of the insured for facultative business, is as follows: In EUR million 2017 2016 2015
Share of retrocessionaires in insurance and investment contract liabilities Contract liabilities
(1) Cash and cash equivalents include cash held by the Group on behalf of third parties as part of its asset management activity for a total amount of EUR 145 million on December 31, 2017 (December 31, 2016: EUR 177 million).
Assets and liabilities by geographic region are based on the location of the entities and can be broken down as follows: As at December 31, 2017 As at December, 31 2016
Share of retrocessionaires in insurance and investment contract liabilities 1,636 370 31 2,037 1,065 265 32 1,362
Cash and cash equivalents at January 1 682 1,006 1,688 861 765 1,626 655 205 860
Net cash flows provided by/(used in) operations 558 586 1,144 250 1,104 1,354 227 568 795
Net cash flows provided by/(used in) financing activities (330) (137) (467) (158) (737) (895) (222) 639 417
Effect of changes in foreign exchange rates on cash and cash equivalents (45) (39) (84) (12) (17) (29) 60 27 87
(1) Relates to Château Mondot (see Note 3 – Acquisitions and disposals).
In order to estimate the fair value of SCOR Global P&C for the purpose of impairment testing, SCOR uses a discounted cash flow model comprised of an earnings model, which considers forecasted earnings and other financial ratios for the reportable segment over a five-year period. The first two years are based on the assumptions from the Vision in Action strategic plan and the last three years are extrapolated using a conservative approach based on past experience. Business plans include assessments of gross and net premium expectations, expected loss ratios and expected expense ratios together with actuarial assumptions such as the coefficient of changes in ultimate net reserves together with assumptions as to the mean time to payment of existing reserves and future business. Future cash flows beyond this period are extrapolated using a growth rate of 5.5%. SCOR uses risk-free interest rates for each currency as well as the Group’s estimated cost of capital of 6.48%, as derived from the Capital Asset Pricing Model (CAPM).
The annual goodwill impairment tests conducted show recoverable amounts in excess of the respective total carrying amounts for the financial years ended December 31, 2017, 2016 and 2015. Consequently, no goodwill impairment charges were recognized.
VOBA is amortized over the lifetime of the underlying reinsurance portfolio based on schedules derived from the run-off patterns of expected profits calculated for future closing dates.
Cash flow projections for the acquired portfolio and non-economic assumptions are assessed regularly and updated in the actuarial calculations. The review of cash flow projections recognizes changes in the portfolio from special events like withdrawals or recaptures of treaties. The subsequent measurement of VOBA is consistent with the measurement of the related underwriting reserves. VOBA amortization schedules are adjusted consistently. VOBA is subject to impairment testing performed via the liability adequacy test.
The loans and receivables category includes funds held by ceding companies as collateral for underwriting commitments measured at cost. Non-derivative financial assets, where payment is fixed or determinable and which are not listed on an active market, are also included within this category and are recognized at amortized cost using the effective interest rate method. Loans and receivables include short-term deposits or investments with a maturity of more than three months but less than twelve months at the date of purchase or deposit. Loans and receivables include a provision for recoverability if deemed necessary.
In 2017 and 2016 respectively, there were no material gains or losses realized on the disposal of available-for-sale investments which were previously carried at cost.
Total impairment losses recognized in 2017 amounted to EUR 8 million (2016: EUR 10 million), relating mainly to EUR 3 million on the equity portfolio (2016: EUR 8 million), EUR 4 million on loans and receivables (2016: EUR 0 million) and EUR 0 million on the debt securities portfolio (2016: EUR 2 million).
The Group provides disclosures on the measurements of financial instruments held at fair value using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The level in the fair value hierarchy is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement. Assessing the significance of a particular input to the fair value measurement requires judgment, considering factors specific to the asset or liability. At each reporting date, the Group considers the classification relevancy of financial instruments that are measured at fair value. The valuation methodology of financial instruments is regularly monitored to identify potential reclassifications. The fair value hierarchy has the following levels: ●● Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
●● Level 3: valuation inputs for the asset or liability which are not based on observable market data (unobservable inputs).
●● the net asset value has not recovered to at least its initial purchase price after an additional 12-month period.
(1) Movements in derivative instruments are due to the change in fair value of Atlas IX Series 2015-1, Atlas IX Series 2016-1 and Atlas IX Series 2013-1 (Extreme Mortality Risk Transfer Contract) derivatives recorded in other operating expenses, and of the contingent capital facility, recorded in investment income.
(2) Additions to derivative instruments include the new contingent capital facility. (3) Disposals of derivative instruments correspond to the derecognition of Atlas IX Series 2013-1 (Extreme Mortality Risk Transfer Contract). Refer to Note 2.3 –
There were no material transfers between level 1 and level 2 in 2017 and 2016, respectively. There were also no changes in the purpose of a financial asset that subsequently resulted in a different classification of that asset.
