Risks related to capital are managed via specific principles and processes throughout the Group. SCOR ensures maximum capital fungibility within the Group through: • a reduced number of subsidiaries enhancing fungibility while supporting local business presence. It is facilitated by the “Societas Europaea” (SE) structure supported by an efficient branch set-up in Europe, enabling integrated supervision at Group parent company level through SCOR SE, focusing on communication with a limited number of supervisors with whom SCOR can share its global strategy, while taking advantage of diversification benefits; • an integrated supervision of regulatory constraints at Group level and an optimal capital allocation.
3.3.2. MANAGEMENT OF UNDERWRITING RISKS RELATED TO THE P&C AND LIFE BUSINESSES
• Most of the business underwritten is renewed on agreed dates. This enables SCOR to establish annual underwriting plans, both qualitative (description of the environment) and quantitative (activity budget). These plans are approved by the Executive Committee.
• Most of SCOR's facultative underwriters work in the Business Solutions domain of Specialty Insurance, which operates worldwide. The Business Solutions area is dedicated to large corporate businesses and is geared to provide clients with solutions for coverage of large conventional risks.
• Underwriting and pricing guidelines, defined by the P&C business unit, 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 business unit 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.
• Business opportunities going beyond the stipulations of the guidelines previously defined are subject to special referral procedures at two levels: (1) by Underwriting Management and, where applicable, by Legal and/or Finance; (2) and for cases which may have a significant impact on the balance sheet (thresholds and/or conditions defined in a procedure or specific guidelines) by Group Risk Management.
• The adequacy of the P&C business unit’s reserves is controlled based on specific procedures. For further information on how risks related to reserves are managed, see Section 3.3.2.4 – Management of reserving risks.
• In order to ensure that the Life business unit is continually up-todate with biometric trends and scientific developments, the expertise of specialists is used to analyze and assess the key factors underlying mortality, longevity, morbidity and policyholder behavior. These teams provide recommendations for the implementation of the research results into the pricing, underwriting and determination of exposure limits. Regarding the potential impacts of climate change, SCOR’s specialists perform regular reviews of the medical literature to identify the links between climate change and certain medical conditions and diseases. Where appropriate, this information is fed into decisions related to current and future underwriting, pricing and valuation of reserves.
• Accumulations of risk particularly exposed to catastrophes in the Life business are regularly assessed in “footprint” scenarios and local catastrophe scenarios. Specific tools are used to monitor known Group cover accumulation in selected geographical areas. Specifically, designed retrocession programs aim at protecting the Life reinsurance business. One program protects assumed catastrophe excess of loss acceptances; another one protects the net retained lines in respect of proportional and per risk acceptances. SCOR uses the RMS model for infectious diseases in order to assess the potential exposure to risk arising from global pandemics.
• Maximum underwriting capacities are established to limit the Life business unit’s exposure from various types of treaties underwritten, proportional and non-proportional, covering individual or Group policies. These capacities are reviewed each year, taking into account the capacities obtained by retrocession coverage. The exposure is monitored throughout the year against SCOR’s defined risk limits and used for decisions on mitigating measures. Monitoring of peak exposures is included in Life regular risk reporting. See Section 3.3.3 – Retrocession and other risk mitigation techniques for further information on how these instruments are managed.
• The adequacy of Life’s business unit’s reserves is monitored based on specific procedures. For further information on how risks related to reserves are managed, see Section 3.3.2.4 – Management of reserving risks.
• Risk-related topics of the Life business unit are discussed at the quarterly Life Risk Committee.
• Cross reviews are conducted by specialists to assess the quality of underwriting, pricing, medical underwriting and claims handling of particular market areas or lines of business, to evaluate the appropriateness and effectiveness of controls and to propose risk management measures, including mitigating actions.
3.3.2.3. Management of interdependence and accumulation risks between SCOR’s areas of business
3.3.2.4. Management of reserving risks The adequacy of P&C and Life reserves is checked on a quarterly basis by internal actuaries at business unit level as well as at the Group level by the Group Chief Actuary who signs off on the adequacy of reserves and reports to the Executive Committee and the Audit Committee.
P&C business Within SCOR’s P&C business unit, 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 business unit’s reserves but also to highlight the inherent uncertainties surrounding this assessment. The monitoring of the reserves by the business unit’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 business unit’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 business unit’s reserves adequacy are performed including those required by local regulators (Canada, South Africa, Argentina, India, China and SCOR’s Lloyd’s syndicate).
SCOR regularly reviews its methods for determining outstanding claims reserves and IBNR reserves. However, it is difficult to accurately value the amount of reserves required, especially in view of changes in the legal environment, which could have an impact on reserves development.
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.
3.3.3. RETROCESSION AND OTHER RISK MITIGATION TECHNIQUES Reinsurers typically purchase reinsurance to cover their own risk exposures. Reinsurance of a reinsurer’s business is called retrocession. SCOR remains primarily liable to the direct insurer on all risks reinsured although the retrocessionaire is liable to the Group to the extent of the cover limits purchased.
(collateralized retrocession, Insurance-Linked Securities including catastrophe bonds); • solvency buffer; SCOR has set out a solvency scale with clear and well-defined buffers safeguarding the Group’s franchise; • contingent capital facilities, designed as tools of last resort, to partially replenish the Group’s capital base in case of very remote pre-defined events. The current contingent capital guaranteed equity line is providing the Group with EUR 300 million coverage. It is innovative in that it protects the
For further information on how counterparty default risk related to retrocessionaires is managed, see Section 3.3.5 – Management of Credit risks.
To better address climate risks and improve the resilience of its invested assets portfolios, SCOR has put in place strong monitoring of Environmental, Social and Governance (ESG) criteria when managing assets, based on exclusions of issuers most exposed to sustainability risks and ESG screening of assets in which the Group invests.
3.3.4.1. Management of interest rate risks The Group aims to maintain an appropriate mix of fixed and variable rate instruments. It also manages the maturities of interestbearing financial assets.
3.3.4.2. Management of currency risks SCOR has a balance sheet hedging approach whereby the objective is to match monetary assets and liabilities in each foreign currency so that the fluctuation in the exchange rate has no material impact on the reported net income. The policy is to closely monitor the net monetary currency positions and, where appropriate, execute either cash arbitrages or forward hedges.
3.3.4.4. Management of equity risks With regards to equity investments, the Group’s objective is to develop and manage a high-quality diversified portfolio.
(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 2019 (21% in 2018 and 23% in 2017).
Management of credit risks related to cash deposits at banks 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 countries.
For more details on the impact of the valuation of intangible assets, see Section 3.1.1.3 – Impact of the valuation of SCOR’s intangible assets and deferred tax assets on SCOR’s shareholders’ equity and price of its securities, and Section 4.6 – Notes to the consolidated financial statements, Note 6 – Value of business acquired.
Management of credit risk related to retroceded liabilities 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). 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.
3.3.5.3. Management of other credit risks In the event of joint liability of the members in pools to which SCOR participates, the risk of default of other pool members is carefully monitored by SCOR: • through its appointment as director and via the participation of its senior management in dedicated committees such as Audit and Risk Committees and Technical Committees, for the pools in which SCOR’s participation is the most significant; and
The following table provides an overall analysis of the aging of financial assets and receivables as at December 31, 2018: Total> 36 monthsIn EUR millions months1-12 monthsCurrent months 17,611-Available-for-sale financial assets -17,611 -1, 2451,245Financial assets at fair value through income -- -8, 978 --Loans and receivables -- 8,978 6,6195,833 91651Insurance receivables 3212 -2Miscellaneous assets – others -- 218216 1,175-Cash and cash equivalents -1,175 --
Timing SCOR assesses liquidity risks arising from both short-term and longterm liquidity needs. SCOR manages these risks via different mechanisms which consider: • actions to be taken by the insurance or reinsurance business areas to take into account both short term and long-term liquidity risk (refer to ‘Maturity Profiles” in Section 3.1.5 – Liquidity risks); and
Additional information on the timing of repayments and liquidity risk is included in Section 3.1.5 – Liquidity risks. For further information on liquid assets of SCOR Group, see Section 4.6 – Notes to the consolidated financial statements, Note 7 – Insurance business investments.
3.3.7. MANAGEMENT OF OPERATIONAL RISKS The two main principles driving the operational risk management approach are: • exhaustiveness: ensure that a complete and exhaustive identification of all risks within the Group is carried out to the extent possible; • proportionality: once operational risks are identified, management uses appropriate and proportionate responses, resources and procedures, focusing on key risks.
The process owners are responsible for managing operational risks within the processes. To meet high quality standards, the Group relies on a highly qualified staff to manage processes and the risks within these processes.
At Group level, experienced staff members collect relevant information and analyses on operational risks, on a qualitative and quantitative basis. When relevant, they develop key indicators, with support from Group Risk Management. The Group has also implemented regular risk reporting mechanisms in order to provide an overview of operational risks across the Group.
The consolidated financial statements for the year ended December 31, 2019 are presented below: 4.1. CONSOLIDATED BALANCE SHEET
Treasury shares (54) (338) 422 322Net Income for the year 6955Share-based payments 26Non-controlling interests 28 5,8286,374TOTAL SHAREHOLDERS' EQUITY
Note 13 3,027Financial liabilities 2,831 2,277Subordinated debt 2,409 510Real estate financing 517 Other financial liabilities 44101
Note 14 268 224Employee benefits and other provisions Contract liabilities 30,253Note 15 31,236 Insurance contract liabilities 29,93930,913 Investment and financial reinsurance contract liabilities 323 314 5,973Other liabilities 5,247 Derivative instruments Note 7 5529
398Note 19 (264)Net retrocession result (327) (69)Note 20 (68)Investment management expenses (75)
(535)Note 20 (537)Acquisition and administrative expenses (564) Note 20 (226)(235)Other current operating expenses (197)
(15,862)Total other current operating income and expenses (15,049) (14,838) 756CURRENT OPERATING RESULT 639 515 (61) (39)(35)Other operating expenses 28Other operating income 18 15 713OPERATING RESULT (BEFORE IMPACT OF ACQUISITIONS) 632 491 - --Acquisition related expenses - -Note 3 26Gain from bargain purchase 713OPERATING RESULT 658 491 Financing expenses (153)(143) (149)Note 13
Corporate income tax (56)Note 17 (107)(147) (68)Impact from the U.S. tax reform - -Note 17
In EUR 1.72Earnings per share (basic) 2.27 1.53Note 21 1.702.25 1.51Note 21Earnings per share (diluted)
(496)506 (164)Items that will be reclassified subsequently to income Revaluation – Available-for-sale financial assets 660 66(511)
Other changes (7)2 (1) 904COMPREHENSIVE INCOME, NET OF TAX 140 (207)
80 (2) 1 (3)2 (1)Change in scope of consolidation (cash and cash equivalents of acquired companies)
4 (4)- 3 (4)Disposals of consolidated entities, net of cash disposed of (36)(64)Acquisitions of real estate investments (80)
739 (7) 19Note 13Cash generated by issuance of financial liabilities 150 (7)
Cash and cash equivalents at January 1 1,001 1,688Note 11 1,175 841 1,144891Net cash flows provided by/(used in) operations
2211Effect of change in foreign exchange rates on cash and cash equivalents (84)
(1) Cash related to the acquisition of the capital voting rights of Coriolis, see Note 3. – Acquisitions and disposals. (2) Cash related to the acquisition of the capital voting rights of MutRé and Essor Seguros, see Note 3. – Acquisitions and disposals. (3) Cash related to the acquisition of 80% of the capital and voting rights of Château Mondot, see Note 3. – Acquisitions and disposals. (4) Partial disposal of Asefa in 2018 for EUR 4 million (EUR 3 million in 2017).
(5) Acquisitions and disposals of other insurance business investments also include movements relating to bonds and other short-term investments with a maturity of less than three months and classified as cash equivalents.
Shareholders' equity at January 1, 2019 before adoption of new IFRS (145) 28
Shareholders' equity at January 1, 2019 after adoption of new IFRS (145) 3,5111,521 5,783 Allocation of prior year net income -- (322)- 322- -- -
(1) Effect due to first time application of IFRS 16 and IFRIC 23 (refer to Note 1.3. – IFRS standards applied for the first time and IFRS standards published but not yet effective).
Consolidated statement of changes in shareholders’ equity CONSOLIDATED FINANCIAL STATEMENTS04 162 SCOR Universal Registration Document 2019
Net gains/(losses) on cash flow hedges -Taxes recorded directly in equity ---- 961185 -- --
Allocation of prior year net income -- (603)- 603- Net income for the year ended December 31, 2017 - (1)- 285286 -- --
Consolidated statement of changes in shareholders’ equity CONSOLIDATED FINANCIAL STATEMENTS04 164 SCOR Universal Registration Document 2019
NOTE•8 198ACCOUNTS RECEIVABLE FROM AND PAYABLE ON ASSUMED AND CEDED INSURANCE AND REINSURANCE TRANSACTIONS
INFORMATION ON SHARE CAPITAL, CAPITAL MANAGEMENT, REGULATORY FRAMEWORK AND CONSOLIDATED RESERVES
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 26, 2020.
Note•1.2 BASIS OF PREPARATION SCOR’s consolidated financial statements for the financial years ended December 31, 2019, 2018 and 2017 have been prepared in compliance with IFRS issued by the International Accounting Standards Board (IASB) as adopted by the European Union (“EU”) and effective as at December 31, 2019. The term “IFRS” refers collectively to International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) and to the interpretations of the Standing Interpretations Committee (SIC) and the IFRS Interpretations Committee (IFRIC), mandatorily applicable as at December 31, 2019. See Note 1.3 – IFRS Standards applied for the first time and IFRS Standards published but not yet effective for a detailed overview on the new and amended International Financial Reporting Standards applicable in 2019 that are relevant to SCOR and adopted by the Group as endorsed by the European Union and the standards relevant to SCOR and expected to have a significant impact that were issued by the IASB but have not yet been adopted by the European Union.
Reclassification of prior years’ comparatives Certain reclassifications and revisions have been made to the financial information in respect of the prior years to bring it in line with the current year presentation.
Foreign currency translation and transactions The Group’s consolidated financial statements are presented in euros (EUR) and all values are rounded to the nearest EUR million except where stated otherwise. Percentages and percent changes are calculated on unrounded figures (including decimals), therefore the Notes might contain immaterial differences in totals and percentages due to rounding.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 166 SCOR Universal Registration Document 2019
Average rate EUR per foreign currency unit Q3 2019Q4 2019 Q1 2019Q2 2019
Average rate Q4 2018 Q2 2018EUR per foreign currency unit Q3 2018 Q1 2018
Average rate Q2 2017EUR per foreign currency unit Q3 2017 Q1 2017Q4 2017
At each period end, the entity must translate the items on its balance sheet which are denominated in a foreign currency into the functional currency, using the following procedures: • monetary items and non-monetary items measured at fair value through income are translated at end of period exchange rates and the resulting gains and losses are recorded in the statement of income; • other non-monetary items are translated: — at the exchange rates in effect on the transaction date for items measured at historical cost, or — at the end of period exchange rates if they are measured at fair value, and — to the extent that any gains or losses arise, these are directly recorded in shareholders’ equity. In particular this affects foreign exchange differences for available for sale equity securities and exchange differences resulting from the conversion of these items which are also directly recorded in shareholders’ equity; • the gains and losses resulting from the translation of net foreign investment hedges are recorded in shareholders’ equity. They are recognized in the statement of income upon the disposal of the net investment.
Cedent accounts The reinsurance entities of the Group record accounts transmitted by ceding companies upon receipt. At year end, estimates are made for those accounts not yet received from ceding companies. Under this method, the amounts recorded in the financial statements reflect as closely as possible the actual reinsurance commitments of the Group. This method is applied to the majority of the contracts signed during the year.
Premium estimates Non-Life gross premiums (both written and earned) are based upon reports received from ceding companies, supplemented by the Group’s own estimates of premiums (both written and earned) for which ceding companies’ reports have not yet been received. Differences between such estimates and actual amounts are recorded in the period in which the estimates are changed, or the actual amounts are determined. The difference between ultimate estimated premiums, net of commissions, and premiums reported by ceding companies, is recorded under accounts receivable from or accounts payable on assumed reinsurance transactions.
For Life reinsurance contracts qualifying as “insurance contracts”, the estimation method consists of estimating ceding companies’ outstanding accounts for the current year in addition to information actually received and recorded.
Shadow accounting For the measurement of deferred acquisition costs (DAC), value of business acquired (VOBA) and reserves recognized for different insurance portfolios, SCOR applies the shadow accounting principles stipulated in IFRS 4. As the amortization of DAC (for the Life business) and VOBA is calculated using expectations for estimated revenues from investments and the measurement of reserves is based on the discount rate reflecting directly the performance of assets, the corresponding portion of the unrealized gains and losses recorded under available-for-sale financial investments is considered as shadow DAC, shadow VOBA and shadow reserves and offset directly in shareholders’ equity.
Participation in Lloyd’s syndicates Participations in syndicates operating at Lloyd’s of London are accounted for on an annual basis with a delay due to the transmission of information from syndicates that the Group does not control. The Group recognizes its proportionate share of the syndicates’ insurance and reinsurance premiums as revenue over the policy term, and claims, including an estimate of claims incurred but not reported. At the end of an underwriting year, typically three years after the policy’s inception, syndicates reinsure all remaining unsettled liabilities into the following underwriting year, a mechanism known as Re-Insurance To Close (“RITC”). If the Group participates in both accepting and ceding transactions and has increased its participation, RITC paid is reduced, which generates an RITC receivable. This reflects the fact that the Group has assumed a greater proportion of the business of the syndicate. If the Group has reduced its participation from one year of account to the next, the RITC receivable is eliminated, generating an RITC payable. This reflects the reduction in the Group’s exposure to risks previously written by the syndicates. The Group recognizes Lloyd’s RITC in claims and benefits to ensure consistency with other reinsurance transactions and to present a true and fair view.
• On January 1, 2019, IFRS 16 – Leases became applicable. The EU endorsed IFRS 16 on October 31, 2017. IFRS 16 significantly changes the accounting by lessees, with its requirement to 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. Right-of-use assets are included in the balance sheet line item Miscellaneous Assets. Lease liabilities are included in the balance sheet item Other Financial Liabilities. Depreciation of the right-of use assets and interest expense on the lease liability in accordance with the effective interest rate method are recognized in the income statement. SCOR uses the exemptions for certain short-term leases and leases of lowvalue assets and continues to recognize the lease payments for those contracts as an expense on a straight-line basis. IFRS 16 is not applied to leases for intangible assets (for example IT licenses). The accounting for lessors remains broadly unchanged from IAS 17. The modified retrospective application was used to transition to the new lease accounting requirements. This simplified approach includes specified reliefs related to the measurement of the right-of use asset and the lease liability and not require a restatement of comparative amounts. The main impact from application of IFRS 16 resulted from leased office space used by the Group, accounting for EUR 86 million of right-of-use assets. EUR 2 million of right-of-use assets relate to car leases and office equipment. The impact on opening retained earnings from applying the modified retrospective approach amounted to EUR 11 million.
