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 division. 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 2017 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.
The annual goodwill impairment tests conducted show recoverable amounts in excess of the respective total carrying amounts for the financial years ended December 31, 2018, 2017 and 2016. Consequently, no goodwill impairment charges were recognized.
Goodwill (carrying amount as at December 31, 2018: EUR 71 million) and trademark (carrying amount as at December 31, 2018: EUR 136 million, refer to Note 9.1. – Other intangible assets) of the cash generating unit Château Mondot have been tested for impairment at year end 2018, using the value in use approach. The recoverable amount of the cash generating unit has been valued on the basis of the present value of forecast cash flows determined in the context of a long-term business plan to reflect the wine industry specificities and notably the length of the production and distribution cycles of a vintage.
The annual growth rate applied beyond the business plan horizon is 1.50%. Future cash flows after taking into consideration tax have been discounted using a post-tax discount rate of 5.0%. A standard CAPM (Capital Asset Pricing Model) approach is used to determine the adequate weighted average cost of capital (WACC) of Chateau Mondot. Based on these assumptions no impairment charge has been recognized.
VOBA is amortized over the lifetime of the underlying reinsurance portfolio based on schedules derived from the run-off patterns of expected profits calculated for future closing dates. Cash flow projections for the acquired portfolio and non-economic assumptions are assessed regularly and updated in the actuarial calculations. The review of cash flow projections recognizes changes in the portfolio from special events like withdrawals or recaptures of treaties. The subsequent measurement of VOBA is consistent with the measurement of the related underwriting reserves. VOBA amortization schedules are adjusted consistently. VOBA is subject to impairment testing performed via the liability adequacy test.
The IFRS 4 liability adequacy testing, which includes VOBA recoverability, showed no indicators of impairment for the financial years ended December 31, 2018, 2017 and 2016.
The Group’s insurance business investments and cash by nature and level of valuation technique are presented below: In EUR millions
Investments at fair value through income 1,245 266 979 - -
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, 2018, the carrying amount of assets under management eliminated in “Other liabilities” for consolidation purposes was EUR 2,439 million (December 31, 2017: EUR 2,210 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 195 million as at December 31, 2018 (December 31, 2017: EUR 145 million).
NOTE 7.2. ACCOUNTING PRINCIPLES FOR VALUATION AND IMPAIRMENT OF FINANCIAL ASSETS
Included in this level are financial instruments for which quoted prices or rates represent actual and regularly occurring transactions that are available from a stock exchange, dealer or broker. Such instruments comprise listed equities, government, covered and agency bonds, as well as short-term investments. For investments in closed- or open-ended funds, fund shares and units and derivative financial instruments (including real estate, interest rate and mortality swaps, options etc.), fair value is determined by reference to published bid values.
◆ Level 2: models prepared by internal and external experts using observable market inputs.
For securities not considered to be traded on an active and liquid market, especially investments in closed-end funds, SCOR performs a line-by-line analysis based on the expected lifecycle of these instruments and their business model. A security is considered impaired if: ◆ there is a magnitude of decline of more than 50%; or
NOTE 7.3. MOVEMENTS IN FINANCIAL INSTRUMENTS CATEGORIZED WITHIN LEVEL 3 OF THE FAIR VALUE HIERARCHY
Income and expense recognized in statement of income - - - (25)(1) (25)
(1) Movements in derivative instruments are due to the change in fair value of las IX Series 2015-1 and Atlas IX Series 2016-1 derivatives recorded in other operating expenses, and of the contingent capital facility, recorded in investment income.
Income and expense recognized in statement of income - - - (38)(1) (38)
Every five years, each investment property is subject to an in-depth analysis of its market value by an independent appraiser with recent experience in the location and category of the investment property assessed and approved by the domestic regulators (Autorité de Contrôle Prudentiel et de Résolution in France). Annually, the appraised market value is updated by the same independent appraiser according to changes in the local market and/or the property’s rental and technical situation.
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). The movements in real estate investments are analyzed as follows: In EUR millions Real estate investments Finance leases Total
Cumulative depreciation and impairment at December 31, 2017 (124) - (124)
In 2017, increase in real estate investments related to the acquisition of a new building, currently under construction and renovation work on existing buildings for a total of EUR 80 million. Disposals related to sale of one building, resulting in a gain on sale of EUR 192 million.
The fair value of real estate investments is categorized within level 3. The valuation techniques and unobservable inputs were as follows as at December 31, 2018 and 2017: Real estate
As part of its real estate investment activities described above, SCOR leases its investment property. The leases generally conform to the local market conditions and have annual indexation clauses for the rental payments. The estimated minimum future rental income is as follows: In EUR millions
The rental income related to investment property was EUR 42 million in 2018 (2017: EUR 48 million) and the related direct operating expenses amounted to EUR 9 million (2017: EUR 14 million).
As part of its real estate investment activities the Group committed to purchasing several properties through contracts of sale before completion. As at December 31, 2018, SCOR has off balance sheet commitments of EUR 68 million related to such contracts (December 31, 2017: EUR 87 million).
NOTE 7.5. BREAKDOWN OF SECURITIES AVAILABLE FOR SALE AND AT FAIR VALUE THROUGH INCOME
TOTAL AVAILABLE FOR SALE AND FAIR VALUE THROUGH INCOME 18,856 (336) 18,246 211
As at December 2018, revaluation reserves of EUR 145 million (as at December 2017: EUR 156 million) also include: ◆ tax effects on available for sale securities net unrealized gains and losses of EUR 66 million (2017: EUR (48) million); ◆ net of tax foreign exchange gains and losses of EUR 7 million (2017: EUR (10) million); ◆ net of tax shadow accounting impacts of EUR 106 million (2017: EUR 7 million); ◆ elimination of assets under management for external clients net unrealized gains and losses in other liabilities of EUR 16 million (2017: (5) EUR million); ◆ investments in associates net unrealized gains and losses of EUR 0 million (2017: EUR 1 million); ◆ net of tax unrealized gains and losses relating to funds withheld of EUR (4) million (2017: EUR 0 million).
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, 2018 As at December 31, 2017 in 2018
As at December 31, 2018, the decrease in loans and receivables of EUR 321 million compared to year-end 2017 is mainly due to the decrease in funds held by ceding companies (mostly linked to Life business), and one early loan redemption received by SCOR SE.
A material embedded derivative is separated from the host contract and is recognized as a derivative when: ◆ its economic features and risks are not closely linked to the economic features of the host contract; ◆ the embedded instrument has the same conditions as a separate derivative instrument; and
SCOR was advised in 2018 of a recovery of USD 26 million (EUR 23 million) with regards to Atlas IX 2015-1, which has been recognized in other operating income. See Note 2.3 – Information related to unconsolidated structures entities.
Remaining outstanding balances for the derivative asset and the related future interest payable were derecognized with no impact to the statement of income at the reporting date as no other rights and obligations under the transaction existed.
The changes in fair value through income and the early redemption payment expenses and other current administration expenses were recognized as other operating income and other operating expenses.
SCOR has entered into interest rates swaps to cover its exposure to financial liabilities with variable interest rates relating to real estate investments. The fair value of these swaps is obtained from the banking counterparty and is based on market inputs. As part of the usual analysis of accounts processes these third-party valuations are checked for reasonableness against internal models. The total notional amount relating to these swaps is EUR 98 million as at December 31, 2018 (December 31, 2017: EUR 263 million). Net interest paid under these swaps amounted to EUR 4 million in 2018 (2017: EUR 7 million).