One such indicator is that the building’s market-value is below its carrying amount. If any impairment indicator is present, the Group assesses the recoverable amount of the building in question. The recoverable amount is the higher of the property’s fair value less cost to sell and its value in use. The value in use is assessed using an internal discounted cash flow model based on current market assumptions and considers rental situation, completeness of construction and renovation work, as well as recent developments within the local real estate market. If the recoverable amount is greater than 20% below the carrying amount, the resulting impairment loss is recognized in the statement of income.
In 2017, increases in real estate investments related to the acquisition of a new building, currently under construction and renovation work on existing buildings for a total of EUR 80 million. Disposals relate to sale of one building, resulting in a gain on sale of EUR 192 million.
The fair value of real estate investments is categorized within level 3. The valuation techniques and unobservable inputs were as follows as at December 31, 2017 and 2016: Real estate
The rental income related to investment property was EUR 48 million in 2017 (2016: EUR 43 million) and the related direct operating expenses amounted to EUR 14 million (2016: EUR 12 million).
TOTAL AVAILABLE FOR SALE AND FAIR VALUE THROUGH INCOME 18,246 211 17,365 132
As at December 31, 2017, the net unrealized gain (loss) on debt securities comprised EUR 144 million in unrealized gains and EUR 129 million in unrealized losses (as at December 31, 2016: EUR 186 million in unrealized gains and EUR 200 million in unrealized losses).
The net unrealized gain (loss) on equity securities as at December 31, 2017 comprised EUR 216 million in unrealized gains and EUR 20 million in unrealized losses (as at December 31, 2016: EUR 174 million in unrealized gains and EUR 28 million in unrealized losses).
In EUR million As at December 31, 2017 As at December 31, 2016 in 2017
Loans and receivables primarily include cash deposits made at the request of ceding companies as collateral for commitments (insurance contract liabilities), short-term investments and related accrued interest. Short-term investments include government bonds, certificates of deposit (CDs) and treasury bills (T-bills) maturing between 3 and 12 months from the date of purchase. CDs and T-bills maturing in more than 12 months from the date of purchase are included in “Other loans maturing in more than one year”. A portion of the assets presented within loans and receivables is managed by SCOR Investment Partners (short-term government bonds, infrastructure and real estate loans, and the majority of loans secured against collateral).
As at December 31, 2017, the decrease in loans and receivables of EUR 516 million compared to year-end 2016 is mainly due to the decrease in funds held by ceding companies (mostly linked to the US Life business) and the impact of fluctuating exchange rates (mainly USD).
A derivative instrument designated as a fair value hedge is initially recognized at fair value on the date on which the derivative contract is entered into. The carrying amount of the hedged item is adjusted for gains and losses attributable to the risk being hedged. The derivative is remeasured at fair value and gains and losses are recognized in the statement of income.
Atlas IX 2015 and 2016 catastrophe bond transactions (see Note 2.3 – Information related to non-consolidated special purpose vehicles) are recorded as derivative assets recognized at fair value through income and as other liabilities representing the value of interest payments. Atlas IX catastrophe bonds are valued using an expected cumulative loss model that is based on a combination of market inputs, to the extent that trades in these instruments are active, and catastrophe modeling tools developed by third-party companies (AIR/RMS). These assets are disclosed as level 3 investments within insurance business investments (see Note 7.1 above).
Expected loss US and Canadian Earthquake based on AIR model 2.06% 2.59%
The Atlas IX mortality risk transfer contract transaction (see Note 2 – Scope of consolidation, Information related to unconsolidated structured entities) was recorded as a derivative asset measured at fair value through income and a payable for the value of future interest payments. SCOR values the derivative asset using a model that is based on indicative secondary market interest rate, considering both the probability of trigger and alternative investment opportunities to the extent that trades in these instruments are active. Extreme mortality events in the US (such as pandemics, natural catastrophes and terrorist attacks) covered by the Atlas extreme mortality bond and occurring during the coverage period of this bond, would increase the fair value of the derivative instrument.
The changes in fair value through income and the early redemption payment expenses and other current administration expenses are recognized as other operating income and other operating expenses.
Cash-flow hedge accounting is applied when the hedging relationship is determined to be highly effective throughout the term of the hedge. Effectiveness testing is performed at the inception of the hedging relationship and at each reporting date throughout the term of the hedge relationship. Where hedge effectiveness is not attained, the hedging instrument (interest rate swap) is measured at fair value through income from the date the hedge relationship ceases to be effective. As at December 31, 2017, the fair value of the interest rate swaps was a liability of EUR 6 million (December 31, 2016: liability of EUR 13 million). The amount recognized in other comprehensive income in 2017 is EUR 7 million (2016: EUR 12 million). The amount recognized in the statement of income in 2017 is not material (2016: EUR 0 million).