The amount of future minimum lease payments for operating leases disclosed as of December 31, 2018 was EUR 193 million. The difference between these operating lease commitments disclosed and the amount of lease liabilities as of January 1, 2019 (EUR 106 million) is mainly due to a new lease contract for the Zurich office building (EUR 87 million) which will start in 2020 but was taken into account in the operating lease commitments under IAS 17. Smaller differences are due to the effect of discounting and other immaterial reconciling items. The weighted average lessee’s incremental borrowing rate calculated as of January 1, 2019 is 2.72%.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 169SCOR Universal Registration Document 2019
During 2018, SCOR performed an impact assessment of classification and measurement of its financial assets under IFRS 9. This initial assessment was based on available information at the time and may be subject to changes arising from further detailed analyses or additional reasonable and supportable information becoming available in the future. The tables below relate to the additional disclosures required when the IFRS 9 Deferral Approach is applied. Disclosures are based on the current financial assets portfolio and on the assessment conducted in 2019.
The following table presents information about the credit risk exposure related to financial assets that meet the SPPI criteria. The carrying amount under IAS 39 corresponds to the fair value for assets classified as AFS and FVPL and to the carrying amount before impairment for assets booked at cost or amortized cost: In EUR millions Carrying value under IAS 39 as at December 31, 2019 2,885AAA
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 170 SCOR Universal Registration Document 2019
• On September 26, 2019, the IASB issued Amendments to IFRS 9, IAS 39 and IFRS 7: Interest Rate Benchmark Reform, to address in a first step the potential effects the IBOR reform could have on financial reporting in the period before the replacement of an existing interest rate benchmark with an alternative interest rate. It addresses the implications for specific hedge accounting requirements in IFRS 9 – Financial Instruments and IAS 39 – Financial Instruments: Recognition and Measurement, which require forward-looking analysis. Further amendments relate to IFRS 7 - Financial Instruments: Disclosures, regarding additional disclosures around uncertainty arising from the interest rate benchmark reform. The amendments modify specific hedge accounting requirements so that entities would apply those hedge accounting requirements assuming that the interest rate benchmark on which the hedged cash flows and cash flows from the hedging instrument are based will not be altered as a result of interest rate benchmark reform. The amendments are effective for annual periods beginning on or after 1 January 2020, with earlier application permitted. The EU endorsed these amendments on January 15, 2020.
Determining control 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, from its acquisition date to December 31, 2018, despite having held less than 50% of its voting rights, the Group determined that it controlled MRM as it exerted de facto control as defined by IFRS 10 in light of the proportion of voting rights it held and of the wide dispersion of the other vote holders. As at December 31, 2019, the Group holds more than 50% of MRM’s voting rights.
Consolidation of investment funds The Group, through SCOR Investment Partners, acts as a fund manager for various investment funds. Funds for which SCOR acts as principal are consolidated, even if the Group holds less than 50% of the voting rights.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 172 SCOR Universal Registration Document 2019
ParentFrance ParentParentSCOR SE ParentParent -France 100- 100SCOR Global P&C SE (1)
SCOR Global Life SE (1) France -- 100100 SCOR Global Life Reinsurance Ireland dac 100Ireland 100100 Full100
IrelandSCOR Life Ireland dac 100100 100100 Full 100- 100-SCOR Holding (Switzerland) AG (2) Switzerland FullSwitzerland 100100SCOR Switzerland Asset Services AG 100100
SCOR Reinsurance Company 100US 100100 Full100 USSCOR U.S. Corporation 100100 100100 Full 100US 100100 Full100SCOR Global Life USA Reinsurance Company
SCOR Global Life Reinsurance Company of Delaware 100100 Full100SCOR Life Assurance Company (SLAC) 100US 100100 FullUSSCOR Life Reassurance Company (SLRC) 100100
Full100Quantitative Data Solutions 100US 100100 FullUSSCOR Fin Life Insurance Company 100100 100100 100Revios Canada Holding Corp. Ltd. 100 100100 FullCanada Full100Revios Canada Ltd. 100Canada 100100 FullCanadaSCOR Canada Reinsurance Company 100100 100100
SCOR Brazil Participações Ltda 100Brazil 100100 Full100 100SCOR Perestrakhovaniye 100 100100 FullRussia 100100 Full100SCOR Global Life Australia Pty Ltd. 100Australia 100100 FullBarbados SCOR Global Life Reinsurance International (Barbados) Ltd. 100100
NON INSURANCE ENTITIES MRM SA 59.90France 48.8059.90 Full59.90 100France 100100 FullSCOR Investment Partners SE 100 FullSCOR Capital Partner SAS 100100France 100100 FullFranceSCOR Auber 100100 100100
(1) See Section 1.3.3. – Completion of the merger of the three SE legal entities of the group. (2) Merged into SCOR SE since 2019.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 173SCOR Universal Registration Document 2019
The table above is based on 2019 and 2018 provisional financial information.
SCOR’s maximum exposure to losses from unconsolidated structured entities is the carrying amount of the assets (such carrying amount varies during the coverage period, in particular if a significant catastrophic event occurs) which cannot exceed the maximum residual cover of the risk transfer agreement. Exposure relates to credit risk which is very limited due to the use of low-risk collateral. Liabilities are settled by SCOR according to the risk transfer agreement.
Atlas IX – Catastrophe bond On January 13, 2016, SCOR successfully sponsored a catastrophe bond, Atlas IX Series 2016-1, which provides the Group with multiyear risk transfer capacity of USD 300 million to protect itself against US named storm and US and Canada earthquake events. The risk period for Atlas IX 2016-1 ran from January 13, 2016 to December 31, 2019. The instrument was accounted for as a derivative instrument and is fully amortized as at December 31, 2019.
(EUR 23 million). The recoveries are recognized in other operating income and expenses.
Business combinations are accounted for using the purchase method of accounting which requires that the assets acquired, and liabilities assumed be recorded at the date of acquisition at their respective fair values. If the business combination is achieved in stages, the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through income.
Provisions, contingent assets and contingent liabilities are assessed at the acquisition date for the entities acquired. Such positions are subject to revision while the initial accounting is not final. Any revision after the initial accounting is finalized, is recognized in the statement of income in accordance with IFRS 3 – Business Combinations.
On February 13, 2018, the Boards of Directors of SCOR Global Life SE and MutRé approved the merger of the two entities with a retroactive effect on January 1, 2018. The merger was approved by ACPR on March 20, 2018.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 175SCOR Universal Registration Document 2019
Gain from bargain purchase (Badwill) 26 2Step acquisition – P&L gain/(loss)
Investments Fair values have been determined for investments based mainly on quoted market prices. If quoted market prices were not available, valuation models were applied.
Share of retrocessionaires in insurance and contract liabilities Mathematical reserves, claims reserves and share of retrocessionaires in contract liabilities have been recorded based on best estimate assumptions at the time of acquisition.
Pro forma information No pro forma information is required since the financial situation of the Group is not significantly impacted by the consolidation of MutRé.
Impact of MutRé acquisition on consolidated statement of cash flows The main impact results from the consideration paid (EUR 68 million) and is presented in investment activities.
M&S Brazil/ESSOR On July 18, 2017, SCOR Global P&C SE acquired the remaining 51% share of M&S Brazil Participações Ltda (“M&S Brazil”), holding company of Essor Seguros S.A (“ESSOR”, a direct insurance company in Brazil) held by La Mutuelle des Architectes Français Assurances (“MAF”) and the single share of ESSOR also held by MAF.
The consideration paid by SCOR for the additional 51% share was BRL 28 million (EUR 7.3 million).
The identifiable assets acquired, and liabilities assumed have been recorded at their fair value for purposes of the opening balance sheet and included in the consolidated accounts of SCOR using the Group’s accounting principles in accordance with IFRS during the first quarter of 2018. The net assets amounted to BRL 63.8 million (EUR 16.2 million, based on the EUR/BRL exchange rate at the acquisition date).
The assets and liabilities acquired have been recorded at their fair value for purposes of the opening balance sheet and included in the consolidated accounts of SCOR using the Group’s accounting principles in accordance with IFRS during the third quarter of 2017.
Financial liabilities Financial liabilities (as well as other assets) were valued at their carrying amount, approximating their fair value.
Impact of Château Mondot S.A.S. acquisition on consolidated statement of cash flows The main impact resulted from the consideration paid (EUR 178 million) and was presented in investment activities.
For management purposes, the Group is organized into three business units (SCOR Global P&C, SCOR Global Life and SCOR Global Investments), of which SCOR Global P&C and SCOR Global Life are considered reportable operating segments, and one corporate cost center: Group Functions.
The operating segment SCOR Global P&C is responsible for property and casualty insurance and reinsurance (also referred to as “Non-Life”), and the operating segment SCOR Global Life is responsible for life reinsurance (also referred to as “Life”). Each operating segment underwrites different types of risks. Responsibilities and reporting within the Group are established on the basis of this structure. No operating segments have been aggregated to form the SCOR Global P&C and SCOR Global Life reportable operating segments.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 178 SCOR Universal Registration Document 2019
Other income and expense excl. revenues associated with financial reinsurance contracts (51)- (50)6 (36)-
Capital gains/(losses) on the sale of investments -77 22 268- (2) 127 2469
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 179SCOR Universal Registration Document 2019
For SCOR Global P&C the net technical result for the financial year 2019 reflects a net combined ratio (calculated by dividing the sum of Non-Life claims, including natural catastrophes, commissions and management expenses net of retrocession, by earned premiums net of retrocession) of 99.0% compared to 99.4% for the same period in 2018. The net combined ratio reflects large and extended natural catastrophes that occurred during the year, impacting mainly Japan and the Bahamas, partially absorbed by 1.9 percentage points of reserve releases (EUR 110 million). Natural catastrophes had an impact of 11.6% on the net combined ratio for the year 2019, compared to 12.6% in 2018.
Note•4.1 GROSS WRITTEN PREMIUMS AND INSURANCE CONTRACT LIABILITIES BY GEOGRAPHIC REGION
The distribution of gross written premiums by geographic region for SCOR Global Life, based on market responsibility, is as follows: 2018In EUR millions 2019 2017
In 2019, the market responsibility for one portfolio was reallocated from the Americas to EMEA. The gross written premiums for SCOR Global Life previously reported in the 2018 Registration Document for Americas were EUR 4,375 million and EUR 4,567 million for the years ended December 31, 2018 and 2017, respectively. Gross written premiums previously reported for EMEA were EUR 2,980 million and EUR 2,733 million for the years ended December 31, 2018 and 2017, respectively.
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, 2019 As at December 31, 2018
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 180 SCOR Universal Registration Document 2019
Note•4.2 ASSETS AND LIABILITIES BY OPERATING SEGMENT Key balance sheet captions by operating segment, as reviewed by management, are broken down as follows: As at December 31, 2019 As at December 31, 2018
P&C 1,001Cash and cash equivalents at January 1 1,175 509576 1,688599 682 1,006492 101 1,144586841740Net cash flows provided by/(used in) operations 592299 558891
Effect of changes in foreign exchange rates on cash and cash equivalents (39)116
Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. It is initially measured at cost which is calculated as the difference between the business combination cost and the fair value of the Group's share at acquisition date. The fair value is the net amount of identifiable assets and assumed liabilities at the acquisition date.
Additions -- -Disposals - --Change in scope of consolidation 969Gross value at December 31, 2018 71 Foreign exchange rate movements - - --Additions -Disposals -
Gross value at December 31, 2019 969 82 Cumulative impairment at December 31, 2017 (181) Foreign exchange rate movements -- --Impairment for the period --Shadow accounting
(1) Relates to Coriolis Capital (See Note 3 – Acquisitions and disposals).
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 183SCOR Universal Registration Document 2019
Goodwill arising from insurance activities 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 Quantum Leap 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 average time to payment of existing reserves and future business. Future cash flows beyond this period are extrapolated using a growth rate of 4%. SCOR uses risk-free interest rates for each currency as well as the Group’s estimated cost of capital of 5.84%, as derived from the Capital Asset Pricing Model (CAPM).
The goodwill impairment test for SCOR Global Life compares the carrying amount of the goodwill with the future profits available from the life reinsurance portfolio of the business unit. A best estimate of the future profits is represented by the surplus of the contract liabilities for the assumed reinsurance contracts portfolio reduced for the share of retrocessionaires in reinsurance contract liabilities under IFRS over the economic value of the Life technical provisions measured under Solvency II principles as published in the Solvency and financial condition report of SCOR Group. SCOR’s Life technical provisions are calculated as the sum of best estimate liabilities and risk margin. The best estimate liability is valued as the net present value of future cash flows. The risk margin is derived by applying a cost of capital calculation considering the time value of future solvency capital requirements as calculated by the approved internal model.
Management believes that any reasonably possible change in the key assumptions on which SCOR Global P&C and SCOR Global Life recoverable amounts are based would not cause their carrying amount to exceed their recoverable amount.
As of December 31, 2019, a change of 0.5 point in the post-tax risk adjusted discount rate or in the growth rate applied beyond the plan would not lead to the recognition of an impairment loss.
VOBA is amortized over the lifetime of the underlying reinsurance portfolio based on schedules derived from the runoff patterns of expected profits calculated for future closing dates. Cash flow projections for the acquired portfolio and noneconomic 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.
In EUR millions Value of business acquired 1,881Gross value at December 31, 2017 60Foreign exchange rate movements Additions 6
Available-for-sale financial assets Available-for-sale financial assets include non-derivative assets that are either classified as available-for-sale or not allocated to any another category. They are carried at fair value. Unrealized gains and losses are recorded directly in shareholders’ equity. Changes in foreign exchange rates relating to non-monetary available-for-sale assets are recorded directly in shareholders’ equity while those relating to monetary available-for-sale assets are recorded in income.
Financial assets at fair value through income The fair value through income category includes financial assets held for trading purposes and those designated at fair value through income upon initial recognition. Gains and losses from changes in the fair value of financial assets classified in this category are recognized in the statement of income in the period in which they occur.
Loans and receivables 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.
Note•7.1 NSURANCE BUSINESS INVESTMENTS BY VALUATION METHOD The Group’s insurance business investments and cash by nature and level of valuation technique are presented below: As at December 31, 2019
Level 1In EUR millions Total Level 2 Cost or amortized costLevel 3 347183Equity securities 71-601
Available-for-sale financial assets 16,646 712,126 -18,843 -250Equity securities 1,349 -1,099 -1,099 -1,351 252Investments at fair value through income -Derivative instruments -123 85208 3,34830,283TOTAL INSURANCE BUSINESS INVESTMENTS 85 9,85516,995 - -Cash and cash equivalents 1,435 -Note 11 1,435
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 186 SCOR Universal Registration Document 2019
Mutual funds Total insurance business investments and cash include mutual funds that the Group manages and controls and which are also open to external investors. As at December 31, 2019, the carrying amount of assets under management eliminated in “Other liabilities” for consolidation purposes was EUR 2,625 million (December 31, 2018: EUR 2,439 million). Cash and cash equivalents include cash held on behalf of third parties as part of SCOR’s asset management activity for the amount of EUR 211 million as at December 31, 2019 (December 31, 2018: EUR 195 million).
Available-for-sale investments measured at cost Available-for-sale investments include EUR 71 million of investments which are measured at cost (December 31, 2018: EUR 71 million). These investments primarily include equity securities and funds which are not listed.
Impairment losses Total impairment losses recognized in 2019 amounted to EUR 24 million (2018: EUR 6 million), relating mainly to EUR 13 million on the equity portfolio (2018: EUR 4 million), EUR 2 million on loans and receivables (2018: EUR 0 million) and EUR 9 million on the debt securities portfolio (2018: EUR 2 million).
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 187SCOR Universal Registration Document 2019
• Level 3: valuation inputs for the asset or liability which are not based on observable market data (unobservable inputs). The value of these instruments is neither supported by prices observable on current market transactions in the same instrument nor is it based on available market data. If a fair value measurement uses inputs based significantly on unobservable inputs, it is classified within level 3 of the fair value hierarchy. Level 3 instruments consist mainly of derivative instruments primarily relating to the Atlas catastrophe and mortality bonds.
• a magnitude of decline of more than 50%; or • a duration of decline of more than 24 months.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 188 SCOR Universal Registration Document 2019
The following table shows the reconciliation between the opening and closing balances for assets categorized within level 3: Equity securities
(1) Movements in derivative instruments are due to the change in fair value of Atlas IX Series 2016-1 and Altas Capital UK derivatives recorded in other operating expenses, and of the contingent capital facility, recorded in investment income.
(25) (1)-Income and expense recognized in statement of income (25)-- -- ---Additions ---Disposals -- -- -Transfers into level 3 -- --Transfers out of level 3 - -- -Change in fair value through OCI -- -- -Change in scope of consolidation -- --
There were no material transfers between level 1 and level 2 in 2019 and 2018, respectively. There were also no changes in the purpose of a financial asset that subsequently resulted in a different classification of that asset.
Buildings 30 – 80 yearsBuilding structure and exterior 30 yearsInsulation Technical installations 20 years Fixtures and fittings 10 – 15 years
Repair and maintenance costs are charged to the statement of income during the financial period in which they are incurred. All costs directly associated with purchases or construction of property are capitalized. All subsequent valueenhancing capital expenditures are classified as acquisition costs and capitalized when it is probable that the future economic benefits related to the item will flow to the Group.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 190 SCOR Universal Registration Document 2019
The properties held by the Group and considered as investment property are owned either by wholly-owned subsidiaries of SCOR or by MRM (a listed real estate investment company). They consist of office buildings (held by wholly-owned subsidiaries and MRM), and retail buildings (held by MRM).
(143) -Cumulative depreciation and impairment at December 31, 2019 (143) CARRYING VALUE AS AT DECEMBER 31, 2017 701 - 701 CARRYING VALUE AS AT DECEMBER 31, 2018 685 - 685
Real estate investments TotalFinance leasesIn EUR millions 861-Fair value as at December 31, 2017 861 869Fair value as at December 31, 2018 -869
In 2019, increase in real estate investments related to the costs of existing buildings currently under construction and renovation work for a total of EUR 64 million. Disposals related to the sale of four buildings, resulting in a total gain on sale of EUR 49 million.
In 2018, increase in real estate investments related to the costs of existing buildings currently under construction and renovation work for a total of EUR 37 million. Disposals related to the sale of one building, resulting in a gain on sale of EUR 9 million. Impairments for the period are recognized to reflect the recoverable amount related to two retail buildings for a total of EUR 7 million.
The rental income related to investment property was EUR 38 million in 2019 (2018: EUR 42 million) and the related direct operating expenses amounted to EUR 10 million (2018: EUR 9 million).
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 192 SCOR Universal Registration Document 2019
Net unrealized gains/(losses) Net book value Net book value Government bonds & similar 91- (1)64France
(1) During 2019 and 2018, SCOR had no exposure to the sovereign debt of Portugal, Ireland, Italy, Greece.