Cash-flow hedge accounting is applied when the hedging relationship is determined to be highly effective throughout the term of the hedge. Effectiveness testing is performed at the inception of the hedging relationship and at each reporting date throughout the term of the hedge relationship. Where hedge effectiveness is not attained, the hedging instrument (interest rate swap) is measured at fair value through income from the date the hedge relationship ceases to be effective. As at December 31, 2018, the fair value of the interest rate swaps was a liability of EUR 1 million (December 31, 2017: liability of EUR 6 million). The amount recognized in other comprehensive income in 2018 is EUR 4 million (2017: EUR 7 million). The amount recognized in the statement of income in 2018 is EUR 1 million (2017: not material).
In order to hedge the foreign exchange risk associated with debt issued in USD (USD 625 million issued in 2018, see Note 13 – Financial debt), SCOR entered into a new cross-currency swap which exchanges principal and coupons on the notes from USD into EUR. The swap matures on March 13, 2029.
SCOR repaid during 2018 perpetual debt issued in 2012 (CHF 315 million) and 2013 (CHF 250 million). The related cross currency swaps matured.
Amounts related to this transaction are recorded in the balance sheet as assets, recognized at fair value through income, and as other liabilities representing the amount of commission payable.
In the absence of observable market inputs and parameters to reliably determine a fair value for these derivative instruments, the best measure of fair value is the expected cost of the instrument, corresponding to the total annual fees payable under the arrangement net of the warrants’ subscription amounts received, amortized over the life of the instrument. These assets are disclosed as level 3 investments within insurance business investments (see Note 7.1 above).
Gross receivables from ceding companies 492 475 967 277 410 687
Estimated premiums receivable from cedents, net of commission 2,906 2,490 5,396 2,837 2,361 5,198
Accounts receivable from assumed insurance and reinsurance transactions 3,395 2,957 6,352 3,112 2,763 5,875
Amounts payable on assumed insurance and reinsurance transactions (568) (205) (773) (562) (195) (757)
Estimated premiums payable to retrocessionaires, net of commission (317) (283) (600) (249) (205) (454)
Accounts payable on ceded reinsurance transactions (600) (654) (1,254) (624) (591) (1,215)
Miscellaneous assets consist of: In EUR millions As at December 31, 2018 As at December 31, 2017
Other intangible assets include all intangible assets except for goodwill and VOBA which are presented on separate balance sheet line items (refer to Note 5 – Goodwill and Note 6 – Value of business acquired).
Payments for operating leases relate primarily to rental payments for offices and business premises of the Group. They include extension options as well as restrictions regarding subleases. In the period under review, lease payments of EUR 29 million (2017: EUR 32 million; 2016: EUR 25 million) were recognized as an expense, net of sublease payments of EUR 4 million (2017: EUR 4 million; 2016: EUR 1 million). The main lease contracts are for the US and Zurich offices. The future minimum payments are as follows: In EUR millions
SCOR entered into an agreement from October 2013 to acquire 10 office units located on four floors in a building in Singapore. This building has been delivered in 2017 in accordance with the terms of the contract.
Other changes (including change in shadow accounting) 36 - 36 (6) - (6) 10 - 10
In reinsurance, the costs directly associated with the acquisition of new contracts, mainly comprising commissions, are recorded as assets on the balance sheet, to the extent that the contracts are profitable. They are amortized on the basis of the residual term of the contracts in Non-Life, and on the basis of the expected recognition of future margins for Life contracts.
(1) Cash and cash equivalents include cash held by the Group on behalf of third parties as part of its asset management activity for a total amount of EUR 195 million on December 31, 2018 (December 31, 2017: EUR 145 million).
Change in fair value of financial instruments recognized at fair value through income 71 27 118
(1) In 2016, includes a EUR 301 million one-off cash in-flow from the repayment of a cedent’s fund withheld.
Tax cash outflows during the year was EUR 252 million (2017: outflow of EUR 93 million and 2016: outflow of EUR 127 million).
The shares issued in 2018, 2017 and 2016 were issued at a par value of EUR 7.8769723 per share.
SCOR’s Ordinary and Extraordinary Shareholders’ Meeting of April 27, 2017 resolved to distribute, for the 2016 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 308 million, calculated on the basis of the number of shares eligible for dividend as at the payment date. The ex-dividend date was May 2, 2017 and the dividend was paid on May 4, 2017.
In this regard, and in line with its Group’s strategic plan “Vision in Action” for the period from mid-2016 to mid-2019, the Group aims to achieve the following two specific targets: ◆ a ROE ≥ 800 basis points above the five-year risk-free rate over the cycle(1); ◆ a solvency ratio(2) in the optimal range between 185% and 220%.
On June 29, 2018 BNP Paribas transferred all the warrants to UBS in Agreement with SCOR. UBS has thus been fully substituted to BNP Paribas in relation to all the rights and obligations arising from the contingent capital facility.
In the absence of any extreme triggering event, no shares would be issued under the facility and this facility would therefore remain without any dilutive impact for the shareholders.
During 2018, SCOR completed its EUR 200 million program with the purchase of 5,267,339 shares at an average purchase price of EUR 36.83 for an aggregated amount of EUR 194 million. The cancellation of these shares will be submitted to the board meeting which will held further to the annual shareholders meeting to be held in 2019.
As part of the entire share buy-back program, SCOR purchased 5,440,081 shares at an average purchase price of EUR 36.76 for a total of EUR 200 million.
The Group actively monitors the regulatory capital requirements of each of its operating subsidiaries within this capital management framework and aims to achieve full compliance in respect of all regulatory and solvency requirements in the countries in which it operates.
These items comprise various subordinated debts or unsubordinated bonds issued by the Group. These borrowings are classified as financial liabilities, in accordance with IAS 32 – Financial Instruments: Presentation.
On June 8 2018, SCOR redeemed the CHF 315 million undated subordinated debt. The related cross-currency swaps matured.
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).
Certain real estate financing contracts contain accelerated repayment clauses and other debt covenants. Such covenants define certain ratios to comply with, among which loan to value (LTV) ratios, defined as the relation between the carrying amount of the financing and the market value of the real estate being financed, interest coverage rates (ICR), representing the percentage at which interest expenses are covered by rental income, and debt service coverage ratios (DSCR), representing the percentage at which debt amortization and interest expenses are covered by rental income. Under existing financing contracts LTV ratios vary between 47.3% and 70% and ICR/DSCR between 130% and 300%. As at December 31, 2018, the Group is in compliance with the LTV and ICR/DSCR covenants with respect to its banking partners.
For defined contribution plans the employer pays fixed contributions to an external institution, with no legal or constructive obligation to pay further contributions. As a result, only contributions paid or due for the financial year are charged to the Group’s statement of income as overhead expenses. The payments made by the Group are expensed during the period in which the expense was incurred.
The defined benefit pension plans and other long-term benefits are mainly located in Switzerland, North America, France and
Germany. These locations represent 42%, 22%, 21% and 11% respectively, as at December 31, 2018, (43%, 24%, 16% and 12%, respectively, as at December 31, 2017), of the Group’s obligation under defined benefit plans.
These plans are mostly pre-financed via payments to external organizations which are separate legal entities.
Discount rates are defined with reference to high quality long-term corporate bonds with maturities consistent with the duration of the obligations evaluated. Management onsiders “AAA” and “AA” rated bonds to be high quality,
A decrease in the discount rate of 0.25% would result in an increase in the estimated defined benefit obligation of approximately EUR 16 million (2017: EUR 16 million) with the offsetting impact recorded in other comprehensive income.