In order to hedge the foreign exchange risk associated with certain debts issued in CHF (CHF 315 million issued in 2012,
Cash-flow hedge accounting is applied. The fair value of the swaps is obtained from the banking counterparty using market inputs. As part of the usual analysis of accounts processes these thirdparty valuations are checked for reasonableness against internal models. The total related notional amount is CHF 565 million as at December 31, 2017 (December 31, 2016: CHF 565 million). The fair value of the swaps is EUR 20 million as at December 31, 2017 (EUR 61 million as at December 31, 2016). No inefficiency was identified on these swaps during 2017.
The outstanding contracts at December 31, 2017 and 2016, converted into EUR at the closing rates, were as follows: In EUR million
Accounts receivable from assumed insurance and reinsurance transactions 3,112 2,763 5,875 3,313 2,861 6,174
Accounts receivable from ceded reinsurance transactions 73 73 146 44 59 103
Accounts payable on ceded reinsurance transactions (624) (591) (1,215) (641) (665) (1,306)
Intangible assets with indefinite useful lives are tested for impairment annually. The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether the indefinite life assumption remains appropriate. If not, the change in the useful life assessment from indefinite to finite is made on a prospective basis.
Gross value at December 31, 2015 276 Foreign exchange rate movements (6) Additions 31 Disposals Change in scope of consolidation Gross value at December 31, 2016 301 Foreign exchange rate movements (6) Additions 28
(1) Disposals are mainly related to the scrapping of fully amortized software.
Other intangible assets include all intangible assets except for goodwill and VOBA (refer to Note 5 – Goodwill and Note 6 – Value of business acquired).
The increase during the year ended December 31, 2017 of EUR 142 million mainly comprises EUR 136 million, for a trademark with indefinite life, due to the change in scope relating to Château Mondot SAS (see Note 3 – Acquisitions and disposals), the capitalization of software development costs relating to the Group’s accounting system, technical accounting system and internal model.
Other intangible assets also include indefinite useful life intangible assets associated with Lloyd’s syndicate participations acquired through the Converium business combination. The Lloyd’s intangible assets of EUR 9 million as at December 31, 2017 (as at December 31, 2016: EUR 9 million) are deemed to have an indefinite useful life due to the ability to realize cash for these contractual rights through the Lloyd’s auction process.
Intangible assets with an indefinite useful life are tested for impairment at least annually. The prices of the Lloyd’s syndicate participations from the Lloyd’s auction process are key inputs in the impairment tests conducted, which demonstrated that there was no impairment.
Tangible assets as at December 31, 2017 amounted to EUR 702 million compared to EUR 621 million as at December 31, 2016 and primarily relate to own use property, office furniture and equipment, and building fixtures and fittings.
Payments for operating leases relate primarily to rental payments for offices and business premises of the Group. They include extension options as well as restrictions regarding subleases. In the period under review, lease payments of EUR 32 million (2016: EUR 25 million; 2015: EUR 24 million) were recognized as an expense, net of sublease payments of EUR 4 million (2016: EUR 1 million; 2015: EUR 3 million). The main lease contracts are for the US and Zurich offices.
The two buildings under construction in 2016 have been delivered in accordance with the terms of the contract.
(SGD 45 million (EUR 31 million) as at December 31, 2015). As at December 31, 2016, SCOR did not have the right to use the building, which was contingent on completion of construction and fitting that occured in 2017.
Changes in foreign exchange rates (48) (38) (86) 9 (16) (7) 39 35 74
The Group’s liquidity, defined as cash, cash equivalents, bank overdrafts and short-term government bonds with maturities of more than three months and less than twelve months, which is well diversified across a limited number of banks, amounts to EUR 1,009 million as at December 31, 2017 (December 31, 2016: EUR 2,282 million). It includes EUR 8 million of short-term governments bonds as at December 31, 2017.
Change in fair value of financial instruments recognized at fair value through income 27 118 (97)
Dividend and interest cash receipts relating to investments held during the year were EUR 23 million (2016: EUR 24 million and 2015: EUR 20 million) and EUR 445 million (2016: EUR 494 million and 2015: EUR 495 million), respectively.
Tax cash outflows during the year was EUR 93 million (2016: outflow of EUR 127 million and 2015: outflow of EUR 190 million). 2017 outflows include a net 3% dividends distribution tax refund of EUR 33 million.
Dividends declared on ordinary shares are recognized as a liability when such dividends have been approved by shareholders at the relevant Annual Shareholders’ Meeting.
Issued shares The number of ordinary shares which were issued and fully paid in circulation as at December 31, 2017, 2016 and 2015 was as follows: Share capital decrease – decision of the board (554,112) (672,638) (1,260,227)
Share capital increase – exercise of stock options – during the year 1,519,860 554,112 1,221,843