The net unrealized gain (loss) on equity securities as at December 31, 2019 is comprised of EUR 51 million of unrealized gains and EUR 27 million of unrealized losses (as at December 31, 2018: EUR 72 million of unrealized gains and EUR 30 million of unrealized losses).
As at December 2019, total reserves of EUR 214 million (as at December 2018: EUR (145) million) also include: • tax effects on available-for-sale securities net unrealized gains and losses of EUR (73) million (2018: EUR 66 million); • net of tax foreign exchange gains and losses of EUR 4 million (2018: EUR 7 million); • net of tax shadow accounting impacts of EUR (51) million (2018: EUR 106 million); • elimination of assets under management for external clients net unrealized gains and losses in other liabilities of EUR 6 million (2018: 16 EUR million); • investments in associates net unrealized gains and losses of EUR 0 million (2018: EUR 0 million); • net of tax unrealized gains and losses relating to funds withheld of EUR 3 million (2018: EUR (4) million).
Note•7.7 DEBT SECURITIES MATURITY SCHEDULE The table below presents the estimated maturity profiles of financial assets, for which the Group is expected to generate cash inflows to meet cash outflows on financial and reinsurance contract liabilities: In EUR millions As at December 31, 2019 As at December 31, 2018 1,794Less than one year 16% 10%2,985 40%8,676 6,920One to five years 48%
In EUR millions As at December 31, 2019 As at December 31, 2018 Funds held by ceding companies 7,7418,070 350240Short-term investments Loans secured against collateral - 2 Infrastructure and Real estate loans 878895 7Other loans maturing in more than one year 1 Deposits 68
Short-term investments include EUR 97 million that are carried at fair value at December 31, 2019 (December 31, 2018: EUR 40 million). Other loans and receivables are carried at cost, which approximates their fair value at December 31, 2019 and 2018.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 194 SCOR Universal Registration Document 2019
Embedded derivative instruments An embedded derivative is a component of a hybrid instrument which includes a non-derivative host contract, which causes part of the hybrid instrument’s cash flow to vary in the same way as that of a freestanding derivative. The host contract can be a financial instrument or an insurance contract.
• the hybrid instrument is not measured at fair value through income.
Where an embedded derivative has been separated from its host contract, it is recognized in accordance with the guidance relating to the accounting for derivative financial instruments.
Derivative financial instruments include the following items: Derivative assets as at December 31,
Gains or losses recognized through other comprehensive income 20192018In EUR millions 2019 201820192018 20192018
This instrument is recognized as a derivative and valued using a cumulated expected loss model that is based on a combination of market inputs to the extent that trades in this instrument are active and catastrophe modeling tools developed by a third-party service provider (AIR).
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 196 SCOR Universal Registration Document 2019
Forward currency contracts SCOR purchases and sells forward currency contracts to reduce its overall exposure to balances held in currencies other than the functional currencies of its subsidiaries. The contracts are recorded at their fair value based on valuations provided by banking counterparties using market inputs.
Note•9 MISCELLANEOUS ASSETS Miscellaneous assets consist of: As at December 31, 2019In EUR millions As at December 31, 2018 398 344Other intangible assets -81Right-of-Use assets 738Tangible assets 718
Other Intangible assetsIn EUR millions 448Gross value at December 31, 2017 1Foreign exchange rate movements
Cumulative amortization and impairment at December 31, 2018 (150) Foreign exchange rate movements (2)
Other intangible assets include other intangible assets with finite useful lives as at December 31, 2019 for a net value of EUR 245 million (December 31, 2018: EUR 185 million) and other intangible asset with indefinite useful life for EUR 153 million (December 31, 2018: EUR 159 million).
The other intangible assets with indefinite useful life mainly include EUR 136 million relating to Château Mondot trademark. Château Mondot trademark was tested for impairment with the result that no impairment charge needs to be recognized (refer to Note 5 – Goodwill, for details). They also include the intangible assets associated with Lloyd’s syndicate participations acquired through the Converium business combination. The Lloyd’s intangible assets with a carrying amount of EUR 4 million as at December 31, 2019 (as at December 31, 2018: 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. In 2019, an impairment of EUR 5 million was recognized due to the non-renewal of two participations in Lloyds syndicate.
The right-of-use assets amounted to EUR 81 million as of December 31, 2019. They correspond mainly to the lease agreements for operating properties, cars and office equipment.
Operating lease contracts commitments SCOR Services Switzerland entered into an agreement in July 2016 to rent a new building in Zurich. The minimum duration has been fixed to 10 years representing a total commitment of EUR 76 million (CHF 83 million). The expected starting date is May 2020. The right-of-use asset and the corresponding lease liability will be recognized at this date.
Revenues coming from sublease contracts represent EUR 4 million (2018: EUR 4 million, 2017: EUR 4 million) and are related to Switzerland, France and US.
Owner-occupied property is classified as tangible assets. Some buildings may be partially occupied by entities of the Group. Properties are recognized at cost, net of accumulated depreciation and impairment losses. Depreciation is recorded on a straight-line basis over the useful lives of the assets as follows: Category Useful life Indefinite (not depreciated)Land
Tangible assets Tangible assets as at December 31, 2019 amounted to EUR 738 million compared to EUR 718 million as at December 31, 2018 and primarily relate to own use property, office furniture and equipment, and building fixtures and fittings.
(17)Disposals 1Change in scope of consolidation -Other 890Gross value at December 31, 2018 7Foreign exchange rate movement
Cumulative depreciation and impairment at December 31, 2019 (191) CARRYING VALUE AS AT DECEMBER 31, 2017 702 718CARRYING VALUE AS AT DECEMBER 31, 2018
The increase in 2018 is related mainly to an acquisition of EUR 21 million and to improvement costs for a total of EUR 21 million. These increases are partially offset by the disposal of partially amortized tangible assets (furniture and office equipment) for EUR 17 million. The change in scope of consolidation corresponds to the integration of ESSOR SEGUROS S.A for EUR 1 million.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 203SCOR Universal Registration Document 2019
As at December 31, 2018In EUR millions As at December 31, 2019 1,435 1,175CASH AND CASH EQUIVALENTS
(128)Realized gains and losses on investment disposals (214)(114) 175Change in accumulated amortization and other provisions 93154
(125)Changes in deferred acquisition costs (142)2 511Net increase in contract liabilities 855239
Change in fair value of financial instruments recognized at fair value through income (excluding cash and cash equivalents) 2771 155Other non-cash items included in operating results 40566
Dividend and interest cash receipts relating to investments held during the year were EUR 30 million (2018: EUR 20 million and 2017: EUR 23 million) and EUR 551 million (2018: EUR 551 million and 2017: EUR 445 million), respectively.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 205SCOR Universal Registration Document 2019
Note•12 INFORMATION ON SHARE CAPITAL, CAPITAL MANAGEMENT, REGULATORY FRAMEWORK AND CONSOLIDATED RESERVES
Share-based payments The caption “Share-based payments” is used to offset the cost of services received in exchange for the granting of shares or stock options to Group employees. As the instruments granted are subordinated to the fulfillment of a vesting period by the employee, the increase in equity is initially recognized at the grant date in the line “Share-based payments”. Once the shares are fully vested, they are recognized as ordinary shares under “Share capital” and “Additional paid-in capital”.
Authorized share capital The authorized share capital of the Company 187,049,511 shares at December 31, 2019, 193,085,792 shares at the end of 2018 and 193,500,317 shares at the end of 2017 with a par value of EUR 7.8769723 each.
Issued shares The number of ordinary shares which were issued and fully paid in circulation as at December 31, 2019, 2018 and 2017 was as follows: 193,500,317As at January 1 192,534,569193,085,792
(6,545,416)Share capital decrease – decision of the Board (554,112)(1,692,602) 509,135Share capital increase – exercise of stock options – during the year 1,519,8601,278,077 193,085,792 193,500,317187,049,511As at December 31 7.87697237.87697237.8769723Nominal price per share in EUR
In 2017, the movements are due to the following operations: • the Board of Directors’ meeting held on April 27, 2017 decided to reduce the Group’s share capital by cancellation of 554,112 treasury shares for EUR 14 million (EUR 5 million in share capital and EUR 9 million in additional paid-in capital); and
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 206 SCOR Universal Registration Document 2019
Treasury shares The number of shares held as treasury shares by the Group and/or its subsidiaries at December 31, 2019 amounted to 668,058 shares compared to 9,137,286 shares at the end of 2018. These treasury shares are not entitled to dividends.
Information related to dividend distribution The resolution to be presented to the Annual Shareholders’ Meeting called to approve, during the first half of 2020, the financial statements for the financial year 2019, sets out the distribution of a dividend of one euro and eighty cents (EUR 1,80) per share for the financial year 2019.
SCOR’s Ordinary and Extraordinary Shareholders’ Meeting of April 26, 2019 resolved to distribute, for the 2018 financial year, a dividend of one euro and seventy five cents (EUR 1.75) per share, being an aggregate amount of dividend paid of EUR 325 million, calculated on the basis of the number of shares eligible for dividend as at the payment date. The ex-dividend date was April 30, 2019 and the dividend was paid on May 2, 2019.
SCOR’s Ordinary and Extraordinary Shareholders’ Meeting of April 26, 2018 resolved to distribute, for the 2017 financial year, a dividend of one euro and sixty five cents (EUR 1.65) per share, being an aggregate amount of dividend paid of EUR 312 million, calculated on the basis of the number of shares eligible for dividend as at the payment date. The ex-dividend date was April 30, 2018 and the dividend was paid on May 3, 2018.
The Group’s capital management policy is to optimize the utilization of its shareholders’ equity and debt in order to maximize the short-term and long-term profitability for shareholders while at the same time providing its customers with an adequate level of security as measured by internal capital allocation models, rating agencies and national regulators. The realization of the capital management policy objectives is ensured through an integrated supervision of regulatory constraints at Group level, an annual strategic and financial planning process and regular updates of forecasts. The capital management process is ultimately subject to approval by the Board of Directors after a formal presentation to its Audit Committee. The Group’s Board of Directors and Executive Committee regularly review the Group’s risk profile to ensure that its risk appetite remains aligned with the Group’s strategy.
The Groups’ capital management objectives are to: • match the profile of its assets and liabilities, taking into account the risks inherent to the business; • maintain strong credit ratings and healthy capital ratios in order to support its business objectives and maximize shareholder value; • ensure a high degree of capital fungibility; • retain financial flexibility by maintaining strong liquidity and access to a range of capital markets; • allocate capital efficiently and support the development of business by ensuring returns on capital employed meet the requirements of regulators and shareholders; and
SCOR believes that its working capital is sufficient to meet the requirements of its consolidated companies. The Group reconciles its strategic objectives with the protection of its capital through its “capital shield” policy, which articulates the Group’s risk appetite. This policy is based on an economic approach and aims to protect the Group against potential shock losses, some of which are not immediately recognized from a pure accounting view. The policy builds on the following four concepts: Traditional retrocession Retrocession used by the Group includes a wide range of protections including proportional and non-proportional covers. The Group selects the level of its retrocession to third parties once a year to ensure that its retained risk profile is in line with its predefined risk tolerance limits, to help the Group achieve its return on capital and solvency objectives.
Capital market solution SCOR uses catastrophe bonds, mortality bonds and side-cars to protect the Group against catastrophic and extreme mortality events.
This optimal range enables the Group to absorb a significant amount of the volatility inherent to the reinsurance business, thereby limiting the frequency of turning to the market to maintain the Group’s available capital above the SCR.
J.P. Morgan is committed to subscribing the new shares, in case of exercise of the warrants, but does not intend to become a longterm shareholder of SCOR and would therefore resell the shares by way of private placements and/or sales on the open market. In this respect, SCOR and J.P. Morgan have entered into a profit sharing arrangement, whereby 75% of the gain generated by the resale of the new shares, if any, would be retroceded to SCOR. If the resale of the new shares occurs immediately upon exercise through an off-market transaction, the profit share owed to SCOR will be paid in the form of SCOR shares in order to limit the dilutive impact of the transaction for SCOR’s shareholders.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 208 SCOR Universal Registration Document 2019
Real estate financing This caption includes debt relating to the acquisition of real estate. At initial recognition, real estate financing is recorded at fair value less directly attributable transaction costs. After initial recognition, it is measured at amortized cost using the effective interest rate method.
As at December 31, 2018 Net book value Fair value Net book valueFair value Subordinated debt 115111CHF 125 million Perpetual 117114
USD 625 million 569Perpetual 553572 455 112Perpetual -112 -USD 125 million 289253 252253EUR 250 million 06/05/2047 60060206/08/2046EUR 600 million 683602 518EUR 500 million 50905/27/2048 508605 218218Investments properties financing 249249 299299 261261Own-use properties financing 510 510Total real estate financing (2) 517 517 44101OTHER FINANCIAL DEBT (2) 101 44 2,831 2,7523,027 3,285TOTAL FINANCIAL DEBT
Note•13.1 SUBORDINATED DEBT SCOR’s subordinated debt is classified as financial liabilities as under the terms and conditions of the issuance contracts SCOR does not have an unconditional right to avoid delivering cash to settle contractual obligations and based on projected cash flows the instruments do not have an equity component.
CHF 125 million perpetual subordinated debt On October 20, 2014, SCOR issued CHF 125 million in perpetual subordinated notes, redeemable by SCOR on each interest payment date from October 20, 2020. The coupon has been set at 3.375% (until October 20, 2020), and resets every 6 years at the prevailing 6-year CHF mid-swap rate + 3.0275%.
USD 625 million perpetual subordinated debt On March 13, 2018, SCOR issued perpetual deeply subordinated notes on the “Regulation S” USD market in the amount of USD 625 million. The coupon has been set at 5.25%, until the first call date of March 13, 2029, and resets every 5 years thereafter at the prevailing 5-year US Treasury yield plus 2.37% (no step-up).
In March 2018, in order to hedge the foreign exchange risk associated with this new debt issued, SCOR entered into crosscurrency swaps which exchange the principal and the coupons on the notes into Euro and mature on March 13, 2029. See Note 7 – Insurance business investments (Derivative instruments).
EUR 500 million dated subordinated debt On May 27, 2016, SCOR issued EUR 500 million in dated subordinated notes on the Euro market, redeemable by SCOR at each interest payment date, from May 27, 2028. The coupon has been set to 3.625% (until May 27, 2028, the first call date), and resets every 10 years at the prevailing 10-year EUR mid-swap rate +3.90% (until May 27, 2048, final redemption date).
In 2019, the main variation in property debts is due to the partial reimbursement of the loan subscribed by the SAS DB Caravelle following the sale of one building and the reimbursement of the loan subscribed by the SCI Montrouge following the sale of the building for a total amount of EUR 29 million. This decrease is compensated by the reclassification of a debt which was previously reported in other debts for an amount of EUR 36 million.
Note•13.5 MATURITY The maturity profile of financial debt is included in the Universal Registration Document, Section 3.6.4 – Financial debt.
Contingent liabilities are disclosed if there is a possible future obligation as a result of a past event, or if there is a present obligation as a result of a past event but either a payment is not probable, or the amount cannot be reliably estimated.
The following table summarizes the amounts included in contingency provisions: TotalIn EUR millions Other reservesReserves for post-employment benefits - 55Acquisition of a subsidiary 11-11Current year provision
In assessing the Group’s liability for these plans, the Group uses external actuarial valuations which involve professional judgments and estimates of mortality rates, rates of employee turnover, disability, early retirement, discount rates, future salary increases and future pension increases. These assumptions may differ from actual results due to changing economic conditions, higher or lower departure rates or longer or shorter life spans of
Post-employment and other long-term benefits Provisions amounted to EUR 237 million and EUR 202 million at December 31, 2019 and 2018 respectively, and include postemployment benefits related to pension plans of EUR 233 million (2018: EUR 198 million) and provisions for other long-term benefits of EUR 4 million (2018: EUR 4 million).
Defined benefit plans An employer’s obligation under a defined benefit plan is to provide the agreed amount of benefits to current and future beneficiaries.
Split of the obligation by geographical area The defined benefit pension plans and other long-term benefits are mainly located in Switzerland, North America, France and Germany. These locations represent 43%, 20%, 20% and 11% respectively, as at December 31, 2019, (42%, 22%, 21% and 11%, respectively, as at December 31, 2018), of the Group’s obligation under defined benefit plans.
As at December 31, 2019 and 2018, the sensitivities of provisions to a change in discount rate are as follows: Impact on obligation* 2018In EUR millions 2019
Amortization of actuarial gains and losses through profit and loss for other long term benefits -1 -- -
The actual returns on plan assets were EUR 25 million for the year ended December 31, 2019 (2018: EUR (4) million and 2017: EUR 17 million).
In EUR millions As at December 31, 2018 As at December 31, 2017As at December 31, 2019 Defined benefit obligation 450503 424 242Plan assets 248266 - --Asset ceiling limitation
Actuarial (gains)/losses due to change in assumptions (1) 7 (5) 156
NET DEFINED BENEFIT OBLIGATION AS AT DECEMBER 31 – DEFICIT 2845237
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 215SCOR Universal Registration Document 2019
(1) Actuarial (gains)/ losses due to changes in assumptions include for 2019 actuarial (gains)/ losses due to changes in financial assumptions for EUR 51 million (EUR (11) million in 2018) and actuarial (gains)/ losses due to change in demographic assumptions for EUR 5 million (EUR 18 million in 2018).
SwitzerlandEuropeIn EUR millions North AmericaTotal 3124 2299Debt securities 28- -28Property -12Insurance contracts -12 3914 2376Equities 944Debt securities 28126
Note•14.2 Other provisions At December 31, 2019, other provisions (EUR 31 million; at December 31 2018: EUR 22 million) include mainly EUR 23 million related to provisions for litigation (2018: EUR 15 million) and EUR 4 million covering contingent liabilities related to the Generali U.S. acquisition in 2013 (2018: EUR 4 million). For more information on litigation, refer to note 25 - Litigation.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 217SCOR Universal Registration Document 2019
However, it is difficult to accurately value the amount of reserves required, especially in view of changes in the legal environment, including civil liability law, which may impact the development of the reserves. While this process is complicated and subjective for the ceding companies, the inherent uncertainties in these estimates are even greater for the reinsurer, primarily because of the longer time period between the date of an occurrence and the request for payment of the claim to the reinsurer, the diversity of contract development schemes, whether treaty or facultative, dependence on the ceding companies for information regarding claims, and different reserving practices among ceding companies. In addition, trends that have affected development of liabilities in the past may not necessarily occur or affect liability development to the same degree in the future. Thus, actual losses and policy benefits may deviate, perhaps significantly, from estimates of reserves reflected in the Group’s consolidated financial statements.
Liability adequacy test Assets and liabilities relating to reinsurance contracts are subject each year to a liability adequacy test under IFRS 4.