Duration as at December 31, 2018 9 years 18 years 13 years 25 years 8 years 14 years
Interest income on plan assets (4) (1) (1) (2) (4) (1) (1) (2) (5) (1) (1) (3)
Administration expenses recognized in pension expense 1 - - 1 1 - - 1 1 - - 1
In EUR millions As at December 31, 2018 As at December 31, 2017 As at December 31, 2016
The following table reconciles movements in the balance sheet amounts for the years ended December 31, 2018, 2017 and 2016: In EUR millions Total 2018 Europe
Fair value of assets as at January 1 242 30 154 58 238 28 148 62 243 29 137 77
Fair value of assets as at December 31 248 30 159 59 242 30 154 58 238 28 148 62
NET DEFINED BENEFIT OBLIGATION AS AT DECEMBER 31 – DEFICIT 202 134 28 40 182 112 28 42 197 112 41 44
Funded or partially funded obligation as at December 31 326 49 184 93 362 94 174 94 371 90 181 100
Funded status as at December 31 – deficit 78 19 25 34 120 64 20 36 133 62 33 38
(2) Actuarial (gains)/losses due to changes in assumptions include for 2018 actuarial (gains)/losses due to changes in financial assumptions for EUR (11) million (EUR (1) million in 2017) and actuarial (gains)/losses due to change in demographic assumptions for EUR 18 million (EUR (3) million in 2017).
The following table summarizes the movements in accrued (prepaid) balances recorded in the consolidated balance sheet as at December 31, 2018, 2017 and 2016: In EUR millions Total 2018 Europe
Accrued/(Prepaid) as at January 1 182 112 28 42 197 112 41 44 165 101 28 36
The following table includes the allocation of plan assets as at December 31, 2018 and 2017: In EUR millions Total Europe Switzerland North America
Claim reserves for losses and claims settlement expenses are recognized for payment obligations from reinsurance losses that have occurred but have not yet been settled. They are recognized under reserves for reinsurance losses reported before the reporting date and reserves for IBNR
The share of retrocessionaires in insurance and investment liabilities is calculated according to the contractual conditions on the basis of gross reserves. Allowances are established for estimated credit risks.
Total gross insurance contract liabilities 14,628 15,311 29,939 14,163 14,588 28,751
Ceded claims reserves & claims expense reserves (555) (1,283) (1,838) (461) (1,175) (1,636)
An aging analysis of reinsurance assets is included in the Registration Document, in Section 3.5.2 – Management of credit risks.
A significant portion of SCOR Global P&C’s reserves relates to liabilities payable in currencies other than the 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.
The first part of the table shows net incurred losses which is the sum of paid claims, the change in claims reserves and incurred but not reported reserves and the claims handling provision, net of external retrocession.
Gross claims reserves & estimates – end of year(1) 9,127 9,156 9,696 10,602 10,857 10,691 11,088 11,750 11,784 12,318 12,815
Ceded claims reserves & estimates – end of year(1) 467 473 412 765 690 629 619 634 660 1,175 1,283
Net claims reserves & estimates – end of year 8,660 8,683 9,284 9,837 10,167 10,062 10,469 11,116 11,124 11,143 11,532
Net DAC – end of year 226 238 277 320 352 371 431 522 538 551 591
Net claims reserves and claims estimates as at January 1 11,143 11,124
Revaluation of opening balance at current year end exchange rates 70 (479)
Net claims reserves and claims estimates as at January 1 – revalued 11,213 10,645
Net claim reserves and claims estimates as at December 31 11,532 11,143
Ceded claims reserves and claims estimates as at December 31 (1,283) (1,175)
GROSS CLAIMS RESERVES AND CLAIMS ESTIMATES AS AT DECEMBER 31 12,815 12,318
(1) In 2018, mainly due to Essor integration. In 2017, consists of a reduction of Incurred but not reported reserves for a net amount of EUR 123 million, following one of the Lloyds Syndicates Reinsurance To Close (RITC) on 2015 Year Of Account that occurred at the end of December 2017. Most of this movement was offset on the asset side by a movement on funds withheld.
Gross reserves, including IBNR reserves (In EUR millions) 70 72 16 15
Actual number of claims notified under non-proportional and facultative treaties (In EUR millions) 11,043 10,883 8,583 8,551
The change in SCOR Global Life mathematical reserves for the years ended December 31, 2018 and 2017 was as follows: In EUR millions 2018 2017
Share of retrocessionaires contract liabilities - 673 1,085 40 4 339 2,141
Total collateral from retrocessionaires in favor of SCOR - 232 431 28 - 960 1,651
Share of retrocessionaires contract liabilities net of collateral(1) - 441 654 12 4 (621)(2) 490
(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.
These awards result in the recognition of personnel charges with a corresponding increase in equity over the vesting period.
The dilutive effect of options granted is reflected in the diluted earnings per share calculation.
The total expense for 2018 relating to share-based payments is EUR 43 million (2017: EUR 33 million), with EUR 1 million (2017: EUR 2 million) relating to stock options granted under the 2014 to 2018 plans (2017: 2013 to 2017) and EUR 42 million (2017: EUR 31 million) relating to free shares allocated under the 2011 to 2018 plans (2017: 2011 to 2017).
The share-based payment plans are described below. There have been no cancellations or modifications to any of the plans during 2018.
The Group grants its employees and Corporate Executive Officers stock purchase or subscription option plans under the following terms: Plan Date of award by the Board
The terms and conditions of the stock option plans of March 8, 2018 and December 22, 2018, which are similar to those previously granted by SCOR, provide that the options allocated to Partners can be exercised at the earliest four years after the grant date, if the presence condition is met in addition to the satisfaction of certain 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 (in fiscal year 2018, 2019 and 2020 for the two last conditions).
All grants under the free share plans of February 21, 2018 and December 22, 2018 (except LTIP), to the Chairman and Chief Executive Officer, to the members of the Executive Committee, to the Executive Global Partners and to the Senior Global Partners and half of the allocation to the other beneficiaries (below Senior Global Partners), are subject to a 3-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 (in fiscal year 2018, 2019 and 2020 for the two last conditions).
All shares granted under the free share plan of December 23, 2018 are subject to a 3-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“).
Vesting period 3 years 6 years 3 years 3 years 6 years
The main components of corporate income taxes for the years ended December 31, 2018, 2017 and 2016 are presented below: In EUR millions 2018 2017 2016
Changes in deferred taxes due to changes in tax rates or tax law (5) (57) (62)
Corporate income tax (expense)/benefit reported in statement of income (107) (56) (166)
NOTE 17.2. RECONCILIATION OF EXPECTED TO ACTUAL CORPORATE INCOME TAX EXPENSE
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 rates and other specific items.
Write-down and reversal of previous write-down of deferred tax assets - 1 -
Corporate income taxes from prior years are mainly due to the finalization of corporate income tax returns.
Remeasurements of post-employment benefits (24) 6 (18) 12 (8) 4 (38) 8 (30)
Items that will not be reclassified subsequently toprofit and loss (24) 6 (18) 12 (8) 4 (38) 8 (30)
Net gains/(losses) on cash flow hedges (6) 3 (3) 5 - 5 3 1 4
Net operating losses for carry forward 505 (81) - - (13) 411 21 - - 6 438
In accordance with IFRS deferred tax netting rules, the amount of deferred tax liabilities and deferred tax assets stated in the balance sheet are as follows: Balance sheet amounts as at December 31 In EUR millions 2018 2017 2016
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 before 2018 and unlimited carry forward after (but utilization limited to 80% of the current year’s taxable income) for US life companies. Taxable income is forecasted based on the main assumptions described in the accounting principles of this note. SCOR expects to utilize all recognized tax loss carryforwards before expiration.
The tables below show the analysis by type of investment income and split by category of financial assets: NOTE 18.1. ANALYSIS BY TYPE
These expenses are further allocated into categories by function as follows: In EUR millions 2018 2017 2016 in 2018
(1) Statutory audit and certification of local and consolidated financial statements. (2) Other specific audit assignments related to the statutory audit engagement. Additional audit fees incurred were due mainly to review of actuarial disclosures, review of CSR report, review of Solvency II reports as well as various mandatory procedures. (3) Other services provided by the Auditors to the fully consolidated companies and due diligence.