REINSURANCE RECOVERABLE (1,838)(1,283)Ceded claims reserves & claims expense reserves (1,300)(685) (555)(1,985)
Contract liabilities are subject to the use of estimates. Payments linked to these reserves are usually not fixed, neither by amount nor by due date. Liquidity information related to contract liabilities is included in the Universal Registration Document, in Section 3.1.5 – Liquidity risks.
A significant portion of SCOR Global P&C’s reserves relates to liabilities payable in currencies other than Euro. To permit an analysis of claims developments excluding the impact of foreign exchange movements, all figures are translated into Euro at current balance sheet foreign exchange rates as of the date of these financial statements.
(1) At period end exchange rates. (2) At constant exchange rate.
In EUR millions 20182019 12,815 12,318Gross claims reserves and claims estimates as at January 1 (1,283) (1,175)Ceded claims reserves and claims estimates as at January 1 11,532 11,143Net claims reserves and claims estimates as at January 1 70180Revaluation of opening balance at current year end exchange rates
Net claims reserves and claims estimates as at January 1 – revalued 11,712 11,213 Net claims incurred relating to the current calendar year 2,2962,339 1,535Net claims incurred for prior calendar years 1,183 3,874 3,479Total net claims incurred 12Net claims payments for the current calendar year
Change in reserves from portfolio movements and actuarial calculation 143126 2Impact of foreign exchange movements 2 33 (95)Ceded mathematical reserves as at December 31 8,000 8,310NET MATHEMATICAL RESERVES AS AT JANUARY 1
Rating: Share of retrocessionaires in contract liabilities An analysis of the share of retrocessionaires in the Group’s contract liabilities by rating of the retrocessionaires and collateral from retrocessionaires in favor of SCOR at December 31, 2019 and 2018 is as follows: AAA AAAIn EUR millions < BBBBBB Total as at
Total collateral from retrocessionaires in favor of SCOR (1) 1,698- 995490
Share of retrocessionaires contract liabilities net of collateral 599 529- (532) (2)
(1) The total collateral from retrocessionaires is related to the contract liabilities recorded in the balance sheet and also to potential losses that have not yet occurred. (2) To limit credit risk related to retrocessionaires, certain unrated retrocessionaires are obliged to pledge assets for the value of their maximum potential contract liability, even though the actual retrocessionaire liability to SCOR recorded in the balance sheet is lower.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 222 SCOR Universal Registration Document 2019
The Group has established various long-term compensation plans (stock options and free shares allocations) in favor of some of its employees and Corporate Executive Officers. The terms of these plans are defined and approved or agreed by its Board of Directors at the grant date. The plans are equity settled only.
The average weighted remaining life of the options is 5.55 years in both 2019 and 2018.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 224 SCOR Universal Registration Document 2019
All shares granted under the “LTIP” plans of October 23, 2019 are subject to a 6-year presence condition and to performance conditions which are based on the strict compliance with the Group's ethical principles as set out on the Group's code of conduct (the "Group Code of Conduct"), on the fulfilment of the corporate social responsibility (CSR) training obligation, on the solvency ratio and the SCOR Group’s ROE between 2019 and 2024.
Deferred taxes are not recognized in respect of temporary differences arising from the initial recognition of goodwill, or from goodwill for which amortization is not deductible for tax purposes, or from the initial recognition of an asset or liability in a transaction which is not a business combination and affects neither accounting nor taxable income or loss at the time of the transaction.
Note•17.1 INCOME TAX EXPENSE The main components of corporate income taxes for the years ended December 31, 2019, 2018 and 2017 are presented below: 2019 20172018In EUR millions
The main reconciling items are due to the difference between the local corporate income tax rate of each taxable entity and the Group tax rate, permanent differences reported by each entity, reduced tax rates for certain transactions and other specific items.
20172018In EUR millions 2019 505Income before income tax (excluding share in results of associates) 342570
(1)Write-down and reversal of previous write-down of deferred tax assets 126Change in tax risk provision 54- (3)Non creditable/refundable withholding tax (2)(3)
-Change in corporate income tax rates (57)(5) (4)Share based payments 87 (8)Corporate income taxes prior years 33(13)
French corporate tax rate For 2019, the French corporate income tax rate is 34.43% for companies with a turnover exceeding EUR 250 million. With reference to the urgency measures taken by the French government in late December 2018 as an answer to the yellow vest movement, the “GAFA” law of July 2019 announced a modification of the decrease of the corporate income tax rate, planned by the 2018 French Finance Bill and further amended by the 2020 Finance law.
The new progressive decrease in corporate income tax rate results in a global income tax rate in 2019 of 34.43%, instead of 32.02% initially planned. The global French corporate income tax rate will be reduced to 32.02% for 2020, 28.41% for 2021 respectively. From 2022 onwards, the tax rate is 25.83% as initially planned.
In 2017, the French corporate income tax rate was 44.43%. In addition to the 34.43% initial corporate income tax rate, the enactment of two additional contributions to the French corporate income tax for companies with revenues exceeding EUR 3 billion resulted in a 10% additional tax rate applicable only to 2017. The 2017 financials recorded the impact of the decrease in the French corporate income tax rate which was a loss of EUR 19 million for 2017 through profit and loss (decrease in the measurement of the net DTA).
For the year ended December 31, 2017, the impact of this new legislation mostly related to the DTA on US tax losses carry forward and was a net loss of EUR 39.3 million through profit and loss and a net loss of EUR 4.9 million through other comprehensive income. The BEAT had no impact on the financial statements as at and for the year ended December 31, 2017.
In 2018, SCOR has assessed the TCJA implications, in particular with respect to certain complex provisions including the BEAT. SCOR has implemented an alternate business structure to adapt to the new environment by establishing a new Irish entity, SCOR Life Ireland dac, which is treated as a US taxpayer.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 228 SCOR Universal Registration Document 2019
The standard tax rates for the primary locations in which the Group has operations are as follows: 44.43%34.43%34.43%France 32.45%32.45%32.45%Germany 19.00% 19.25%19.00%United Kingdom 21.00%United States 35.00%21.00%
Note•17.4 DEFERRED TAX Deferred tax assets and liabilities and the related expense or benefit as at and for the years ended December 31, 2018 and December 31, 2019, were generated by the following items: Balance at December 31,
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 230 SCOR Universal Registration Document 2019
Note•17.5 EXPIRATION OF TAX LOSSES AVAILABLE FOR CARRYFORWARD As at December 31, 2019, the operating tax losses available for carryforward expire as follows: Available tax loss carryforwards
The recognition of deferred tax assets for tax loss carryforwards is assessed based on the availability of sufficient future taxable income and local tax rules, e.g. unlimited carry forward in France but the utilization of tax losses is capped at EUR 1 million plus 50% of the remaining current year’s taxable result, 20-year carryforward period for US non-Life companies, 15-year carryforward for losses incurred before 2018 and unlimited carry forward for losses incurred after 2018 for US life companies.
Considering SCOR’s activity and in particular its exposure to natural catastrophes, the time horizon over which the Group expects to utilize its losses carryforward can evolve. SCOR remains confident it will utilize all recognized tax loss carryforwards prior to their expiration.
Note•18 INVESTMENT INCOME The tables below show the analysis by type of investment income and split by category of financial assets: Note•18.1 ANALYSIS BY TYPE
522 467 406Investment revenues 164Interest income on funds withheld and contract deposit 187157
Change in fair value of investments 225 (13) (6)Investment impairment (24) (8)
2017In EUR millions 20182019 Real estate investments 2671 219 522 384532Available for sale investments 28Investments at fair value through income (1)6
Note•19 NET RETROCESSION RESULT The table below shows the net retrocession result for the years ended December 31, 2019, 2018 and 2017: In EUR millions
The second half of 2017 was marked for SCOR Global P&C by an exceptional series of large natural catastrophes, with hurricanes Harvey, Irma and Maria, earthquake in Mexico and fires in California. The in-force retrocession programs have responded as expected, with significant recoveries on proportional and nonproportional covers.
(acquisition and administrative expenses, claims settlement expenses, investment management expenses and other current operating expenses) based on allocation keys defined by management.
These expenses are further allocated into categories by function as follows: In EUR millions 2019 2018 2017 537 535Acquisition and administrative expenses 60% 564 75 8% 68 69Investment management expenses 235Other current operating expenses 226 197 25%
Basic and diluted earnings per share are calculated as follows for the years ended December 31, 2019, 2018 and 2017 respectively: At December 31, 2019
Net income attributable to ordinary shareholders 186,5322.27 1.72422 1.53322 286185,759 187,341 Diluted earnings per share Stock options and share-based
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 234 SCOR Universal Registration Document 2019
The Group’s related parties include: • key management personnel, close family members of key management personnel, and all entities which are controlled, significantly influenced by, or for which significant voting power is held by key management personnel or their close family members; • associates.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 235SCOR Universal Registration Document 2019
The general reinsurance environment requires that underwriting liabilities be collateralized, either directly through the reinsurance treaty with the ceding company, or indirectly through the requirements of local regulators of the countries where SCOR’s entities operate. These collateral arrangements can take the form of cash deposits to ceding companies, which are booked on the balance sheet, of pledged assets which generate a commitment given and are disclosed in the table below, or of letters of credit in which a financial institution provides the ceding company with a guarantee against the default of SCOR. Reciprocally, SCOR receives collaterals from its retrocessionaires which are booked as commitments received, with the exception of deposits which are recognized on the balance sheet.
As at December 31, 2018As at December 31, 2019In EUR millions
COMMITMENTS RECEIVED Unused lines of credit and letters of credit 316 205 161Letters of credit – retrocessionaires 157 Pledged assets 1,2621,107 Endorsements, sureties 6 6 -Other commitments received -
Letters of credits received from external retrocessionaires are recognized as a commitment received for EUR 161 million (as at December 31, 2018: EUR 157 million) and are detailed in Note 15 – Net contract liabilities.
Real estate commitments Minimum payments under operating lease commitments, estimated future minimum rental income amounts as part of SCOR’s real estate investment activities and commitments to purchase or dispose real estate properties are not included in the table above but are disclosed within Note 9 – Miscellaneous assets and Note 7 – Insurance business investments.
Note•24.3 CREDIT RISKS Please see Section 3.1.4 – Credit risks and Section 3.3.5 – Management of credit risks.
Note•24.4 LIQUIDITY RISKS Please see Section 3.1.5 – Liquidity risks and Section 3.3.6 – Management of liquidity risks.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 237SCOR Universal Registration Document 2019
• a civil action (“action en responsabilité civile”), before the Commercial Court of Paris (“Tribunal de commerce de Paris”), against Covéa SGAM and Covéa Coopération, for having directly participated in and benefitted from the serious breaches by Thierry Derez.
In the criminal proceedings by way of direct prosecution (“citation directe”) before the Criminal Court of Paris (“Tribunal correctionnel de Paris”) against Thierry Derez, Covéa SGAM and Covéa Coopérations, the Criminal Court has set May 5 and 6, 2020 as the dates for the hearings on the merits.
In the claim against Barclays for breach of confidence and trade secrets, the High Court of Justice of London has declined, by judgment delivered on January 30, 2020, Barclays’ application to stay the proceedings until the judgment of the Paris Criminal Court (“Tribunal correctionnel de Paris”) in the criminal proceedings.
The holdings held directly by SCOR SE are detailed in the following sections: • Section 1.2.3 – Organizational structure of SCOR; • Appendix C – 5 – Notes to the corporate financial statements,
ERNST & YOUNG Audit Represented by Isabelle Santenac and Patrick Menard Tour First – 1, place des Saisons 92037 Paris-La Défense cedex, France CRCC of Versailles
Date of the Shareholders’ Meeting called to approve the financial statements for the financial year ended December 31, 2019
4.8.4. FEES PAID BY THE GROUP TO THE AUDITORS See Section 4.6.20 – Notes to the consolidated financial statements, Note 20 – Other operating and administrative expenses for a breakdown of audit fees.
The date of the most recently audited financial information is December 31, 2019.
In application of EC Commission Regulation No. 809/2004, the following information is included by reference in this Universal Registration Document: • The report of the Statutory Auditors on the consolidated financial statements for the financial year ended December 31, 2018 published on pages 249 to 254 of the Registration Document filed with the AMF on March 4, 2019 under Number D.19-0092 (and from pages 223 to 224 of the free translation into English of such Registration Document, such translation being available on SCOR’s website www.scor.com).
This is a translation into English of the auditors’ report on the consolidated financial statements of the Company issued in French and it is provided solely for the convenience of English speaking users.
This auditors’ report includes information required by European regulation and French law, such as information about the appointment of the auditors or verification of the management report and other documents provided to shareholders.
AUDITORS’ REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS To the annual General Meeting of SCOR SE,
Audit Framework We conducted our audit in accordance with professional standards applicable in France. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Auditing of historical consolidated financial information CONSOLIDATED FINANCIAL STATEMENTS04 240 SCOR Universal Registration Document 2019
Justification of Assessments – Key Audit Matters In accordance with the requirements of Articles L.823-9 and R.823-7 of the French Commercial Code (Code de commerce) relating to the justification of our assessments, we inform you of the key audit matters relating to risks of material misstatement that, in our professional judgment, were of most significance in our audit of the financial statements of the current period, as well as how we addressed those risks.
As stated in note 15 of the notes to the Consolidated financial statements, the Group uses in determining the amount of technical reserves related to its Non-life business, actuarial techniques that take into account quantitative loss experience data, together with qualitative factors, where appropriate.
Auditing of historical consolidated financial information CONSOLIDATED FINANCIAL STATEMENTS04 241SCOR Universal Registration Document 2019
Gross written premiums in 2019 amount respectively to EUR 9,194 million for the Life segment SCOR Global Life and EUR 7,147 million for the Non-Life segment SCOR Global P&C, as stated in note 4 of the notes the consolidated financial statements.
Written and earned reinsurance premiums are also estimated. As stated in note 1 of the notes to the Consolidated statements: gross written and earned premiums are based upon reports received from ceding companies, supplemented by the Group’s own estimates of premiums for which ceding companies’ reports have not yet been received.
Observing a large part of estimates in the written premiums related to a year is specific to the reinsurance business.
In these circumstances, we considered that the measurement of reinsurance premiums to be a key audit matter.
To cover the risk on the measurement of reinsurance premiums, we implemented the following audit approach: • we obtained an understanding of the internal controls framework on processes related to Life and Non-Life premium estimates and we tested the efficiency of key controls established by management; • we examined the consistency of premium estimates over the period, comparing them both to the operational plan prepared by management and approved by the Board of Directors and to premiums actuals from previous financial years and we investigated, if any, significant differences identified; • we performed, for a selection of contracts, a deep analysis of underlying assumptions taking into account the activity, the records of reinsurance accounts received, and any new information received from ceding companies; • for new contracts underwritten in 2019, we performed on a sampling basis, controls on the consistency of premium estimates based on new business information available at the underwriting department; • we examined the documentation and tests performed by the group regarding the classification of contracts between insurance contracts and financial contracts; • we included within our team members with specific skills in IT systems to perform procedures aiming at evaluating the internal control environment of the systems used by the management and test the functioning of several automated processes.
The Group’s intangible assets are mainly composed of goodwill and Value of Business Acquired of Life reinsurance portfolios respectively for EUR 870 million and EUR 1,302 million as at
Deferred tax assets are recognized on net operating losses carried forward to the extent that it is probable that future taxable income will be available against which they can be offset. As stated in Note 17 of the notes to consolidated financial statements, management makes assumptions and estimates related to income projections to determine the availability of sufficient future taxable income. To the extent that net operating losses carried forward could not be utilized or would expire, deferred income tax expenses may be recorded in the future to reduce corresponding deferred tax assets.
With team members with specific tax skills, our audit approach consisted in performing the following procedures on the main entities contributing to the Group’s deferred tax assets on losses carried forward: • we obtained an understanding of the internal controls framework on processes of the tax department related to the deferred tax measurement; • we examined the documentation prepared annually by the tax department on deferred tax assets; • we examined the business plans used and the probability that tax losses will be utilized in the future. We notably appreciated the tax rates used as well as the profits’ forecasts and underlying assumptions, with specific attention to the legal expiry periods in force in certain countries.
Report on Other Legal and Regulatory Requirements Appointment of the Auditors We were appointed as auditors of SCOR SE by the Annual General Meeting held on June 22, 1990 for MAZARS and on May 13, 1996 for ERNST & YOUNG Audit.
Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS accounting principles as adopted in the European Union and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibilities for the Audit of the consolidated Financial Statements Objectives and audit approach Our role is to issue a report on the consolidated financial statements. Our objective is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with professional standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
• Evaluates the overall presentation of the consolidated financial statements and assesses whether these statements represent the underlying transactions and events in a manner that achieves fair presentation.
Report to the Audit Committee We submit a report to the Audit Committee which includes in particular a description of the scope of the audit and the audit program implemented, as well as the results of our audit. We also report, if any, significant deficiencies in internal control regarding the accounting and financial reporting procedures that we have identified.
We also provide the Audit Committee with the declaration provided for in Article 6 of Regulation (EU) N° 537/2014, confirming our independence within the meaning of the rules applicable in France such as they are set in particular by Articles L.822-10 to L.822-14 of the French Commercial Code (Code de commerce) and in the French Code of Ethics (Code de déontologie) for auditors. Where appropriate, we discuss with the Audit the risks that may reasonably be thought to bear on our independence, and the related safeguards.
The related party agreements executed in 2019 or continued during 2019, as defined by Articles L. 225-38 et seq of the French Commercial Code are the subject of a specific report by the Statutory Auditors in Section 2.3.3.
SCOR SE’s corporate accounts for the financial years ended December 31, 2019, 2018 and 2017, included respectively in Appendix C of this Universal Registration Document, in Appendix C of the Registration Document filed with the AMF on March 4, 2019 under the number D.19-0092 and in Appendix C of the Registration Document filed with the AMF on February 23, 2018 under the number D.18-0072, were the subject of reports by the Statutory Auditors, featured respectively in Appendix C of this Universal Registration Document, in Appendix C of the Registration Document filed with the AMF on March 4, 2019 under the number D.19-0092 and in Appendix C of the Registration Document filed with the AMF on February 23, 2018 under the number D.18-0072.
Auditing of historical consolidated financial information CONSOLIDATED FINANCIAL STATEMENTS04 245SCOR Universal Registration Document 2019
Summary of the bylaws and internal regulations of the company concerning the members of its administrative, management and supervisory bodies 2485.1.2.
2495.1.3. Rights, privileges and restrictions attached to existing shares 5.1.4. 250Actions required to modify shareholders’ rights
Conditions for calling annual shareholders’ meetings and extraordinary shareholders’ meetings (articles 8 and 19 of the bylaws)
255THIRD-PARTY INFORMATION AND STATEMENTS BY EXPERTS AND DECLARATIONS OF ANY INTEREST
5.1.1. CORPORATE PURPOSE OF THE ISSUER (ARTICLE 3 OF THE BYLAWS) As set forth in Article 3 of the bylaws (statuts), the corporate purpose includes the following: • insurance, reinsurance, cession or retrocession of business of any nature in all classes and in all countries, the assumption in any form of reinsurance contracts or liabilities of any French or foreign company, organization, entity or association, and creation, acquisition, rental, lease, installation and operation of any undertaking related to these activities; • the construction, lease, operation or purchase of any and all properties; • the acquisition and management of all securities and other equity rights by any means including but not limited to subscription, transfer or acquisition of shares, bonds, corporate rights, partnerships and other equity rights; • acquisition of equity investments or interests in any industrial, commercial, agricultural, financial, movable property or real estate companies, the formation of any company, participation in any capital increases, mergers, demergers and spin-offs; • administration, management and control of any company or other undertaking, direct or indirect participation in all transactions carried out by such companies or undertakings by any means including, but not limited, to participation in any company or equity investment; • implementation and management of centralized cash resource management within the Group and the provision of services, to any Group company concerned, relating to the management and operations of centralized cash resources, and; • generally, all such industrial, commercial and financial transactions, or transactions involving movable property and real estate, as may pertain directly or indirectly to the above stated corporate purpose or as may be related to or facilitate the implementation or pursuit thereof.
Directors Related party agreements French corporate law and the Company’s bylaws provide for prior approval and verification of agreements, entered into directly or indirectly, between the Company and one of its directors, Chief Executive Officer, Deputy Chief Executive Officer (Directeur Général Délégué), any of its shareholders holding more than 10% of the registered capital or of the voting rights or, if a legal entity, the company controlling it within the meaning of Article L. 233-3 of the French Commercial Code and, or any entity in which any of these persons is at the same time an owner, partner with unlimited liability, manager, director, member of the supervisory board or an executive officer, unless pursuant to the provisions set forth under Article L. 225-39 of the Commercial Code: (i) the agreement is entered into in the ordinary course of business and under normal terms and conditions; and/or (ii) those agreements reached between two companies, one of which holds, directly or indirectly, all of the other’s capital, where applicable, minus the minimum number of shares required to fulfil the requirements of Article 1832 of the Civil Code or Articles L. 225-1 and L. 226-1 of the Commercial Code. Article L. 225-38 of the French Commercial Code also provides that the prior approval of the Board of Directors must be justified by the interest for the Company of the agreement, in particular by specifying the financial conditions related thereto.
Board of Directors’ borrowing powers Under Article L. 225-43 of the French Commercial Code, the directors, other than legal entities, Chief Executive Officer and Deputy Chief Executive Officers (Directeurs Généraux Délégués) may not borrow money or obtain a guarantee from the Company. Any such loan or guarantee would be void and may not be relied upon by third parties.
Directors’ age limits Under Article 10 of the Company’s bylaws, directors may hold office until the age of 77. A director reaching the age of 77 while in office must retire at the expiration of the term of his or her office, as determined at the Shareholders’ Meeting.
Voting rights (Articles 7, 8 and 19 of the bylaws) As of the date of this Universal Registration Document, the voting rights attached to shares are proportionate to the share of capital they represent. During a period of two years from the reverse stock-split of the Company’s shares implemented on January 3, 2007, all old shares carried one vote and all new shares carried ten votes, so that the number of votes attached to the shares remains proportionate to the share of capital they represent.
Liquidating dividend (Article 22 of the bylaws) If the Company is liquidated, its assets remaining after payment of its debts, liquidation expenses and all of its remaining obligations will be distributed in full first to repay the nominal value of the ordinary shares, then the surplus, if any, will be distributed pro rata among the holders of ordinary shares in proportion to the nominal value of their shareholdings and subject to any special rights granted to holders of preferred shares, if any.
The Company may also acquire its own shares without having to cancel them: • redemption with the aim of allocating them to employees or Company officers (Article L. 225-208 of the French Commercial Code); • redemption as part of a share buyback program (Article L. 225209 of the French Commercial Code).
Liability for further capital calls Shareholders are liable for corporate liabilities only up to their contributions.
5.1.4. ACTIONS REQUIRED TO MODIFY SHAREHOLDERS’ RIGHTS Shareholders’ rights are set forth in the Company bylaws. Under Article L. 225-96 Paragraph 1 of the French Commercial Code, amendments to the bylaws must be approved by the Extraordinary Shareholders’ Meeting by a two-thirds majority of the shareholders present or represented.
Attendance and voting at Shareholders’ Meetings Under French law, there are two types of Shareholders’ Meetings: ordinary and extraordinary.
For all other holders of ordinary shares notice of the meeting is given via publication in a journal authorized to publish legal announcements in the country in which the company is registered and in the Bulletin des annonces légales obligatoires (BALO) with prior notice given to the AMF.
The registration of shares in the bearer share accounts held by the authorized financial intermediary shall be demonstrated by a certificate issued by the latter, which must be attached to the remote voting form, to the proxy voting form, or to the request for an entry card completed in the shareholder’s name or on behalf of the shareholder represented by an authorized intermediary.
Voting by correspondence is also allowed under French company law. Forms for voting by mail or proxy must be addressed to the Company, either by regular mail or, pursuant to a decision of the Board of Directors, in electronic format. Mail voting forms must be sent to the Company within the period prior to the Shareholders’ Meeting as established by the Board of Directors. This period may not exceed three days before the meeting date. Proxy forms must be received by the Company no later than 3 p.m. (Paris time) on the day prior to the meeting.
When a decrease or sale of an equity stake, whether directly or indirectly, has been notified, the ACPR verifies whether this sale is likely to negatively affect the Company's reinsured clients as well as the sound and prudent management of the Company itself.
5.1.7. DISCLOSURE THRESHOLDS French law provides that any individual or legal entity, acting alone or in concert with others, that holds, directly or indirectly, more 90%, or 95% of the shares or the voting rights attached to the shares, or whose holding decreases below any such thresholds, must notify the Company within four trading days of crossing that threshold, of the number of shares and voting rights it holds. An individual or a legal entity must also notify the AMF within four trading days of crossing these thresholds. Any shareholder who fails to comply with these requirements will have their voting rights in excess of such thresholds suspended for a period of two years from the date notification is served and may have all or part of their voting rights suspended for up to five years by the Commercial Court at the request of the Chairman, any of the shareholders or the AMF. In addition, every shareholder who, directly or indirectly, acting alone or in concert with others, acquires ownership of shares greater than or equal to 10%, 15%, 20% or 25% of the share capital must notify the Company and the AMF of its intentions for the six months following such an acquisition. Failure to comply with this requirement will result in the suspension of the voting rights attached to the shares exceeding the applicable threshold held by the shareholder for a period of two years from the date on which notice is served and, upon a decision of the Commercial Court, part or all the shares of said shareholder may be suspended for up to five years.
Exercise of subscription option 03/23/2009 14.92 226,300 1,782,558.83 1,593,158.27 4,000 31,507.89 36,960.11Exercise of subscription option 11/25/2009 17.12
Exercise of subscription option 10/02/2013 24.65 20,000 157,539.45 335,460.55 05/22/2008 36,000 283,571.00 279,109.00Exercise of subscription option 15.63
Exercise of subscription option 09/10/2008 15.63 191,590 1,509,149.00 1,485,403.00 2,202,008.0003/23/2009 1,968,040.0014.92 279,550Exercise of subscription option
Exercise of subscription option 03/21/2013 22.25 154,000 1,213,054.00 2,213,446.00 10/02/2013 24.65 8,000 63,016.00 134,184.00Exercise of subscription option 39,385.00 89,715.00Exercise of subscription option 11/21/2013 25.82 5,000 Exercise of subscription option 25.0603/20/2017 38,750 305,233.00 665,842.00 29,539.00 61,980.00Exercise of subscription option 01/12/2014 24.41 3,750
Exercise of subscription option 14.9203/23/2009 145,450 1,145,706.00 1,023,972.00 17.12 5,000 39,385.00 46,215.00Exercise of subscription option 11/25/2009 18.40 139,965Exercise of subscription option 1,102,500.0003/18/2010 1,472,856.00 2,500 19,692.00 24,783.00Exercise of subscription option 10/12/2010 17.79 Cancellation of treasury shares NA NA 6,545,416 51,558,061.00 196,755,194.00 03/22/2011 11,500 90,585.00 136,080.00Exercise of subscription option 19.71 Exercise of subscription option 09/01/2011 15.71 3,000 23,631.00 23,499.00 496,249.0003/23/2012 774,461.0020.17 63,000Exercise of subscription option Exercise of subscription option 22.2503/21/2013 51,345 404,443.00 737,983.00 25.06 55,500Exercise of subscription option 437,172.0003/20/2014 953,658.00 251,078.00 526,831.00Exercise of subscription option 24.4103/20/2015 31,875
5.3. THIRD-PARTY INFORMATION AND STATEMENTS BY EXPERTS AND DECLARATIONS OF ANY INTEREST
The Company’s Universal Registration Document filed with the AMF, as well as the press releases of the Company, its annual and half-year reports, its annual and consolidated financial statements as well as the information relating to the transactions upon treasury shares and to the total number of shares and voting rights can be found on the Company's website at the following address: www.scor.com.
Provisional schedule for financial publications 2020 half-year resultsJuly 23, 2020 5.5. MATERIAL CONTRACTS
6.1. 258BUSINESS MODEL 2586.1.1. Brief description of the Group’s business activities
The Group is structured around three regional management platforms, or organizational Hubs (the “Hubs”): the EMEA Hub, the Americas Hub and the Asia-Pacific Hub.
The inverse nature of the reinsurance production cycle is another specific feature of the reinsurance business model: the selling price of reinsurance products and services is settled before their actual cost is precisely known.
The Group’s reinsurance activities and the types of reinsurance it engages in are presented in greater detail in Sections 1.2.5.1, 1.2.5.2 and 1.2.5.3 of the Universal Registration Document. Additional information about developments in the Life and NonLife reinsurance market is provided in Section 1.3.1 of the Universal Registration Document.
6.1.1.2. Investments and asset management The Group also conducts investment activities via SCOR Global Investments, its third business unit, which is tasked with managing the investment portfolio of the Group’s legal entities. Within this business unit, SCOR Investment Partners also manages funds on behalf of third-party clients.
Reinsurance requires a robust risk management system, strong modeling capabilities in order to assess, quantify and actively manage risks (e.g. risk pooling and hedging), and a skilled workforce able to combine theoretical and analytical considerations with empirical experience.
At the forefront of risk modeling, particularly for extreme risks in Life and P&C business, the Group devotes significant resources to fundamental research and the promotion of scientific risk management techniques in various disciplines.
(1) Except for the Remark Group (direct marketing) and Château Mondot (vineyard) owing to the substantial differences in their business model and risk profile. Other fully consolidated undertakings were excluded because they were only recently added to the scope of consolidation (e.g. Coriolis) or, depending on the information categories, because they were not included in the Group’s management and reporting processes. These exclusions are listed in the note on methodology in the appendix to this declaration.
(2) These concepts are defined in Section 1.2.5 of the Group’s Universal Registration Document.
mortality, longevity, disability and long-term care are at the heart of underwriting in Life reinsurance. The R&D Centers have entered into many scientific partnerships over the years, the current ones being with: ADERA (Association pour le développement de l’enseignement et des recherches auprès des universités, des centres de recherche et des entreprises d’Aquitaine – INSERM) on Long-Term Care risk and the Pierre et Marie Curie University at the Pitié-Salpêtrière Hospital on HIV developments.
Since it was created, the SCOR Corporate Foundation for Science has financed seminars and colloquiums on scientific subjects such as emerging infectious diseases, longevity risk for modern retirement schemes and the expectations of economic agents in an economic crisis, as well as an international seminar in Paris on meteorites in collaboration with the French national museum of natural history. The Foundation also jointly organizes similar events. Moreover, it supports research projects across a variety of disciplines, as well as scientific and actuarial awards and research chairs.
6.1.3. GOVERNANCE SYSTEM FOR SOCIAL AND ENVIRONMENTAL ISSUES AND RISKS An integrated governance system has been established to consider social and environmental issues arising from business activities, including the principal environmental, social and governance (ESG) risks related to them, as well as broader corporate social responsibility (CSR) initiatives. This system is predicated on five core pillars: • a general reference framework consisting of the Group’s mission statement and adherence to global initiatives supported by UN programs, supplemented where appropriate by themespecific reference frameworks and transposed into standards (e.g. Code of Conduct) and relevant activities; • a structured governance framework, which the Board of Directors is responsible for overseeing, assisted, as provided for in its internal regulations, by the preparatory work of its specialized committees, in particular the Corporate Social and Societal Responsibility and Environmental Sustainability Committee, the Risk Committee and the Audit Committee; • integrated initiatives, translated into operational measures in annual action plans, the implementation of which is periodically reported to the supervisory and management bodies; • a risk management system shaped by the formal procedures in place and applied to the most relevant functional processes, building on the risk analyses performed in connection with this performance declaration and the monitoring of megatrends and associated emerging and operational risks; • a framework of performance conditions indexed to CSR criteria, applied in a manner appropriate to the responsibilities exercised within the Company.
These elements are presented in greater detail in the following subsections.
The consideration of social and environmental risks related to the Group’s business activities and operations, and more generally the Group’s CSR policy, is guided by the adherence to UN-led global initiatives and by the multi-stakeholder orientations set out in its mission statement: “to offer its clients an optimum level of security, to create value for its shareholders, and to contribute to the welfare and resilience of Society by helping to protect insureds against the risks they face”.
SCOR’s Board of Directors has various advisory committees responsible for preparing its discussions, assisting it in its supervisory role, and making recommendations to it in specific areas, including on environmental, social and governance matters.
At the level of the management bodies, SCOR set up a Corporate Social and Societal Responsibility and Environmental Sustainability Committee at Executive Committee level in 2018. In addition to this committee, the Executive Committee is also guided by the work of a Risk Committee and an Investment Committee when considering the social and environmental risks arising from the Group’s activities and operations and formulating the CSR approach.
SCOR is at the heart of the key social, economic and environmental challenges facing society, as its activities help to build the resilience of societies via its risk identification, analysis, transfer and sharing techniques. These challenges are regularly analyzed by the Group’s teams, both from a risk angle and from the perspective of development opportunities, particularly in the context of its system for identifying and analyzing megatrends and the associated emerging risks, as well as in the analysis of non-financial risks covered by this declaration.
Regularly informed of these analyses by its advisory committees (see above), which also hold specific thematic focus sessions during their meetings, the Board of Directors approved the Group’s new strategic plan, “Quantum Leap”, following a review by the Strategic Committee. The orientations formulated under this new plan emphasize the Group’s ability to contribute to the resilience of societies. Several of the incremental focal points developed over the course of the plan address longer-term social and environmental issues and the related risks and opportunities. Four challenges in particular influenced the orientations announced in the strategic plan, some of which are related to the risks presented in Section 6.1.3.4 of this declaration and, more generally, to the Group’s CSR policy: • social challenges linked to attracting and retaining talent: the nature of the Group’s business activities and the corresponding competitive environment require skills in several specialized disciplines in a narrow labor market concentrated over a few locations worldwide, where some labor markets are highly competitive. In this context, the ability to attract and retain talent is important given the importance of human capital in the Group’s business model; • environmental challenges, including climate change: against the backdrop of climate disruption, which, may have medium- to long-term implications depending on the risks considered, the strategic plan includes orientations designed to support the energy transition, to develop adaptation solutions to the physical risks associated with climate change (through the activities of the Group's P&C business unit), to finance a sustainable world and to reduce and offset the carbon impact of the Group’s operations; • challenges linked to prevention, health, welfare and insurance access: in a context of changing morbidity and mortality causes, contributing to the collective understanding of the causes behind these risks and to the effectiveness of prevention and treatment, and translating this risk knowledge into impacts through the development of products providing greater protection for a larger number of people, is an integral part of the strategic plan for the Group’s Life business unit. Other aspects of this business unit’s development plan encompass the ability of the business to promote lifestyles with a positive impact on human health, and to build solutions with its partners that respond to the needs of vulnerable populations (e.g. health conditions) ; • societal challenges arising from the digitalization of the economy and societies: accelerating the Group’s transformation via greater use of new technologies (e.g. artificial intelligence, robots, blockchain, big data, multi-cloud, satellite imaging), with a view to expanding its product and service offering, providing added value to its customers in their own digital transformation, and bridging the protection gap, is a key focus of the “Quantum Leap” plan. It is supported by dedicated policies for the protection of the Group’s information systems and the data (notably personal data) it manages.
The identification of significant issues and risks as defined in Article 225-102-1 of the French Commercial Code, led by the department in charge of corporate social responsibility, follows an analysis of non-financial risks based on the information categories established in this article and their first-level breakdown in Article R. 225-105 of the French Commercial Code. These categories have been supplemented by the analysis grids traditionally used by non-financial rating agencies, and by a materiality analysis conducted using a questionnaire that aims to identify the ESG integration areas (e.g. ethics and transparency, the integration of ESG in investments, the integration of ESG in underwriting activities, the development of (re)insurance solutions aligned with the needs of society, responsible purchasing, diversity) that are most relevant, both from the perspective of stakeholders, including the Group’s employees, and from the perspective of the Group’s supervisory and management bodies. The expectations of external stakeholders have been identified in consultation with the Group’s internal departments responsible for developing and maintaining relationships with them.
These issues and the associated risks have been cross-checked against the results produced by other mechanisms for identifying existing risk factors within the Group (e.g. megatrends and emerging risks, operational risks). Non-financial risks have been assessed qualitatively by specialists based on their frequency, severity, the Group’s ability to influence them and their impact on its activities, particularly in financial, reputational and operational terms. This analysis, which was carried out on the basis of the internal methodology developed in the previous year and on innovations made to stakeholder analysis, took place in several stages using an iterative process involving the Board’s Corporate Social and Societal Responsibility and Environmental Sustainability Committee.
These risks, and the associated policies or programs and performance indicators, are presented in Sections 6.1.3.4 to 6.2.1.2 of this declaration.
6.2.1.1. Alignment of stakeholders interests and retention of talented people through a merit-based compensation policy
In terms of risk and regulation, SCOR is committed to maintaining a compensation policy that is fully in line with SCOR’s controlled risk appetite and discourages taking excessive risks, to aligning management incentives with shareholders objectives, to having an innovative compensation policy, to motivating and retaining its pool of talent and to being fully compliant with the regulations and guidelines defined by the regulators regarding compensation policies.
Key elements of the compensation policy Compensation comprises several components: a fixed and a variable portion, an immediate and a deferred portion, and an individual and a collective portion. The components include a base cash salary, an annual cash bonus, shares and options where applicable, pension schemes and any other benefits.
In addition, the Group (3) pursues a policy of employee share ownership, which resulted in share allocations to the employees (depending on their performance) in 2010, 2011, 2013, 2014,
(3) For SCOR Channel, a specific long-term incentive plan (based on two main elements, one related to the performance of SCOR Channel and the other linked to the price of SCOR shares) is in place to reward and retain senior staff and key individuals.
“Partners” program This program involves approximately 25% of the total number of employees (excluding SCOR Channel). In addition to specific compensation plans, this program gives access to selective information and proposes specific career development solutions.