(1) Average number of shares during the period. (2) Calculated assuming all options are exercised where the average SCOR share price for the year exceeds the option exercise price.
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.
There is no shareholder (except key management personnel) meeting the criteria of a related party according to IAS 24 – Related Party Disclosures, for the years ended December 31, 2018, 2017 and 2016.
Transactions with associates for the financial years ended December 31, 2018, 2017 and 2016 were carried out on an arm’s length basis and their volume is not material.
(2) The total commitment of the Group for defined benefit retirement plans in France, Germany, the US and Switzerland for Executive Committee members (including the Chairman and Chief Executive Officer) amounts to EUR 57 million as at December 31, 2018 (EUR 58 million as at December 31, 2017 and EUR 53 million as at December 31, 2016), i.e. 13% of the total commitment of the Group for pension plans of EUR 450 million.
As security for the Group’s technical liabilities, various financial institutions have provided sureties for the Group in the form of letters of credit. The total amount, not included in the table above, as at the reporting date was EUR 1,394 million (2017: EUR 1,438 million). In accordance with the terms of these letter of credit facilities, the Group must meet certain minimum requirements relating to net worth. The Group currently meets all such requirements.
As at December 31, 2018, SCOR has an outstanding letter of credit capacity of EUR 51 million (As at December 31, 2017: EUR 199 million), recognized as a commitment received from banks. This outstanding capacity can be used to provide collateral on the forthcoming underwritten business.
Letters of credits received from external retrocessionaires are recognized as a commitment received for EUR 157 million (As at December 31, 2017: EUR 151 million) and are detailed in Note 15 – Net contract liabilities.
SCOR is committed to grant loans and to invest in various investment funds for a total amount of EUR 113 million (2017: EUR 54 million). Those amounts do not include the commitments taken by SCOR on behalf of third parties as part of its asset management activity.
◆ a civil action (“action en responsabilité civile”), before the Commercial Court of Paris (“Tribunal de commerce de Paris”), against Covéa, for having directly participated in and benefitted from the serious breaches by Thierry Derez.
Refer to the Registration Document, Section 1.3.3. – Significant events of the year for further information.
On February 8, 2019, SCOR announced the sale of its subsidiary Rehalto SA. The sale does not result in a material impact on the consolidated financial statements.
As at December 31, 2018, SCOR SE held indirectly shares or units in the companies representing at least 10% of the consolidated net assets or generating at least 10% of the consolidated net income or loss. These holdings are listed below: Registered office Type of business % Capital
SCOR Switzerland AG General Guisan – Quai 26 – 8022 Zurich – Switzerland Reinsurance 100%
SCOR Life Ireland dac 6th Floor, 2 Grand Canal Square – Dublin 2 – D02 A342 – Ireland Reinsurance 100%
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 May 13, 1996
Olivier Drion Tour First – 1, Place des saisons 92037 Paris-La Défense cedex, France CRCC of Versailles April 26, 2018
CONSOLIDATED FINANCIAL STATEMENTS Auditing of historical consolidated financial information 04 4.9. AUDITING OF HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The date of the most recently audited financial information is December 31, 2018.
In application of EC Commission Regulation No. 809/2004, the following information is included by reference in this Registration Document: ◆ the report of the Statutory Auditors on the consolidated financial statements for the financial year ended December 31, 2017 published on pages 223 to 224 of the Registration Document filed with the AMF on February 23, 2018 under Number D.18-0072 (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).
◆ the report of the Statutory Auditors on the consolidated financial statements for the financial year ended December 31, 2016 published on pages 223 to 224 of the Registration Document filed with the AMF on March 3, 2017 under Number D.17-0123 (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).
The report of the Statutory Auditors on the consolidated financial statements for the financial year ended December 31, 2018 is reproduced below.
We conducted our audit engagement in compliance with independence rules applicable to us, for the period from January 1, 2018 to the date of our report and specifically we did not provide any prohibited non-audit services referred to in Article 5(1) of Regulation (EU) No 537/2014 or in the French Code of ethics (Code de déontologie) for auditors.
(Please refer to Notes 1 and 15 of the notes to the consolidated financial statements)
The gross and net insurance and investment contract liabilities amount to EUR 30 253 million and to EUR 28 112 million (net of share of retrocessionaires in insurance and investment contract liabilities) at 2018 year-end. These liabilities are established to cover the Group’s commitments and the payment of benefits relating to reported events or events incurred but not yet reported.
In these circumstances, we considered the measurement of technical reserves related to reinsurance contracts as a key audit matter.
The Group’s intangible assets are mainly composed of goodwill and Value of Business Acquired of Life reinsurance portfolios respectively for EUR 859 million and EUR 1,471 million as at December 31, 2018.
We examined the methodology used by management to determine whether the potential impairment of the CGUs has been properly applied: We evaluated the models and calculations of the Group company in: ◆ comparing multiples and discount rates used per country with our internal databases; ◆ comparing the expected turnover growth with the economic data of the reinsurance sector; ◆ analyzing the quality of the process of preparing and approving budgets and forecasts established by management and approved by the Board of Directors; ◆ analyzing the consistency of information and assumptions used in these models: on the one hand, with the budgets and forecasts abovementioned, on the other hand, with our knowledge of the sector, developed notably during the review of the strategic plan, through interviews with members of the executive committee and studies of the Group’s budget process.
Life reinsurance value of business acquired Value of Business Acquired (VoBA) represents the value of Life reinsurance portfolios acquired in a business combination. It corresponds to the present value of expected future cash flows for the assumed and the retroceded reinsurance business. As stated in note 6 of the notes to the Consolidated financial statements, VoBA is amortized over the lifetime of the underlying reinsurance portfolio based on schedules derived from the run-off patterns of expected profit. These projections are assessed and updated regularly. The review of flow projections and assumptions used involve a significant part of judgement and uncertainties. Furthermore, it significantly impacts the amortization schedule of VoBA. In these circumstances we consider the valuation of intangible assets to be a key audit matter.
Deferred tax: measurement of deferred tax assets on tax losses carried forward and impacts of the US Tax reform
With the assistance of 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 checked 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.
With the assistance of our US tax specialists, we performed following procedures: ◆ we obtained an understanding of internal control processes related to the implementation of SCOR Life Ireland dac and we assessed the design of key controls established by management; ◆ we examined the accounting documentation prepared by management, the reinsurance executed agreements and the regulatory approvals; ◆ on a sample basis, we examined the consistency of the new agreements in terms of risk transfer comparing them to the previous ones (pre- restructuring) and tested the reflow of underlying balances between entities; ◆ we obtained and reviewed your Company’s assessment of the various tax impacts related to the implementation of the alternate business structure (including current and deferred tax, BEAT tax expense and Transfer Pricing).
We have no matters to report as to its fair presentation and the consistency with the consolidated financial statements.
As at December 31 2018, MAZARS and ERNST & YOUNG Audit were in the 29th year and 23rd year of total uninterrupted engagement.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless it is expected to liquidate the Company or to cease operations.
The consolidated financial statements were approved by the Board of Directors of SCOR SE.
The Registration Document as a whole is the subject of a completion letter sent by the Statutory Auditors to SCOR.
◆ 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.
As of the date of this 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.
Remaining old shares were cancelled on January 3, 2009 and since then, subject to applicable laws, all Company shares carry one voting right.
Failure to comply with legal and statutory obligations concerning thresholds may be sanctioned by the removal of voting rights for those shares or rights in excess of the undeclared fraction.
After approval of the financial statements and recognition of the existence of distributable funds in the form of earnings for the financial year less prior losses plus, if applicable, any profit carried forward, the Shareholders’ Meeting shall distribute them as follows: ◆ sums to be transferred to reserves pursuant to legal requirements; ◆ all or part of the profit available for distribution may be transferred by the Shareholders’ Meeting to any discretionary, ordinary or extraordinary reserves or carried forward, as deemed appropriate; ◆ any remaining balance shall be distributed among all shares in proportion to their unredeemed paid-up value.
Each share entitles its holder to a share (in direct proportion to the number and par value of the existing shares) in the corporate assets, profits or liquidating dividend.
Dividends are distributable to shareholders in proportion to their respective holdings of ordinary shares. Dividends are payable to holders of ordinary shares outstanding on the date of the Shareholders’ Meeting approving the distribution of dividends or, in the case of interim dividends, on the date of the meeting of the Board of Directors approving the distribution of interim dividends. The actual dividend payment date and the terms of payment are determined by the Shareholders’ Meeting approving the declaration of the dividends or by the Board of Directors in case of distribution of interim dividends. The payment of the dividends must occur within nine months of the end of the financial year. Dividends not claimed within five years of the date of payment revert to the French state. According to the bylaws, shareholders may decide in an Ordinary Shareholders’ Meeting to give each shareholder the option of receiving all or part of a dividend or interim dividend in the form of ordinary shares. The determination of the portion, if any, of the annual dividend that each shareholder will have the option to receive in ordinary shares is also made at the Ordinary Shareholders’ Meeting following a recommendation by the Board of Directors.
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. 225-209 of the French Commercial Code).
The court may be requested to appoint an agent either by shareholder(s) holding at least 5% of the share capital, or a duly authorized association of shareholders holding their ordinary shares in registered form for at least two years and jointly owning a certain percentage of voting rights (computed on the basis of a formula related to capitalization which on the basis of the Company’s outstanding share capital as at December 31, 2018, would represent approximately 1% of voting rights) or by any interested party, including the Works’ Council in urgent situations.
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 AMF also recommends publishing the preliminary written notice in a French national newspaper.
One or several shareholder(s), together holding a certain percentage of SCOR’s voting rights (computed on the basis of a formula related to capitalization which, on the basis of outstanding share capital as at December 31, 2018, would represent approximately 0.5% of voting rights), the Works’ Council or a duly authorized association of shareholders holding ordinary shares in registered form for at least two years and holding together a certain percentage of the voting rights (calculated on the basis of a formula relating to capitalization which on the basis of the outstanding share capital as at December 31, 2018, would represent approximately 1% of SCOR SE’s voting rights) may, within 10 days of such publication, propose resolutions to be submitted for approval by the shareholders at the Shareholders’ Meeting.
The presence in person (including those voting by correspondence) or by shareholder proxy holding not less than one-fifth (in the case of an Ordinary Shareholders’ Meeting or an Extraordinary Shareholders’ Meeting where an increase in our share capital is proposed through incorporation of reserves, profits or share premium) or one-fourth (in the case of any other Extraordinary Shareholders’ Meeting) of ordinary shares with voting rights is necessary for a quorum. If a quorum is not reached at a meeting, then the meeting is adjourned. On a second call, there is no quorum requirement in the case of an Ordinary Shareholders’ Meeting or an Extraordinary Shareholders’ Meeting where an increase in the Company’s share capital is proposed through incorporation of reserves, profits or share premium and the presence in person (including those voting by correspondence) or by shareholder proxy holding not less than one-fifth of the ordinary shares with voting rights is necessary for a quorum in the case of any other Extraordinary Shareholders’ Meeting.
In addition to rights to certain information regarding SCOR SE, any shareholder may, between the convening of the Shareholders’ Meeting and the date of the Shareholders’ Meeting, submit to the Board of Directors written questions relating to the agenda for the meeting. The Board of Directors must respond to such questions during the Shareholders’ Meetings, subject to confidentiality concerns.
5.1.6. PROVISIONS THAT COULD DELAY, DEFER OR PREVENT A CHANGE IN CONTROL OR IN THE SHAREHOLDER STRUCTURE
Pursuant to Articles L. 322-4 and R. 322-11-1 of the French Insurance Code, any transaction allowing a person acting alone or in concert with other persons, as defined by Article L. 233-10 of the French Commercial Code, to acquire, increase, decrease or cease holding, directly or indirectly, an equity stake in an insurance or reinsurance company, shall be notified by such person(s) to the ACPR prior to its completion when any one of the three following conditions is met: ◆ the portion of voting rights or capital shares held by said person(s) exceeds or falls below the tenth, fifth, third or half thresholds; ◆ the Company becomes or ceases to be a subsidiary of said person(s); ◆ the transaction enables this or these persons to exercise a significant influence on the management of this company.
05 ADDITIONAL INFORMATION Description of SCOR’s share capital 5.2. DESCRIPTION OF SCOR’S SHARE CAPITAL
The Company certifies that the following information in this Registration Document and received from third parties has been accurately reproduced and that as far as the Company is aware and is able to ascertain from information published by said third party, no facts have been omitted, which would render the reproduced information inaccurate or misleading: ◆ data issued from the AM Best Special Report Reinsurance (2018 Edition) and relating to the ranking on reinsurance market participants quoted in Section 1.1.1 – Group key figures and Section 1.3.4 – Information on SCOR‘s competitive position; ◆ ratings issued by the Standard & Poor’s, Fitch Ratings, AM Best and Moody’s rating agencies quoted in Section 1.2.4 – Ratings information and Appendix A – Internal control and risk management procedures; ◆ 2017 Society of Actuaries (SOA) and Munich Re Life survey of US Life reinsurance, published in 2018, quoted in Section 1.3.5.3 – SCOR Global Life.
APPENDIX B PERSON RESPONSIBLE FOR THE ANNUAL REPORT 279 1. Name and title of person responsible 279 2. Declaration by the person responsible 279
APPENDIX G CORRESPONDENCE TABLE – REGULATION (EC) OF APRIL 29, 2004 349
The risk management system covers the following components: 1. Defining the internal environment; 2. Objective setting; 3. Performing a risk identification; 4. Performing a risk evaluation; 5. Defining a risk response; 6. Documenting and formalizing control activities; 7. Presenting the information and communication process; 8. Ensuring monitoring of the risk management and internal control systems.
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.
SCOR’s ERM is mature and well established across the Group. Since November 2013, it has been rated “Very Strong” by Standard & Poor’s. However, like any risk management and internal control system, the Group’s system cannot guarantee that the risk of not achieving the internal control objectives will be eliminated. Among the various limitations inherent in the effectiveness of internal controls relating to the preparation of financial documents, those involving decision-making errors based on human judgment are particularly high in a reinsurance company: for example, the accounting data are subject to numerous estimates, primarily because of the evaluation by the reinsurer of claim reserves, either because the claims have not yet been declared to the ceding companies or the reinsurer, or because the claims development is uncertain or subject to a number of assumptions.