There are four main Partner levels: Associate Partners (AP), Global Partners (GP), Senior Global Partners (SGP), and Executive Global Partners (EGP). Apart from the EGPs, these levels are then subdivided into two levels, to take into account seniority or special achievement promotions.
The level of Partnership determines the bonus components of the Partners. Calculated from the basic gross annual salary, the SCOR bonus system is linked directly to the individual performance appraisal (corresponding to predefined ranges linked to individual performance) and also to the ROE that SCOR achieved in the past financial year.
The Partners of SCOR are also eligible to receive free shares and stock options. However, this does not mean that an allocation occurs every year or that every Partner will receive them. In addition, the Group has set up a complementary system, the Long Term Incentive Plan (LTIP), to retain some of its key employees. The free shares and stock options process is supervised by the Compensation and Nomination Committee.
The Group’s compensation policy reflects the desire to implement compensation schemes in accordance with best market practices and to involve key employees in the medium and long-term development of the Group. The Group’s will to carry out compensation systems that are in line with the best market practices enables it to involve key employees in the long-term development of the Group.
In 2019, the turnover rate was 9.8% (number of departures in 2019, excluding dismissals, deaths, internal mobility and trainees / headcount as at December 31, 2018). This rate is in line with the market benchmark and at an acceptable level in regard to this talent retention challenge.
Promoting diversity and equal treatment is an essential objective of the Group's human capital management policy. It is part of the social commitments regarding fight against discrimination, while contributing to its economic and financial performance and to the recognition of the Group’s employer brand which helps attracting and retaining skills.
One of the goals of this policy is to achieve equal treatment and a balanced representation of men and women within governing bodies and senior positions.
The promotion of diversity and gender equality is also based on a global program, #WorkingWellTogether, the purpose of which is to offer a working environment suitable for developing an inclusive culture, well-being and engagement to the Group’s employees. This program takes the form of various interactive events (workshops, conferences, digital training modules.) held in each Hub in order to fully engage employees and implemented by the Group during Inclusion & Diversity weeks. In order to ensure its full promotion within the Group, SCOR has set up a communication plan that includes a brand (#WorkingWellTogether), a corporate identity and a local embodiment based on testimonials. To establish a shared and inclusive culture, the "Diversity and Inclusion" section of the intranet site has been completely revised in order to offer more dynamic content for employees to better raise their awareness.
The promotion of diversity, which is an integral part of the #WorkingWellTogether program, is a major aspiration of this approach, which took form through deploying initiatives participating in the diffusion of a culture of openness. In addition to promoting diversity and equality among all employees, the other areas covered by this program involve diversity related questions: • promoting a multicultural environment; • leveraging on generational diversity; • facilitating employment and integration of disabled employees; • respecting sexual orientations and gender identity of SCOR's employees.
Alongside diversity challenges, well-being at work is #WorkingWellTogether’s second pillar and more recently, engagement in favor of communities became its third pillar.
As an illustration, at the end of 2019, the Group’s governing body, the Executive Committee, included 11% of women, and women represented approximately 19% of the top 10% senior positions and 30% (1) of the Group’s Partners. As a comparison, at the end of 2015, the Executive Committee did not include any women, and women represented approximately 16% of the top 10% senior positions and 26% of the Group's Partners.
• Mentoring: an important axis of the above-mentioned roadmap and transcribed in the CSR action plan, which is reported every three months to the Corporate Social and Societal Responsibility and Environmental Sustainability Committee of SCOR’s Board of Directors, involves mentoring of women. Originally developed in 2017 and then deployed in 2018 through the SIGN network (cf. supra), this program was integrated into the management process of the Group’s human capital the following year and extended to its male population. In 2019, 21 high potential employees benefited from this operation, including 13 women (62%).
• Promoting publicly diversity and the place of women in the company. In particular, SCOR's Chairman and CEO affirmed, on October 25, 2019 in “La Tribune”, the commitment and the concrete actions undertaken by SCOR in favor of gender equality within the Group.
With approximately 65 nationalities and substantial cultural uniqueness, the Group pays close attention to the conditions necessary for a collaborative work environment, to the integration of new employees, and to the support given to the older and younger employees in the company. SCOR’s ambition is to encourage employees to work better together and to better share their knowledge globally, to accelerate the integration of newcomers, to offer new development opportunities for older employees and to improve visibility of young employees. As part of this overall process SCOR implemented the 2019 Diversity & Inclusion Week, in all Hubs, focusing on raising awareness of unconscious biases, especially cultural.
Different initiatives were undertaken in 2019 in Paris to sensitize the employees to disabled in the workplace, such as DuoDay (integration of disabled students), conferences, escape game on the “psychic disability”, well-being and massage workshops performed by blind people in Paris during the global diversity week.
In addition, SCOR supported and hosted the 23rd edition of the European Week for the Employment of People with Disabilities, launched at SCOR Paris by Mrs Cluzel, French Secretary of State for Disability, on November 19. This event, including testimonials and round tables on the different forms of employment support and handicap in the company, aimed to strengthen the dialogue and the contacts between companies, associations, civil society and
disabled jobseekers. Earlier in that month, SCOR had signed a national manifesto for the hiring, the inclusion and the development of people with disabilities in the workplace, reaffirming the engagement of the Group on this topic.
2nd #WorkingWellTogether pillar: Life quality & Employees wellbeing The Group aims at retaining talented employees by facilitating work-life harmony through the development of an innovative and flexible working environment and dedicated events raising awareness on health and well-being at work.
Group respects all regulations from the International Labour Organization. The topics related to the “Elimination of the discrimination regarding employment and profession” and to the “Freedom of association and the effective recognition of the collective negotiation right” are addressed in the “Treatment Equality between men and women” paragraph and in the Section 6.2.1.4 –“Developing social dialog”. Within the Group, the social climate can be considered as good. A high-quality social dialog exists within each Hub. Furthermore, 31 meetings were held with the Group’s staff representatives to discuss local health and safety conditions (4 meetings in France, 13 in Switzerland, 1 in Italy, 2 in Brazil, 9 in Colombia, 1 in Mexico, 1 in Germany).
• In most of the locations, medical and health services are offered to the employees (medical appointments, examination, sport activity - with 23 sports offered in Paris, workstation assessment and ergonomic solutions, and specific solutions for stress management).
• Specific attention is paid to the flexible office solutions proposed to the employees. The main locations of the Group have all implemented a teleworking program.
• In some countries, possibilities are offered to employees to give their own paid vacation days to other employees in a critical personal situation (e.g.: in the case of a sick child). In Paris, access to a third party service provider is available, providing accompaniment to employees helping a family member who is losing their autonomy (disability, disease, old age…).
• A digital employee survey solution was acquired in 2019 and rolled out in February 2020 to assess the satisfaction, motivation and commitment of the employees and define relevant actions plans where necessary. This comes in addition to regular surveys conducted to identify the level of satisfaction of the new employees concerning their on-boarding. In addition, a survey related to the challenges of Corporate Social Responsibility, led by the two directors representing the employees on the Board of SCOR SE, was conducted among all the employees in order to collect their opinion and identify priority engagement axes.
For example, SCOR’s teams in the United States and in Canada commit themselves socially by supporting a number of charity events on a voluntary basis under the “Give4Others” flag. This program that comprises a set of social and charitable initiatives enables employees to dedicate 48 hours per year to volunteering in favor of non-profit associations of their choice. Numerous drives, donations and other sporting events (Cup Run Marathon, Race for the Cure in Charlotte, company challenges in Kansas City in partnership with Special Olympics…) have been organized in order to support or raise funds for research, education, treating diseases such as cancer, or even support of women victims of violence. Also in the United States, SEAC (SCOR Employee Activities Committee), a SCOR employee association, has been mobilized in 2019 alongside NGOs such as Concrete Safaris and Volunteers of America in particular for the organization of a night with the homeless, and other food drives.
In Europe, SCOR employees are also active in their respective locations. In France for example, in 2019, 77 SCOR employees joined the “Les Foulées de l’assurance” race, a charity event that rallies insurance professionals around cardiovascular diseases prevention. Newcomers also had this year, and for the first time, the opportunity to join a support workshop at the Action Enfance association, organized as part of the "DISCORvery Meeting" integration seminar. In London, the R.A.I.S.E. (Responsibilities, Awareness/Actions, Initiatives, Social/Staff Engagement) committee gives employees working at SCOR London, SCOR Channel and Remark the opportunity to contribute to the social, environmental, charitable and community challenges impacting their daily lives. In 2019, as part of the partnership with the Tom Bowdidge Youth Cancer Foundation, GBP 12,000 were fundraised, and a workshop was hosted with young people recovering from cancer treatment in order to help and prepare them to integrate the corporate workplace.
(1) As a reminder, 2018 data do not include SCOR Channel.
Developing the expertise, knowledge and career paths is a key condition to ensure employee motivation and wellbeing, and ultimately the Group's performance. In this regard, a whole range of tools have been implemented to support and assist employees in their professional development.
1 – Developing individual performance The annual Appraisal and Development Interview gives employees annual objectives and concrete appraisal of their contribution over the past year. It provides them with the means by which to make the most of their skills. This interview is a key element in the human capital management in terms of individual career management, training and salary development.
In addition, for 2019, employees and managers are invited to define CSR objectives (Corporate Social Responsibility). These objectives are optional (except for the executive committee members, for whom at least one CSR objective is mandatory) and confirm SCOR’s commitment towards CSR themes. They include civic engagement, well-being and diversity in the workplace developed during the #WorkingWellTogether program, environmental protection, alongside the integration of social and environmental challenges in our jobs.
2 – Considering career prospects Beyond analyzing the employee’s performance over the past year and setting new objectives, the annual appraisal facilitates the professional development of each employee. With their managers, employees examine the career prospects available within the Group, based on their personal aspirations and the needs of the Company. Together, they also identify any training actions that could help them to achieve new objectives. Leadership and Organizational Reviews also provide the possibility to implement individual action plans (training, professional development, remuneration, etc.) for each employee.
4 – Developing employees’ skills SCOR University is designed to promote a global and dynamic approach to training, supporting the Group's career management policy. In 2019, SCOR Channel also benefited from part of the training offer put in place by SCOR University.
The training offer is structured around three pillars: Business, Management & Leadership, Excellence. The strategic objectives are to: • have a consistent SCOR wide training approach to ensure career development for all employees; • maintain and develop employees’ technical and transversal skills, thus contributing to the Group’s performance; • apply a stringent and global process for analyzing, controlling and monitoring SCOR’s actual and future strategic needs; • make training policy a powerful development lever of career and retention, while respecting legal local obligations.
• Accompaniment of digital transformation, particularly focusing on the use of collaborative tools, through a set of classroom and digital training led by internal experts, and by the digitalization of the training offer, with the deployment of the LinkedIn elearning modules, a new digital learning solution providing unlimited access to 13,000 expert-led online courses and 5,000 video tutorials covering technology topics, business expertise and professional efficiency.
In 2019, on average, approximately 17 hours of training were given per employee. Training represented a cost of almost EUR 1.894 million in 2019 (2).
(1) SCOR Channel employees are not covered by these reviews. (2) Data includes global e-learning trainings.
For the EMEA Hub, the number of training hours is calculated on the basis of attendance sheets. For the other Hubs, this number is calculated on the basis of the information indicated on the bills sent to the providers. For technical reasons, the expense is calculated net of tax for France.
(1) For France, this data includes the meetings of the Social and Economic Committee, the work council and the meetings of the staff representatives.
6.2.2. SOCIAL INDICATORS AND METHODOLOGICAL NOTE The items mentioned in the document below pertain to the entire Group except ReMark (158 employees, fully consolidated entity), MRM (4 employees, fully consolidated entity), Château Mondot SAS (19 employees, fully consolidated entity), Les Belles Perdrix de Troplong Mondot EURL (9 employees, fully consolidated entity), ESSOR (79 employees) and Coriolis (7 employees).
(1) Headcount is calculated on the basis of employees registered as at December 31. Each Hub covers a region and may have employees in several countries. For example, the EMEA Hub covers France, the UK, Spain, Italy, Belgium, the Netherlands, Russia, Ireland, Switzerland, Germany, Israel, Sweden, Kenya and South Africa. As temporary workers and external service providers are managed according to specific rules in each site, this data is not mentioned in the headcount. For a breakdown of countries per Hub, see Section 2.1.7.
(1) Definition of Partner: see Section 6.2.1.1 – “Partners” program. The executive corporate officer is included in this population. This figure includes the decisions taken during the 2020 Partners promotions and nominations campaign which took place at the end of 2019.
Total Male FemaleMale TotalFemale Total Male Female 7 5End of Fixed-term contract 148 195 13 3 4
Methodology: employees on fixed-term contracts are considered to have definitively left SCOR when their contracts expire. Therefore, the 14 employees who signed a permanent contract in 2019 at the end of their fixed-term contract are not included in the indicator “End of fixedterm contract”.
2019 Group staff turnover is calculated as follows: number of departures in 2019 (excluding dismissals, deaths, company transfers and trainees)/headcount as at December 31, 2018.
An employee is considered to have a disability when the disability is recognized as such by the relevant body. The disability may be physical or mental or a combination of both. A disability may be present from birth or develop during a person's lifetime.
Daily checks are performed by the local HR managers and the HR Group Department to ensure the reliability of the information in the Group database. An additional detailed check of the data is performed annually (in December) by the HR Group Department and the local HR managers.
As a trusted partner SCOR puts a strong focus on business ethics and compliance matters. In addition to the specific measures detailed in the various sections of this extra-financial performance statement, the Group focuses on compliance matters regarding economic sanctions programs, anti-corruption, anti-money laundering and anti-terrorism regulations, data privacy and protection, as well as regulatory tax requirements, including tax evasion matters.
As described in its Code of Conduct - and further detailed in its various compliance related policies -, the Group emphasizes the importance of complying with all applicable laws and regulations. The Code of Conduct emphasizes integrity, ethics, compliance, professionalism and responsibility in all aspects of business conduct.
The programs implemented in these areas and the associated performance indicators (trainings) are described in the following sections.
Failing to comply with the principles of SCOR’s Code of Conduct may result in disciplinary action, which may include criminal or regulatory proceedings in compliance with applicable laws. In addition, as per the Group Compensation Policy, and as outlined in Section 6.1.3.5 of this statement, violations of the Code of Conduct can prevent the vesting of shares and stock options.
The Group Compliance Policy, inseparable from the Group Code of Conduct, defines several principles to support the Compliance framework. One of the major principles is the respect of a riskbased approach to compliance in accordance with the SCOR Group Policy on Risk Management. This approach consists of identifying compliance risks existing in SCOR’s business activities, prioritizing dedicated efforts and resources to mitigate those risks taking into account both their severity and probability, and establishing ongoing procedures aimed at prevention, detection and response to these risks.
The Group Compliance Policy also defines the roles and responsibilities of key stakeholders, notably the teams in charge of compliance. The teams in charge of compliance carry-out a risk assessment annually (developed in conjunction with Group Risk management), and the results of that risk assessment are used to drive the annual Group Compliance Plan. The latter is approved by the executive committee of SCOR SE annually and is also submitted to the Audit Committee of the Board of Directors of SCOR SE.
The Group Compliance Policy, together with other Group compliance-related policies and guidelines, establishes minimum standards applicable throughout the Group. These standards are published in a central repository available to all employees and include inter alia the following policies and guidelines: • Group data protection policy and its related guidelines on data breach response; • Group policy on anti-bribery and its appendix on corruption risk mapping; • Group guidelines on sanctions and embargoes and its related guidelines on sanctions screening; • Group guidelines on anti-money laundering, combating the financing of terrorism and Know-Your-Customer; • Group guidelines on the management of inside information and trading in SCOR’s securities; • Group policy on conflict of interest; • Group fit & proper policy; • Group policy on outsourcing; • Group anti-trust policy.
Through this new channel, the Group’s internal and external stakeholders can report a concern by simply clicking on a link on the SCOR Intranet portal or on the Group’s website. This enables secure and confidential reporting of concerns at any time and from any location. The reporting channel permits the inclusion of attachments to the report and also permits anonymous reporting. All reports made through this process are confidentially routed to the appropriate Hub General Counsel and Hub Compliance Officer and to the Group Chief Compliance Officer, so that they are fully reviewed and investigated.
In order to ensure proper dissemination of the above compliance requirements among SCOR employees, as well as to keep them informed about the latest development on those issues, training sessions addressed to the underwriting, claims handling and technical accounting departments are regularly held across Hubs. In addition to e-learning modules such as the one mentioned above, 2019 compliance training activities included 19 in-person training sessions in APAC, 27 in-person training sessions in the Americas and 36 in-person training sessions in EMEA.
Apart from the processing of personal data relating to its staff, SCOR’s activities may lead to the processing of other personal data, which invokes the requirements of personal data protection and privacy regulation. The Code of Conduct defines the most important principles related to the respect of Personal Data and privacy that are mandatory for all employees.
Additionally, the General Data Protection Regulation (GDPR) (EU 2016/679) has been in force since May 25, 2018 and constitutes the overarching regulation on Data Protection in Europe with the objective to make the companies accountable for their processing of personal data. While the GDPR is general in nature and does not specifically relate to reinsurance, it nonetheless has a significant impact on SCOR’s data processing activities.
In early 2018, the Group completed a project designed to ensure compliance with the requirements of the GDPR that has led to the implementation of several organizational and technical measures.
In accordance with the Regulation, the Group appointed a Data Protection Officer who is in charge of building and maintaining the overall data protection framework. The Data Protection Officer works primarily with local compliance officers, legal counsels and IT Security teams worldwide.
These documents are owned by the Group Data Protection Officer, Group Chief Compliance Officer and Group Chief Information Officer, respectively.
This corruption risk assessment also identified the employees that are most exposed to corruption or corrupt activity by virtue of their job function or activities. Email reminders sent to all employees concerning the need for constant vigilance with respect to corrupt activity and those employees that are most exposed to such activity receive periodic training on anti-bribery and anti-corruption.
In addition to the above, sanctions and embargoes constitute a mandatory topic for the legal and compliance trainings conducted every year. These in-person training sessions are supplemented by a periodic training via an E-learning module for employees who may be exposed to questions relating to economic sanctions and embargoes in the course and scope of their work.
6.3.5. ANTI-MONEY LAUNDERING, FINANCING OF TERRORISM, KYC As a reinsurer SCOR does not typically have any contractual relationship with the underlying policyholders of its cedents and most global anti-money laundering laws and regulations do not apply to reinsurance. However, as an international financial group, SCOR still has established a proportionate process to assess and analyze SCOR’s exposure to anti-money laundering and combating the financing of terrorism.
6.3.6. INSIDER TRADING Transparency, accountability and credibility towards our investors are key values for SCOR as a listed company. Therefore, the Group Guidelines on Managing Insider Information clearly prohibit trading in SCOR’s securities while in possession of information which, if made public, would be likely to have a significant influence on the stock market price.