Global functions • Strategy • Client Solutions • Pricing • Risk Management • Research &
Investment control • Investment Datawarehouse Strategic Planning & Investment • Strategic investments in private equity • Investment Financial
— the SCOR Global Life Chief Executive Officer (CEO) and his deputy,
— the SCOR Global Investments Chief Executive Officer (CEO); ◆ the Group Risk Committee meets quarterly and is comprised of the members of the Group Executive Committee. Other risk management and control functions of the divisions and the Head of Group Internal Audit are regularly invited to the meetings. The main missions of the Group Risk Committee are to steer the Group’s risk profile, maintain an effective ERM Framework and spread an appropriate Risk Culture throughout the Group; ◆ monitoring of the internal control procedures falls under the remit of the Group’s Executive Management. The Group departments and functional or transversal departments of SCOR Global P&C, SCOR Global Life and SCOR Global Investments with a control responsibility have the task of defining and controlling the implementation of rules pertaining to the areas of their responsibility and applicable to all of the Group’s entities. These rules, and the participants, are described in detail in the paragraph 1.3 of this report on control activities; ◆ the three divisions, the Group functions, as well as the Hubs’ support departments must apply the rules defined above. They carry out all controls related to business management and ensure compliance with regulatory, accounting and fiscal laws, at both local and Group levels; ◆ the Head of Group Internal Audit reports directly to the Chairman and Chief Executive Officer of SCOR SE and functionally to the Chairman of the Audit Committee of the Board of Directors of SCOR SE. This positioning gives the Head of Group Internal Audit the necessary independence and objectivity, and allows for the largest possible room for investigation. Group Internal Audit checks independently the effectiveness and relevance of the governance, risk management and internal control procedures for the Group’s entities following a methodical risk based approach, as promoted by the “International Standards for the Professional Practice of Internal Auditing” set out by the Institute of Internal Auditors and the Institute’s Code of Ethics. The Internal Audit Charter, approved by the Audit Committee, defines the position within the organization, the role and areas of activity, the principles and main operating procedures of Group Internal Audit.
For Group policies in force and other business-related legal and compliance requirements, training sessions for certain staff are scheduled and conducted on an annual basis, if this is required by the annual compliance plan.
◆ a solvency ratio in the optimal 185% – 220% range(2).
The strategic plans establish the Group’s risk appetite framework, from which the Group’s strategy stems.
(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, Optimal Dynamics.
A INTERNAL CONTROL AND RISK MANAGEMENT PROCEDURES Identification and assessment of risks 3. IDENTIFICATION AND ASSESSMENT OF RISKS
This section summarizes the principal activities and participants of risk control for the following important areas: ◆ group functions; ◆ activities related to reinsurance; ◆ asset management; ◆ accounting management.
The Group’s functions are organized into three departments led by the Chief Operating Officer, Chief Financial Officer and Chief Risk Officers respectively. The Operations area comprises Information Technology, Human Resources the General Secretariat (including the Compliance and Legal departments), the Group Project Office, Cost Control and Budgeting and Corporate Communications. The Finance area comprises Treasury, Budget and Forecasting and other functions relating to consolidation, reporting, accounting, financial communications and tax issues. The Risk Management area comprises the actuarial function, the risk management function, various risk and actuarial modeling teams and the Prudential and Regulatory Affairs Department. Further information is presented below, excluding the financial reporting and financial communication functions dealt with in Sections 5 and 7 hereafter.
◆ Control of the Group information system is overseen by the Group IT Department at two complementary levels: specific IT processes and business processes all covered by IT solutions. For specific IT processes, a special unit of the Group IT Department deals with all issues of information system security. Periodic audits of information security applications and procedures are conducted. SCOR continually improves its control procedures based on the COBIT (Control objectives for information and technology) guidelines covering the risks listed in its major processes, in particular relating to the development, advancement and use of all solutions, and access to systems and databases. In the context of the business continuity plan, the IT disaster recovery plan is constantly reinforced using the latest technology. In addition, employees can be temporarily moved to any other Group Hub office, or even work from home with their laptop or personal computer.
— the Group’s insurance policies, in particular with respect to D&O and professional liability.
◆ The Human Resources department controls all processes related to the management of human capital.
◆ The Group Project Office monitors the Group project portfolio and defines standard project management methodology. It regularly provides reports to the management detailing key indicators and recommendations on the project portfolio for effective management. On the Executive Committee’s request, it can also manage strategic projects.
◆ The budgetary control system for general expenses is organized and managed by the Group Cost Control and Budgeting Department.
◆ The Prudential & Regulatory Affairs Department advises the Group on prudential regulations. It ensures the Group actively positions itself in relation to the different jurisdictions and requirements to which it is exposed, or could be exposed and continuously develops and promotes SCOR’s leading risk management expertise through regular dialogue with internal and external stakeholders, including our staff, clients, supervisors, the (re)insurance industry, academia and the public. Prudential and Regulatory Affairs also provides specialist expertise to SCOR colleagues via the Solvency II Centre of Excellence and prepares the Group for the adoption of major new prudential regulations.
◆ The Financial Modelling and Risk Analysis Department manages and operates SCOR’s Internal Model and provides a detailed quantitative analysis on the modelled range of changes in economic value. It provides reports to management on risk assessment and actively assists the Company in its various uses of the Internal Model.
For further information on how the main underwriting risks related to the Non-Life and Life reinsurance business are managed, see Section 3.3 – Management of underwriting risks related to the Non-Life and Life reinsurance businesses.
The Group invests in assets through its SCOR Global Investments Division composed of an asset management company regulated by the French Autorité des marchés financiers (SCOR Investment Partners SE), a Group Investment Office (GIO) and a Strategic Planning and Investments department.
◆ 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; ◆ in compliance 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; ◆ being committed to Environmental, Social and Governance (ESG) investing, for which the SCOR Group prioritises investments that have a positive sustainability impact.
Assets owned by all Group entities are monitored in one central information system under the responsibility of SCOR Investment Partners. The information systems used by SCOR Investment Partners monitor transactions on publicly traded securities (audit trail, valuation of securities). SCOR Investment Partners controls the consistency and the completeness of the data used for the valuation of the assets.
Middle office and back office departments of SCOR Investment Partners are delegated to an external service provider since November 2014. Information systems remain those of SCOR and tools for monitoring and controlling transactions remain unchanged following this transfer of activity.
SCOR has established reporting principles for all risk management related documents across the Group, with dedicated review processes and governance.
SCOR also operates an “Internal Control System Competence Center” (ICS-CC) which reports to the Group Risk Management Department. The core objective of this competence center is to pool the ICS expertise in order to foster a consistent ICS approach and application of ICS standards across the Group. The ICS-CC consists of experts, who are dedicated to coordinating the internal control formalization activities within the Group, its divisions and entities, and supporting the business process owners where necessary. The ICS standards are applied based on the principle of proportionality. ICS processes have been documented accordingly, focusing on those considered the most critical. The ICS documentation is being maintained across the Group and regularly reviewed for continuous improvement.
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 the matter has not been resolved, he/she must communicate the matter to the Audit Committee.
Group Internal Audit carries out a quarterly follow-up process to monitor and ensure that management actions agreed in the audit reports have been effectively implemented or that senior management has accepted the risk of not taking action. The follow-up results are provided to the Executive Committee and the Audit Committee.
The processes for reinsurance accounting and the calculation of underwriting reserves, which are predominantly within the single technical information system (OMEGA), are applied by Group entities. A high level of control already exists in OMEGA.
Concerning reinsurance accounting, numerous regular controls are conducted directly (automatic and systematic, or for consistency or by testing) by the technical accounting teams located in the subsidiaries using both Group tools and control reports. Quarterly inventories are also subject to specific control procedures. Finally, reinsurance technical results are analyzed quarterly by the finance departments of SCOR Global P&C and SCOR Global Life, and by the Group Chief Actuary as part of his review of the majority of reserves.
The calculation of underwriting reserves (including IBNR – Incurred But Not Reported) which have a significant impact on the balance sheet and income statement, is largely based on contractual and accounting data provided by ceding companies, the relevance of which is verified upstream. This calculation of underwriting reserves is subject to the following successive controls: ◆ by the actuaries in charge of reserves through control reports for which the proper implementation is verified by the Actuarial Department of the division and of the Group; ◆ by the Chief Actuary, particularly for methods, tools and results.