Transfer pricing processes ensure a complete review and documentation of the most significant intra group transactions each year (for which the most significant entities of the Group have to submit a compulsory transfer pricing report – the so called “local transfer pricing file” – to their local tax administration every year).
As a result of its diversified and global business model, SCOR (re)insures and invests in the global economy, including industries with multiple ESG profiles, industries with diverse stakeholders, and industries operating in countries the cultural and normative environments of which have varying degrees of maturity in the social and environmental fields. As such, the Group's reputation may be influenced by the perception of external stakeholders who expect companies to consider societal issues, including the development of products and services to address these.
As part of its “Quantum Leap” strategic plan, SCOR has further committed to ESG integration by publishing its sustainable investment policy and by making new commitments in relation to climate issues.
Based on structured governance, as introduced in Section 6.1.3.2 of this declaration, the Group's sustainable investment policy is built on five pillars: • building a resilient investment portfolio with an integrated risk management approach; • facilitating sustainable investment decisions through negative and positive screening; • fostering sustainable behavior through engagement; • financing a sustainable world through thematic and/or impact investments; • supporting climate awareness through public debate and collective initiatives.
6.4.1.2. Building a resilient investment portfolio from an integrated risk management perspective
The understanding, modeling and management of climate risks are at the heart of SCOR's business. In its sustainable investment approach, SCOR pays particular attention to climate risks and supports initiatives to better assess risks linked to climate change. The Group pursues a dynamic and progressive approach from a dual perspective, systematically adopting best practices, advances in terms of the knowledge of physical risks, regulatory transition risks and reputational risks, and testing new analytical methodologies. In addition to purely environmental aspects, ESG scores and controversial issues are also analyzed to detect potentially risky positions at an early stage.
(2) The detailed results of this analysis were published in the 2018 ESG Report on Investments “Striving for Sustainable and Socially Responsible Investment”, pages 24-25, which is available on the Group’s website.
Considerations of environmental and social issues in the Group’s activities NON-FINANCIAL PERFORMANCE DECLARATION
Integration of all ESG criteria The integration of ESG criteria is measured primarily by assessing the quality of the asset portfolio. Given the extremely high level of diversification of its investments, the Group works with the nonfinancial ratings agency ISS-ESG to assess its portfolio’s standard instruments (government bonds, corporate bonds and listed equities). For debt instruments (infrastructure and real estate debt), SCOR relies on the expertise of its subsidiary SCOR Investment Partners, a recognized leader in the debt instrument management industry.
Using the data provided by ISS-ESG, SCOR is able to rate 75% of its asset portfolio based on non-financial criteria. A line-by-line analysis is regularly performed ex-post. Issuers with the lowest ratings may be placed under review. In addition to applying the exante filters mentioned in the following section, SCOR may make portfolio adjustments following these analyses, as was the case in 2019 for companies involved in the opioid industry.
As a responsible investor, SCOR applies ESG filters to its investment universe. These may be negative filters as a mitigation action against potential risks (negative financial or non-financial impact) or positive filters to support its sustainable investment strategy.
Negative screening: exclusions Certain activities may raise sensitive issues or entail a reputational risk for the Group. As such, the Group excludes certain activities or issuers from its investment universe. These exclusions apply to all asset classes falling within the definition of invested assets. The list of exclusions is communicated to all investment managers with immediate effect. New investments are prohibited, and the remaining positions are actively managed in order to accelerate their liquidation.
The Group applies exclusions to: • companies involved in the production of cluster munitions, and countries that do not adhere to anti-money-laundering and antiterrorism -financing rules, as defined by the Financial Action Task Force (FATF); • a number of carbon-intensive sectors, in line with its commitment to make its asset portfolio carbon neutral by 2050, while favoring a balanced approach between CO2 reduction and economic development. The Group excludes issuers for which thermal coal (mining and power generation) accounts for more than 30% of their turnover or more than 30% of the electricity generated, and companies on the Urgewald list of the 120 largest coal developers. These exclusions also apply to companies involved in oil sands and oil development in the Arctic region, above a threshold expressed as a percentage of oil reserves and set at 30%. As announced in its strategic plan, these thresholds will be gradually lowered to 10% by the end of 2021; • the tobacco industry, since the Group’s signature of the No Tobacco Pledge in May 2018.
Drawing on the voting recommendations of a proxy, SCOR exercises all the voting rights on the shares held directly in its portfolio in accordance with the undertakings made under its action plan for investments. In 2019, except for one resolution, the recommendations were followed in respect of the shares it held.
In addition, as part of its sustainable investment policy, the Group has defined the priority themes of its voting policy. They concern: (i) the independence of the Board of Directors, (ii) its diversity, (iii) compensation, (iv) lobbying transparency, and (v) the company's general behavior in terms of sustainable development.
As highlighted in the previous sections, SCOR, through its reinsurance activities, pays particular attention to climate change issues. As such, the Group is investing in the transition to a resilient low-carbon economy. SCOR applies an investment and divestment approach that tends to increase the proportion of green assets in relation to other portfolio assets.
In addition, the Group also participates in climate change resilience strategies through its asset management subsidiary, by developing, distributing and investing in financial products to cover natural disasters (cat bonds and insurance-linked securities).
Aside from climate change, SCOR actively participates in the expansion of the knowledge society by investing in high-quality, medium-sized companies working in the production and publication of certified knowledge. In a context of profuse information, this approach targets a contemporary risk: cognitive risk. SCOR defines this risk as the risk of biased judgment or misunderstanding, which is often the result of low-quality information or insufficient access to knowledge. This policy of “cognitive protection” has been demonstrated by the creation of Humensis, the result of the merger between PUF and Editions Belin and is in line with the many initiatives undertaken by the Group to develop the knowledge society (e.g. SCOR Corporate Foundation for Science).
6.4.2. INSURANCE AND REINSURANCE ACTIVITIES Aware of the social and environmental added value of its Life and Non-Life reinsurance activities, of society's expectations in terms of protection, and of its ability to contribute to a more resilient society, SCOR has identified several social and environmental challenges to which reinsurance can, on its own scale, provide elements of response. Issues relating to climate change mitigation and adaptation, as well as those relating to health and, to ensure inclusion, access to insurance, have thus been integrated into the Group's development plan.
Climate risk management research, notably in terms of climate risk modeling techniques and climate risk transfer mechanisms, contributes to a better understanding of climate change challenges and adaptation. In this respect, SCOR provides institutional and financial support to targeted institutions involved in the aforementioned areas, while enhancing its own tools and expertise.
The Group has made a commitment not to offer facultative insurance or reinsurance that would specifically encourage the development of new thermal coal mines or lignite mines or plants. This policy was further strengthened in April 2019 with the decision to also exclude the construction of new coal-fired power plants, irrespective of the technologies, the construction, and quality of the coal.
These exclusions were consolidated into an ESG underwriting guide in 2019. This guide also includes instructions to integrate ESG issues specific to certain activities that may present ethical issues in
6.4.2.3. The development of products meeting specific social and environmental challenges
Life reinsurance activities Reducing the protection gap is also an area developed by the Group's Life business unit as part of the “Quantum Leap” strategic plan. To achieve that goal, the Group is leveraging on multiple partnerships with academics and innovative companies, which will allow to provide a more inclusive insurance, to promote healthier lifestyles, and to make the insurance buying process easier and faster thanks to the use of digital and new technologies. These products have been developed thanks to the expertise developed by SCOR Global Life’s R&D centers and based on its multiple partnerships with academics and research institutions (on the cardio-vascular risks, Alzheimer’s, etc.). All these R&D efforts are then translated into a deeper underwriting expertise and shared with SCOR Global Life’s clients, enabling to expand insurability, and provide peace-of-mind to insured people through tailoredmade solutions: • the development of solutions for under-insured population: for instance, SCOR has co-developed a mortality cover for cancer survivors (Hong Kong), a digital offering for people sick with type-II diabetes (Hong Kong). More recently, a new pricing tool was made available to SCOR’s clients to insure women who recovered from breast cancer and who want to get back to a normal life; this progress is due to the use of machine learning on large public database widely supported by the academic world; • the development of solutions to expand insurability: an innovative solutions was developed in Spain as part of a family cover, offering congenital coverage (e.g. Down’s syndrome) for newborns, which was developed in close collaboration with a Spanish insurer and required a specific piece of research on congenital diseases; • the promotion of healthy lifestyles: as an example, SCOR has developed the Biological Age Model (BAM) that encourages people to be active thus reducing some risks related to contemporary lifestyles; • the development of solutions to support people to live longer and healthier – as an example, SCOR made a recent investment into BioSerenity, a French medical solutions company that aims to optimize the patient pathways in several chronic diseases; • and lastly, one of the objectives of the strategic plan for SCOR is to develop solutions that accelerate a digital, easier and faster purchasing experience with better value for the consumer. For instance, SCOR recently developed a fully digital health product in China.
(1) Difference between economic losses in a catastrophe-hit country and what is actually covered by insurance.
In addition, the Group has initiated a program to reduce the use of single-use plastics in several of its offices, particularly the largest in terms of staff and size, such as Paris, London, Cologne, Zurich and Singapore.
Whether in its extension or relocation projects, the Group integrates environmental considerations when selecting its offices, notably office buildings it intends to acquire. The Group favors sustainable or eco-responsible construction. SCOR is particularly attentive to obtaining energy efficiency and environmental certifications, whether for design and construction or for renovation. These considerations may be subject to a tradeoff with other constraints such as the location of the office or its availability.
The Group consumed close to 17.6 GWhs in 2019 to operate the premises occupied by its staff (lighting, heating, cooling – including data centers – and power for operating various equipment). Most of the energy consumed by the Group’s sites that were encompassed in the scope of the environmental survey comes from electricity (65%). The share of renewable now accounts for 67% of electricity purchases compared with 31% in 2015.
As part of its “Quantum Leap” strategic plan, SCOR has raised its reduction objective in terms of carbon intensity per employee under the first two scopes of the GHG protocol to 30% by the end of the plan. (compared to the previous objective of 15% by 2020). At the end of 2019, the Group’s carbon intensity reduction reached 34.7%. In addition, the Group, which is committed to offsetting all its emissions measured under this section, submitted three portfolios of offset projects to a staff vote. The Group’s employees voted to support two projects designed to preserve forest environments in Brazil and Ethiopia. The Group will have offset all its 2019 emissions upon delivery of the carbon credits generated by these two projects. These carbon credits are not deducted from the greenhouse gas emissions reported below.
(1) The coverage rates correspond to the number of employees working in the locations surveyed divided by the number of employees working in the entities which are fully integrated in the financial statements. Further information on the scope of reporting can be found in Section 6.6.3 of this declaration. (2) Of which electricity (65%), fuel and gas (13%), other heating sources (5%) and other cooling sources (17%).
The digitalization of the economy is a source of opportunities for the Group, both because of the accompanying need for protection and because of the contribution of new technologies in terms of access to insurance and reduction of the protection gap.
Aware of the expectations of its stakeholders in terms of IT security and internal expertise, the Group has developed a security program against cyber risks and strives to offer its employees the means to develop their digital skills.
6.5.1. ACCOMPANYING THE DIGITALIZATION OF THE ECONOMY AND REDUCING THE PROTECTION GAP
In addition to the new risks that come with the digitalization of the economy, including cyber risk, for which SCOR has developed its own expertise and an underwriting policy proportionate to its risk appetite, new technologies and the processing of the data they enable, offer new possibilities for reducing the protection gap.
6.5.2. CYBER SECURITY, A PRIORITY IN THE DIGITAL AGE Aware of the expectations of its clients and other partners in terms of protection against cyber risks and their consequences, SCOR has developed an IT security policy, supplemented by guidelines and procedures which are implemented through various levels of the organization. This security program against cyber incidents was developed by the IT security team, under the responsibility of the Group's Chief Information Security Officer (CISO), with the assistance of the rest of the IT Department.
The SCOR Group Information Security Policy sets minimum requirements that may be adjusted if further and/or more stringent requirements must be observed due to local applicable laws or regulations, Comprehensive and readily available, this policy is based on three key principles: • support the Group and its development; • defend the Group; • promote responsible information security behavior.
In this regard, the Group regularly raises awareness among its staff through security alerts and cybersecurity training sessions. In addition, the legal and compliance training programs referred to in Section 6.3.2 of this statement include data protection aspects.
Developed by combining best-in class international standards such as NIST, Cobit 5, and the IEC's Critical Security Controls to assess cyber risk mitigation measures, the framework specifies procedures for controlling the security of information systems.
Remark (158 employees), MRM (4 employees), ESSOR (79 employees), Château Mondot SAS (19 employees), Les Belles Perdrix de Troplong Mondot (9 employees) and Coriolis (7 employees). These companies are excluded because of the specific nature of their activities, or their organization, or the recent integration into the scope of consolidation. Associates and affiliates are excluded from the scope (see Section 4.6.2.2 – Notes to the consolidated financial statements and Note 22 – Related party transactions).
The following categories of information, referred to in III of Article L. 225-102-1 of the French Commercial Code, have been excluded because of their low relevance to the activities developed by the Group: • circular economy; • working towards eliminating food waste; • working towards safe, nutritious and sufficient food; • animal welfare; • responsible, equitable and sustainable food.
6.6.3. ENVIRONMENTAL DATA: METHODOLOGY The environmental data presented in Section 6.4.3 – Group Operations covers the Group as defined in Section 6.6.1 – Scope and correspondence table. These companies account for 91.8% of employees fully consolidated in the financial statements.
6.6.3.1. Scope of data collection Data was collected on a target scope including all active Group sites with more than 30 employees for all the reporting indicators. This target scope accounts for 84.1% of employees (as of December 31, 2019) of legal entities fully consolidated in the financial statements.
The threshold of 30 employees is not applicable for the calculation of the environmental impact due to air travel. Data relating to the use of air travel covers 91.8% of globally consolidated employees due to the exceptions stipulated in Section 6 – Scope and correspondence table, and 99.9% of them were able to report on this indicator.
Consolidated data covers a 12-month period, generally from 6.6.3.2. Limitations Due to the unavailability of data for the full year for some of the locations included in the environmental report, an extrapolation has been carried out to estimate missing consumption data. Moreover, depending on the surface area occupied, the information collected entails different parameters, in particular with regards to the consolidation or not of the energy consumption derived from the use of services located in shared areas of the building. Where SCOR is the sole or main tenant (i.e. more than 50% of the surface area occupied by the Group’s staff), the data includes SCOR’s share of the energy consumption for the shared area. Below this threshold, this share is not included in the data collected.
Company’s responsibility The Board of Directors is responsible for establishing a Declaration which is in accordance with the legal provisions and regulations, including a presentation of the business model, a description of the main extra-financial risks, a presentation of the policies applied regarding these risks along with the results of these policies, including key performance indicators.
Responsibility of the independent third party On the basis of our work, our responsibility is to formulate a limited assurance on: • the compliance of the Declaration with the provisions of article R. 225-105 of the Commercial Code; • the reliability of the information provided in accordance with the 3° of the I and of the II of article R. 225-105 of the Commercial Code, that is the results of the policies, including the key performance indicators, and the actions, related to the main risks, hereinafter the “Information”.
However, it is not our responsibility to attest: • the compliance with other legal dispositions where appropriate, in particular those included in law n° 2016-1691, dated December 9, 2016, said Sapin II (fight against corruption) and tax evasion; • the compliance of products and services regarding the applicable legal provisions and regulations.
We lead a dozen of interviews with people in charge of preparing the Declaration, representing the General Secretariat, the Human Resources Direction and the Compliance Direction.
Conclusion Based on the work performed, no material misstatement has come to our attention that causes us to believe that, the extra-financial performance declaration in accordance with the applicable legal provisions and regulations and that the Information, taken as a whole, is not presented fairly in accordance with the Guidelines.
Off-balance sheet commitments 3095. Notes to the corporate financial statements 3346. Certification of audit of historical financial information
TO THE MANAGEMENT REPORT OF THE COMPANY AND THE GROUP – CORRESPONDENCE TABLE
4. 347Consequences of respect of human rights, the fight against corruption and fiscal evasion
The Group has identified the following categories of risks, as described in Section 3 – Risk factors and Risk Management Mechanisms: • strategic risks; • underwriting risks related to the Non-Life and Life reinsurance business; • market risks; • credit risks; • liquidity risks; • operational risks.
The structure of this Section is based on these components corresponding to the framework implemented by SCOR: • components 1 and 2 are addressed in the “Internal environment ” and “Setting of objectives” sections; • components 3, 4 and 5 are described in the Section “Identification and assessment of risks”; • components 6, 7, and 8 are respectively addressed in the “Principal activities and participants of risk control”, “Information and communication”, and “Monitoring of the risk management and internal control system” sections; • the elements concerning accounting and financial reporting are separate and are presented in the last section.
The Group is organized around three engines comprising two main reinsurance businesses and one asset management activity: SCOR Global P&C, SCOR Global Life and SCOR Global Investments.
Accounting • Solvency reporting • Group Consolidation • IFRS Center of
Planning & Analysis Asset management company (SCOR IP SE) Functional departments/Units • Market risk management • Operational Risks,
SCOR Group companies and employees share a common understanding of the Group’s standards and that they work in compliance with these standards. When approved, these documents are all made available to employees on the SCOR intranet on a dedicated page.
(1) Based on a 5-year rolling average of 5-year risk-free rates. (2) This solvency target is unchanged from that under the previous strategic plan, “Vision in Action”.
Different techniques and initiatives for identifying and assessing risks have been implemented to analyze risks from different angles and to deal with them in an exhaustive manner. These include: • a risk information process: every quarter, the Group Risk Committee reviews the "Group Risk Dashboard" which describes and assesses the major risks the Group is exposed to. This report assembles various risk assessments from different identification and assessment processes for all risk categories; • a process for the monitoring of risk exposures compared to risk tolerances, i.e. the limits established in order to ensure that the Group’s risk profile remains aligned with the risk level validated by SCOR SE’s Board of Directors. The Group uses various risk measures to define these exposures, which are measured based on either model outputs and/or expert opinions, depending on the technical constraints and the level of information available. This includes: — a “risk driver” system that enables the Group to manage the annual aggregate exposure to each major risk. The objective is to avoid overconcentration of risk and hence maximize diversification benefits. For the majority of SCOR’s risk drivers, the amount of post-tax retained annual exposure per main risk driver (with a probability of 1 in 200 years) is limited to a percentage of the Group’s available capital. Other risk drivers have limits expressed in terms of reduction in the Group’s solvency ratio or duration for invested assets,
— sub-limits for invested assets, — limits per risk which are set in the underwriting and investment guidelines; • “footprint scenarios”, which aim to review and assess the potential impact of selected deterministic scenarios on the Group. This process provides an alternative perspective on the Group’s exposures. Working groups dedicated to specific subjects are composed of experts across the Group and coordinated by the Group Risk Management Department with the support of the business units Chief Risk Officers. These groups perform quantitative studies which are summarized in specific reports; • an Emerging Risks process which is part of SCOR’s ERM Framework and is linked to other risk management methods, such as the use of “footprint scenarios”. Potential emerging risks are identified and Individual risk assessments are carried out by experts from SCOR Global P&C, SCOR Global Life and the Group functions. Significant emerging risks are then reported to SCOR’s Executive Management and Board. SCOR, as a member of the CRO Forum, also actively participates and contributes to the CRO Forum Emerging Risks Initiative alongside other major insurers and reinsurers.