Monitoring of financial assets and cash flows is provided through various operating methods. The information systems used provide an audit trail of the transactions carried out. In certain entities, accounting activities are delegated to external service providers; controls implemented by these entities make it possible to verify the proper recording of accounting data and consistency of the figures. “Cash” reconciliations are made on a daily basis, for the most part, and security transactions are reconciled the following day with reports from the various custodians. Portfolios managed directly are monitored in real time.
A INTERNAL CONTROL AND RISK MANAGEMENT PROCEDURES Conclusion on the control procedures implemented
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 Group; ◆ limited and automatized mappings between systems; ◆ extended capabilities for Reporting (including drilldown from financial to source system data); ◆ enhanced audit trail.
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 divisions review the individual entity level internal representation letters and submit a divisional 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.
SCOR believes that its risk management and internal control systems are appropriate and adapted to its activities and is engaged in an ongoing process to improve its internal control standards and their implementation. In 2018, the Group continued its efforts on compliance issues as briefly summarized in this Section by releasing new Group policies, and by improving existing policies to align them with the Group’s developments.
In 2018, SCOR SE carried out the following significant transactions: Issuance of USD 625 million in undated subordinated notes
On November 30, 2018, SCOR SE completed the call of the entire balance of its CHF 250 million perpetual subordinated notes placed in September 2013.
On May 3, 2018, SCOR SE paid EUR 312 million in dividends to its shareholders.
On March 19, 2018, SCOR SE sold its 9.97% share in ASEFA exercising the option to sell a third and last portion of shares to the buyer.
Total number of shares purchased within the program is 5,440,081 (of which 172,742 shares were cancelled in 2018) at an average purchase price of EUR 36.76.
UNCONSOLIDATED CORPORATE FINANCIAL STATEMENTS OF SCOR SE Significant events of the year C
Repayment of the treasury advance granted to SCOR Auber SAS and creation of a new treasury advance in favour of SOR SE
The Board of Directors of February 18, 2019 approved the simplified merger of SGL SE and SGP&C SE into SCOR SE and defined the terms of the relevant merger agreements. The simplified mergers should be effective by the end of the first quarter of 2019 with retroactive effect from January 1, 2019.
C UNCONSOLIDATED CORPORATE FINANCIAL STATEMENTS OF SCOR SE Balance sheet 2. BALANCE SHEET
Share of retrocessionaires in underwriting reserves 5.2.9 595 - 595 704
(1) Data for financial years 2018 and 2017 are before appropriation of net income.
UNCONSOLIDATED CORPORATE FINANCIAL STATEMENTS OF SCOR SE Off-balance sheet commitments C
Other commitments on investment securities, assets or revenues 187 513 700 481
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 4 million as at December 31, 2018 (EUR 4 million in 2017).
5.1. ACCOUNTING POLICIES 287 5.1.1. Intangible assets 287 5.1.3. Property, plant and equipment 288 5.1.4. Accounts receivable 288 5.1.5. Retirement commitments and similar benefits 288 5.1.6. Financial liabilities 288 5.1.7. Recording of reinsurance transactions 288 5.1.8. Underwriting reserves 289 5.1.9. Acquisition costs of reinsurance transactions 289 5.1.10. Transactions conducted in foreign currencies 289 5.1.11. Principles relating to the presentation of the financial statements 290 5.1.12. Derivatives instruments received and given 290 5.2. ANALYSIS OF KEY BALANCE SHEET ITEMS 291 5.2.2. Other assets 296 5.2.3. Shareholders’ equity 296 5.2.4. Subordinated liabilities and financial liabilities 297 5.2.5. Maturity of assets and liabilities 298 5.2.6. Contingency reserves 298 5.2.7. Gross underwriting reserves 299 5.2.8. Accrued income and deferred expenses 299 5.2.9. Transactions with subsidiaries, affiliates and others 300 5.2.10. Assets – liabilities by currency 301 5.3. ANALYSIS OF KEY INCOME STATEMENT ITEMS 301 5.3.1. Breakdown of premiums and commissions 301 5.3.2. Analysis of investment income and expenses by nature 302 5.3.3. Analysis of general expenses by type and non recurring income or loss 303 5.3.4. Analysis of income tax 303 5.3.5. Stock options 304 5.3.6. Employee share ownership plans 306 5.3.7. Compensation of the Corporate Officer 306 5.3.8. Analysis of commitments given and received 306 5.3.9. Post balance sheet events 308 5. NOTES TO THE CORPORATE FINANCIAL STATEMENTS
◆ retirement indemnities: employees benefit from additional retirement benefits paid in full 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: 1.57%, defined with respect to high quality long-term corporate bonds with maturities consistent with the duration of the obligations evaluated,
An unearned premium reserve is calculated either pro rata temporis on a contract-by-contract basis, or using a statistical method when the results do not differ significantly from the contract-by-contract method.
The acquisition costs of Life reinsurance operations are not usually deferred.
Pursuant to the provisions of Article R. 341-7 of the French Insurance Code, foreign currency transactions of the Company are recorded in their original currency. For presentation purposes, balance sheet amounts are converted into Euros using the year end exchange rates or the rate of the closest prior date.
SCOR applies the rules relating to the accounting of transactions in foreign currencies by entities subject to the rules of the Insurance Code as required by the CRC in its Opinion No. 2002-09 dated December 12, 2002.
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.
Premium portfolio entries based on the accounts of ceding companies offset the risk on accounts managed by accounting year. Non-Life premium portfolio entries represent the portion of unearned premiums paid at the start of the reinsurance contract and/or the financial year while the underlying risk (written in previous periods) relates to current or future periods. Likewise, premium portfolio withdrawals represent the portion of unearned premiums at the end of the financial year and/or of the reinsurance contract. Premium portfolio entries and withdrawals are included in the premium written and are an integral part of premium income. Life premium portfolio entries represent the portion of earned premiums paid at the start of the reinsurance contract and/or the financial year while the underlying risk (written in previous periods) relates to future events. Portfolio movements are recorded as premium and claim portfolio entries or transfers.
Income and losses in the form of premiums or interests are recorded on a pro rata basis over the life of the contract. Commitments given and received recorded at the reporting date reflect the nominal amount of ongoing transactions.
Shares in and advances to land and real estate companies 309 - - 22 287
Cash deposited with ceding companies (related and associated companies) 1,761 10 - 13 1,758
Cash deposited with other ceding companies - - - - -
◆ The cash advance with SCOR Global Life SE increased by EUR 100 million and was reimbursed for the same amount.
◆ During the year, the EUR 40 million cash advance with SCOR Auber SAS was fully reimbursed.
◆ The EUR 8 million cash advance to OPCI SCOR Properties was fully reimbursed.
Other investments mainly include bonds and other fixed income securities for EUR 1,022 million, fixed deposits for EUR 108 million and mutual funds for EUR 21 million.
During the year, the change in other investments was mainly due to the EUR 344 million net decrease in fixed deposits and the EUR 43 million net decrease in mutual funds together with the EUR 192 million net increase in bonds and other fixed income securities.
Foreign currency hedging: Cross currency swaps Yield less than 1 year 43 - 10 (41)
◆ SCOR PERESTRAKHOVANIYE.O.O.O. 10 Nikolskaya Street, 109012, Moscou, Russian Federation RUB 809 962 100.00% 21 21 - 15 7 2,136 273 -
◆ SCOR EUROPE SE 5 avenue Kléber, 75116 Paris, France EUR 5 - 100.00% 5 5 - - - - - -
(1) Data based on 2018 IFRS accounts. (2) SCOR guarantees with limits as to the amounts listed above, the underwriting liabilities of its subsidiaries pertaining in particular to their obligations relative to the payment of claims. In return, SCOR Global P&C SE and SCOR Global Life SE guarantee, on behalf and for the benefit of SCOR SE, the full and prompt performance of SCOR SE's payment obligations under all insurance, reinsurance and financial contracts entered into by SCOR SE.