Because of its activities, SCOR is exposed to many risks: reinsurance related risks, market risks and other risks (e.g. liquidity, rating). These risks are detailed in Section 3 – Risk factors and Risk Management Mechanisms of this Universal Registration Document. These activities rely on the control mechanisms including adequate reporting mechanisms to the main governance bodies throughout the Group (see paragraph 1.1).
• The budgetary control system for general expenses is organized and managed by the Group Cost Control and Budgeting Department.
• The Group Financial Planning & Analysis Department establishes an annual financial plan for the Group by company and monitors actual data in relation to this plan on a quarterly basis. The purpose of the plan is to enable effective management and control of the business to achieve the strategic targets set by the Group. Detailed annual financial plans are developed by the business engines at a company level, by geographic market and line of business, and incorporated into a Group-wide plan against which an in-depth analysis of the actual quarterly results is conducted. The results and analyses are presented to the Executive Committee every quarter, highlighting variations compared with expectations to allow identification of appropriate management actions. The plan, and the quarterly results against the plan, are additionally reported in detail to the Board.
Risk Management • The Group Risk Management Department’s primary focus is to develop and manage ERM mechanisms, and to promote ERM concepts throughout the Group, in addition to providing risk management challenge and support for reinsurance underwriting and asset management.
• The Group Actuarial Department provides quarterly approval on the adequacy of the reserves held for both the Life and P&C business units. In the context of Solvency II, the Group Actuarial Department provides an opinion on the Technical Provisions, the underwriting policy and the retrocession arrangements, validates the Group’s Internal Model and contributes to the effective implementation of risk management throughout the Group.
The operating and control procedures concerning underwriting, pricing, administration of reinsurance contracts and claims management are validated by SCOR Global P&C and SCOR Global Life and are applied to all underwriting segments of the company in question, regardless of location.
Governance and principles The Group has harmonized the principles governing the management of its assets based on three documents: • ”SCOR Group Policy on Invested Assets” defines the Group’s policy and governance in terms of asset management; • “SCOR Sustainable Investing Policy” defines the main orientations of the sustainability approach of the Group in its asset management; • “Group Investment Guidelines” determines the limits for concentration risk and of exposure to different asset classes as well as the conditions in which SCOR Global Investments will implement the Group investment policy as defined by the Group Investment Committee.
The Group Investment Committee meets at least once every quarter. Its role is to define the investment strategy on a Group level and to supervise the implementation of this strategy regarding the regulatory and contractual constraints. At local level, local investment committees supervise the implementation of the investment strategy relating to their legal entities as well as the 296 SCOR Universal Registration Document 2019
• creates value for its shareholders in line with the objectives set out in the strategic plan,
While: • preserving the Group liquidity and level of solvency; • protecting the capital; • allowing the Group to operate on a day-to-day basis as well as over the long term; • contributing to the well-being and resilience of society; • complying with legal entities investment regulations, risk appetites and regulatory capital requirements (level of capital and type of admissible assets), and Group and local investment guidelines; • implementing strict assets and liabilities management and in accordance with policy congruence on currency.
SCOR has increased the use of collaborative sites enabling it to share and retain archived documents or to collect and centralize information pertaining to certain subjects (e.g. emerging risks) from various sources.
SCOR is implementing regular and dedicated ad-hoc Training and Development programs across the Group through SCOR University, aimed at maintaining and developing the skills of all SCOR’s staff in accordance with the strategy and the objectives of the Group.
In addition, SCOR implements dedicated risk management mechanisms in the three business units in order to evaluate the appropriateness and effectiveness of controls and propose riskmanagement and mitigation measures. See Section 3.3 – Underwriting risks related to the Life and P&C reinsurance businesses for further details on these risk management mechanisms.
When Group Internal Audit concludes that the management has accepted a level of risk that may be unacceptable to the organization, it must discuss the matter with the Executive Committee. If the Head of Group Internal Audit determines that 298 SCOR Universal Registration Document 2019
The Audit Committee receives a report on the Internal Audit activities every quarter.
Furthermore, the Finance Department manages the “internal management representation letters” process, detailed in Section 7 on financial reporting, which also incorporates certain points relative to internal control of accounting and financial reporting.
A Conclusion on the control procedures implemented INTERNAL CONTROL AND RISK MANAGEMENT PROCEDURES
Since 2015, virtually all of SCOR’s entities have a single General Ledger (SAP) in place, bringing the following advantages: • the use of a single chart of accounts (with minimum local specificities, aligned with existing source systems); • one system for one IT solution; • streamlined, integrated and standardized processes across the
In addition, and without calling into question the implementation of internal control rules by SCOR and its managers, Executive Management requests, within the framework of the reporting and quarterly consolidation procedure, that all local managers of Group entities, as well as Senior Managers of SCOR Global P&C, of SCOR Global Life and of the Group Finance Department for certain Group functions such as tax and consolidation, prepare a specific quarterly statement for the Chairman and Chief Executive Officer, and for the Group Chief Financial Officer in internal management representation letters (IMRL) as to the reliability and fair presentation of the financial statements of the entities they manage and the effectiveness of the internal controls. Management of the SCOR Global P&C and SCOR Global Life business units review the individual entity level internal representation letters and submit a business unit letter. The results of all internal management representation letters are analyzed and monitored by a committee including the General Secretary of SCOR, the Group General Counsel, the Group Chief Accounting Officer and the Head of the IFRS Center of Excellence. The key points are communicated to the Group Chief Financial Officer and the Group Chief Executive Officer, and to the Internal Audit Department.
• I confirm, to the best of my knowledge, that the financial statements have been drawn up in accordance with applicable accounting standards and accurately show the position of the assets and liabilities, the financial position and the net income or loss of the Company and of all businesses and firms included within the scope of the consolidated group, and that the management report, mentioned in Appendix E of this Universal
C Significant events of the year UNCONSOLIDATED CORPORATE FINANCIAL STATEMENTS OF SCOR SE
The difference between net assets of SGL SE contributed (EUR 471 million) and the net book value of equity interests (EUR 851 million) resulted in a merger profit of EUR 380 million. The portion of the merger profit corresponding to the results accumulated by SGL SE since its inception and not distributed to the Company has been recorded as a financial result for EUR 312 million. The residual portion has been recorded in equity for EUR 68 million.
The difference between net assets of SGP&C SE contributed (EUR 1,615 million) and the net book value of equity interests (EUR 2,333 million) resulted in a merger profit of EUR 718 million. The portion of the merger profit corresponding to the results accumulated by SGP&C SE since its inception and not distributed to the Company has been recorded as a financial result for EUR 703 million. The residual portion has been recorded in equity for EUR 15 million.
Presentation of 2019 financial statements As the comparative balance sheet as at December 31, 2018 does not include the contributions of SGL SE, SGP&C SE and SHS to the Company, the impacts of the merger after elimination of internal operations between the three companies are presented in a specific column "2019 mergers contributions" of the various financial tables presented in the appendix.
However, it appears that the separate identification of the contribution of the activities of the three companies absorbed into the Company's income statement for the year ended December 31, 2019 and, therefore, the impact of the mergers on the Company's income statement (in addition to the impact of the portion of the merger profit that is already partially identified as a financial result) would not establish consistent comparability. Indeed, the four companies having merged in 2019, a number of transactions carried out in 2018 within the four companies no longer need to be (50% quota-share retrocessions concluded between the Company, SGL SE and SGP&C SE, internal recharges of costs such as overheads, interest on inter-company loans, dividends).
Capital increase in SCOR Investment Partners SCOR SE has increased its capital into SCOR Investment Partners by EUR 13 million.
Dividend payment On May 2, 2019, SCOR SE paid EUR 325 million in dividends to its shareholders (EUR 312 million in 2018).
New cat bond ATLAS Capital UK 2019 PLC SCOR has sponsored a new catastrophe bond (“cat bond”), Atlas Capital UK 2019 PLC, which will provide the Group with multi-year risk transfer capacity of USD 250 million to protect itself against named storms in the U.S., earthquakes in the U.S. and Canada, and windstorms in Europe. The risk period for Atlas Capital UK 2019 will run from June 1, 2019, to May 31, 2023.
The transaction has been approved by the Prudential Regulatory Authority (PRA) and the UK regulatory authorities.
Issuance of USD 125 million in undated subordinated notes On December 17, 2019, SCOR SE issued a perpetual deeply subordinated note by USD 125 million, redeemable every five years from March 13, 2029. The coupon was set at 5.25% (until March 13, 2029) and will reset every 5 years thereafter at the prevailing 5-year U.S. Treasury yield plus 2.37% per annum.
Capital decrease in the Fiducie SCOR SE made a withdrawal of USD 19.5 million (EUR 13.7 million) from the Fiducie trust as the result of a reduction in its commitments towards Aegon.
Call options In order to fulfill commitments to beneficiaries of free share allocations, on May 28, 2019, SCOR SE signed a call option agreement with BNPP allowing SCOR SE to buy its own shares after payment of a predefined exercise price. Exercise dates for this option run from January 6, 2020 to January 6, 2025. The total number of options is 3,392,108. A premium of EUR 28 million was paid in 2019 and is recorded in other assets.
New contingent capital On December 3, 2019, SCOR SE launched a new 3-year contingent capital facility with J. P. Morgan AG for EUR 300 million and issued 9,350,025 warrants in favor of JP Morgan AG. This equity line facility replaces, as of January 1, 2020, the previous contingent capital facility which came to an end on December 31, 2019.
Mangrove Insurance PCC Limited - Quota Share Longevity Retrocession Agreement On December 18, 2019, as part of its policy of diversifying its capital protection tools, SCOR entered into a structured retrocession transaction with Mangrove Insurance PCC Limited, which provides the Group with a multi-year source of retrocessional capacity.
Depreciation, amortization and impairment 658713Intangible assets 658(55)5.2.2 3 286623626Real estate investments 373(3)
Other underwriting reserves (Non-Life) 12- 42626 2,192Accounts receivable from reinsurance transactions 204205Other accounts receivable 79(1) 167 373433Other assets 145(60)5.2.2 431 8491151Property, plant and equipment 14(60)
2.8 & 5.2.9 234492492Accrued income and deferred expenses 188304141Due and accrued interests on rental income 7- - 153335335Deferred acquisition costs – assumed (Non-Life) 157 - ---Reinsurance estimates – assumed 24 - 51116116Other accruals -- ---Bond redemption premiums
Cash deposits received from retrocessionaires 2,0805.2.5 & 5.2.9 4201,051 3,5341,085 (567)Liabilities arising from reinsurance operations -Convertible bond issue -- - -Amounts owed to credit institutions - - -Negotiable debt securities issued by the Company 210 2Other loans, deposits and guarantees received 61 455 149Other liabilities 140
Deferred income and accrued expenses 1215.2.8 & 5.2.9 66190 57142 62Deferred commissions received from reinsurers (Non-Life)
(1) Data for financial years 2019 and 2018 are before appropriation of net income. * Mergers contributions from SGL SE, SGPC SE and SHS in 2019 (after eliminations of internal operations).
(220) 179 (41) 2Claims reserve expenses 72415Expenses for increasing risk reserves (161)(176) 506Acquisition and administrative expenses (789)(1,295) (420)
Other underwriting expenses (239)(239) (205)Change in equalization reserves 2222 24- -- --Change in liquidity reserves 710 272(230)NON-LIFE UNDERWRITING INCOME (LOSS) 480 2019 net transactions 2018 net transactionsIn EUR millions
Realized gains from investments 42 - 42 - - --Unit-linked policy adjustments (capital gain) 5 --Other underwriting income 5
(550)300Claims expenses (1,541)(1,841) Benefits and costs paid (1,764) 290 (1,474) (807)
-Unit-linked policy adjustments (capital loss) -- - -Other underwriting expenses (123)(123) (57)
In EUR millions 2019 net transactions 2018 net transactions NON-UNDERWRITING ACCOUNT
Other investment expenses (20) (114) Realized losses from investments (165) (95)
(507) (269)Gains from transferred investments Other non-underwriting income - Other non-underwriting expenses - (1) Non-recurring income/(loss) (10) (1)
C Off-balance sheet commitments UNCONSOLIDATED CORPORATE FINANCIAL STATEMENTS OF SCOR SE
Related companiesIn EUR millions Other 2019 2019 of which mergers contributions after eliminations* 2018 - 677 677 -Rate and currency swaps (cross-currency swaps) 550 -Letters of credit (unused portion) 197- 155 155 3 -Endorsements and sureties 5- 3 - 141 141 300Securities pledged from ceding companies 3518 -Endorsements, sureties and credit guarantees given 17 40 --- -Investment securities and assets acquired with commitment for resale 282 179Other commitments on investment securities, assets or revenues 797 7001,079 617 -Rate and currency swaps (cross-currency swaps) 504- 617 4,892 18,40513,9039,011 (2,557)Other commitments given 43 2,521 2,564 2,619Securities pledged to ceding companies 11 - 311 311 216Marketable securities pledged to financial institutions 1, 306Foreign currency forward sales 6762 2,043 2,045 944- 923COLLATERAL RECEIVED FROM RETROCESSIONAIRES 944 - * Mergers contributions from SCOR Global Life, SCOR Global P&C and SCOR Holding Switzerland.
Various financial institutions provide sureties for SCOR SE in the form of letters of credit to collateralize SCOR SE’s technical liabilities. The total amount that benefits to cedents, not included in the table above, is EUR 755 million, of which EUR 664 million coming from the merger as at December 31, 2019 (EUR 4 million in 2018).
5.1.11. 313Principles relating to the presentation of the financial statements Derivatives instruments received and given
323Gross underwriting reserves5.2.7. 5.2.8. 323Accrued income and deferred expenses Transactions with subsidiaries, affiliates and others 3245.2.9.
At each reporting date, if the carrying amount of an investment in affiliates is below its historical cost, an analysis is conducted in order to determine if an impairment loss should be recorded. The assumptions and outcome of this analysis, conducted as at December 31, 2019 are detailed in 5.2.1.
Equity securities and other variable-income securities Equity securities and other variable-income securities are recorded at cost, excluding expenses. The realizable value as at the reporting date is determined according to regulation No. 2015-11 dated November 26, 2015 of the French standard-setter (Autorité des
Normes Comptables – ANC). For listed securities, it corresponds to the share price at the reporting date. For unlisted securities, fair value is based on net assets.
Cash deposited with ceding companies Within the framework of reinsurance treaties, the ceding companies can request cash deposits to guarantee the technical provisions ceded to the reinsurer. The receivables representing those cash deposits are recorded in the item “Cash deposited with ceding companies” on the asset side of the balance sheet or in the item “Investments in associates” if the ceding company is an associate company, according to the Reinsurance accounting plan (Plan Comptable Assurance). The remuneration of the cash deposits is contractually stipulated and at each closing date accrued interest on the cash deposited with ceding companies is recorded in the item « Accounts receivable from reinsurance transactions » on the asset side of the balance sheet.
Provision for liquidity risk on underwriting commitments (Provision pour risque d’exigibilité) A liquidity risk reserve is recorded for the possible need to liquidate assets in order to make immediate payment on major claims. This reserve is included in underwriting reserves and is recorded when the total net book value of investments assets, excluding bonds and other fixed income securities (investments valued according to Article R. 343-9 of the French Insurance Code), exceeds their fair value. Fair value corresponds to the average price calculated over the last thirty days preceding the day of the inventory or, failing that, the market price for listed shares, net asset value for unlisted shares and net realizable value for investments in subsidiaries as described in 5.2.1.
The Company records all liabilities relating to employee benefits on its balance sheet: • retirement indemnities: employees benefit from additional retirement benefits paid out in the form of lump sum capital upon retirement. The evaluation of these indemnities depends on several factors such as age, years of service and salary; • senior management pension obligations (Article 39): the valuation of the reserve for senior management pension obligations is based on the following actuarial assumptions: — discount rate: 0.56%, defined with respect to high quality long-term corporate bonds with maturities consistent with the duration of the obligations evaluated,
— updated mortality tables for the various plans, with turnover data for managers and salary increases; • long-term service awards: CNC (“Conseil National de la Comptabilité”) Opinion No. 2004-05 dated March 25, 2004 requires the recognition of a provision for long-term service awards as from 2004.
Pursuant to the provisions of Article 152-1 of regulation No. 201511 dated November 26, 2015 of the French standard-setter (Autorité des Normes Comptables – ANC), accounts not yet received from ceding companies at the end of the financial year are estimated, in order to better reflect SCOR’s reinsurance commitments in the financial statements. This method applies to most contracts underwritten during the current financial year and to prior-year contracts where relevant. Estimates of premiums and commissions not yet received from ceding companies at period end are recorded in the income statement with a consideration in the balance sheet under “Accounts receivable from reinsurance transactions”.
Retrocession The retroceded portion of assumed reinsurance, determined in accordance with the treaty terms, is recorded separately from the assumed reinsurance transaction.
Portfolio withdrawals and portfolio entries are recorded as outgoing/incoming premium/claim portfolios that offset the cancellation of underwriting reserves pertaining to those commitments.
The following is applicable: • outgoing or incoming premium portfolios in consideration of the cancellation of unearned premium reserves. These portfolio transfers are included in premiums in the income statement.
Life business The mathematical reserves for Life reinsurance are submitted by ceding companies and completed by estimates calculated by Life actuaries using statistics based on historical data and information provided by underwriters.
The provision for increasing risk is recorded in the item “Other underwriting reserves” as liabilities on the balance sheet.
The costs associated with the acquisition of new Non-Life contracts, essentially commissions, are recorded as assets within the limits of contract profitability. They are amortized over the period of earned premiums.
The acquisition costs of Life reinsurance operations are usually not deferred.
The objective of the “Net translation adjustments” balance sheet account is to ensure symmetrical treatment with the accounting of the exchange difference generated by the underlying instrument: • when the derivative is linked to a structural element, the “Net translation adjustments” account remains on the balance sheet until the structural element is realized; • when the derivative relates to an investment strategy, the “Net translation adjustments” account remains on the balance sheet until the investment is made; • when the derivative relates to an operational item, in the context of a strategic divestiture or investment, or the derivative is linked to a non-structural financial liability, the “Net translation adjustments” account is reclassified to income.
Life/Non-Life In the corporate income statement of SCOR SE under French GAAP, the Non-Life segment encompasses personal accident/ sickness reinsurance in accordance with Article 410-1 and followings of regulation No. 2015-11 dated November 26, 2015 of the French standard-setter (Autorité des Normes Comptables – ANC). Personal accident/sickness reinsurance is classified in the Life segment in the consolidated financial statements under IFRS.