◆ SCOR INVESTMENT PARTNERS SE 5 avenue Kléber, 75116 Paris, France EUR 3 11 100.00% 2 2 - 3 - - 4 2
The share capital comprising 193,085,792 shares with a par value per share of EUR 7.8769723 amounted to EUR 1,520,931,435 as at December 31, 2018.
◆ During 2018, the Board decided upon a share capital and additional paid-in capital reduction by cancellation of 1,519,860 treasury shares for a total amount of EUR 44.3 million and 172,742 shares intended to be cancelled under the share buy-back program for a total amount of EUR 5.8 million.
◆ SCOR SE launched a new 3-year contingent capital facility on January 1, 2017. It took the form of a guaranteed equity line, providing SCOR SE with EUR 300 million coverage in case of extreme natural catastrophe or life events. This facility replaced the former contingent capital facility which came to an end on December 31, 2016.
The balance includes EUR 38 million of accrued interest (as at December 31, 2017: EUR 38 million).
◆ USD 625 million in fixed rate perpetual subordinated notes was issued on March 13, 2018. The notes are redeemable by SCOR from March 13, 2029 on an annual basis on the interest payment dates. The coupon has been set at 5.25% until March 13, 2029 and will be reset every 5 years thereafter at yield for US Treasury Securities at constant Maturity (for a designated maturity of 5 years) plus the margin of 2.37%. The notes are hedged by a cross-currency swap.
◆ On June 5, 2015, SCOR issued EUR 250 million in dated subordinated notes, redeemable at interest payment dates from June 5, 2027. The coupon has been set at 3.25% (until June 5, 2027), and will be reset every 10 years at the prevailing 10-year EUR mid-swap rate +3.20%.
◆ Debt of a branch for EUR 15 million (EUR 16 million as of December 31, 2017).
For 2018, SCOR SE recognized EUR 17.5 million in financial income from loans with related companies and EUR 0.2 million in interest expenses on borrowings with related companies.
Total Less than 1 year 1 to 5 years More than 5 years Total
Other loans, deposits and guarantees received 61 61 - - 27
UNCONSOLIDATED CORPORATE FINANCIAL STATEMENTS OF SCOR SE Notes to the corporate financial statements C
The reinsurance activity of SCOR SE comprises three internal quota share retrocession treaties, one with SCOR Global P&C SE, another with SCOR South Africa and a third with SCOR Perestrakhovaniye, non-proportional retrocession from the Argentinian branch of SCOR Global P&C SE, from SCOR Switzerland AG, and from SCOR Global Life Reinsurance Ireland and the business underwritten by the Beijing and Indian branches.
The net impact of the contract termination led to a decrease of underwriting reserves for EUR 1,821 million of which: ◆ EUR 1,140 million of reinsurance reserves (of which EUR 803 million for non-life activity and EUR 338 million for the life activity); ◆ EUR 565 million of loss reserves (of which EUR 398 million for non-life activity and EUR 167 million for the life activity); ◆ EUR 101 million of IBNR (of which EUR 21 million for non-life activity and EUR 80 million for the life activity); ◆ EUR 15 million of unearned premium reserves (only for non-life activity).
The termination of this contract has resulted in a liability with Scor Global Life SE for the same amount in the account “Liabilities arising from reinsurance operations”. In the Income statement, the reversal of the assumed technical provisions resulted in an increase of the benefits and costs paid with no impact in the net technical result.
The breakdown of the reinsurance estimates – assumed is as follows as at December 31, 2018: ◆ reinsurance estimates – assumed – Life (EUR 331 million) includes premiums for EUR 313 million, claims payable amounting to EUR 3 million, and EUR 15 million of accrued interest on the cash deposit; ◆ reinsurance estimates – assumed – Non-Life (EUR 1,730 million) includes premiums for EUR 1,477 million, commissions payable of EUR 96 million and claims payable for EUR 130 million and EUR 27 million of accrued interest on the cash deposit.
C UNCONSOLIDATED CORPORATE FINANCIAL STATEMENTS OF SCOR SE Notes to the corporate financial statements 5.2.9. TRANSACTIONS WITH SUBSIDIARIES, AFFILIATES AND OTHERS
Shares other than variable income securities and bonds 4,614 - 1,048 5,662 3,916 - 1,351 5,267
Share of retrocessionaires in underwriting reserves 595 - - 595 704 - - 704
Liabilities arising from reinsurance operations 2,928 - 606 3,534 338 - 1 339
Breakdown of premiums by geographical area (country where cedent is located)
SCOR SE premiums are the result of the implementation of four internal quota share retrocession treaties entered into jointly with SCOR Global P&C SE, SCOR Global Life SE (quota share retrocession treaty ended December 31, 2018), SCOR South Africa and SCOR Perestrakhovaniye, non-proportional retrocession from the Argentinian branch of SCOR Global P&C SE, from SCOR Switzerland AG, and from SCOR Global Life Reinsurance Ireland as well as the Chinese and Indian branches’ activity.
Dividends received from subsidiaries amount to EUR 602 million and include SCOR Global P&C SE (EUR 250 million), SCOR Auber SAS (EUR 130 million), SCOR Global Life SE (EUR 100 million), Scor Capital Partners (EUR 75 million), SCOR Holding Switzerland AG (CHF 50 million or EUR 41 million), MRM (EUR 3 million), SCOR Investment Partners SE (EUR 2 million) and OPCI SCOR Properties II (EUR 1 million).
Foreign currency loss amounts to a EUR 4.4 million loss in 2018 compared to a EUR 8.8 million loss in 2017.
The corporate financial statements are prepared in original currencies and converted into Euros. Fluctuations in the exchange rates used to convert the accounts might generate a significant foreign exchange impact. To limit the exchange rate fluctuation risk, forward foreign currency transactions are entered into to hedge the main currency surpluses in the balance sheet and adjusted during the year for material arbitrage transactions involving currencies. Hedges include spot trades of foreign currencies, forward trades of foreign currencies and option strategies.
It breaks down into non-recurring income for EUR 0.4 million and non-recurring expenses for EUR (1.4) million.
Total tax losses of the consolidated French tax Group were EUR 1,117 million as at December 31, 2018 (EUR 1,091 million as at December 31, 2017).
The corporate tax profit of EUR 14.5 million relates mainly to: ◆ the contribution of subsidiaries that are consolidated for tax purposes of EUR 19.6 million; ◆ tax credit for the tax Group for EUR 2.5 million; ◆ tax expense for previous financial years for EUR (3.4) million, including tax audit settlements; ◆ income tax expense from the branches for EUR (1.3) million; ◆ income tax expense for the group applied to SCOR SE for EUR (2.9) million.
The stock option plans granted from 2003 are stock subscription plans that may give rise to a share capital increase.
In 2017, 1,519,860 options were exercised: 386,702 options exercised under the stock option plan of September 13, 2007 vested on September 13, 2011, 176,000 options exercised under the stock option plan of May 22, 2008 vested on May 22, 2012, 106,960 options exercised under the stock option plan of September 10, 2008 vested on September 10, 2012, 226,300 options exercised under the Stock option of March 23, 2009 vested on March 23, 2013, 4,000 options exercised under the stock option plan of November 25, 2009 vested on November 25, 2013, 187,898 options exercised under the stock option plan of March 18, 2010 vested on March 19, 2014, 500 options exercised under the stock option plan of October 12, 2010 vested on October 13, 2014, 131,000 options exercised under the stock option plan of March 22, 2011 vested on March 23, 2015, 47,000
In 2018, 1,278,077 options were exercised: 36,000 options exercised under the stock option plan of May 22, 2008 vested on May 22, 2012, 191,590 options exercised under the stock option plan of September 10, 2008 vested on September 10, 2012, 279,550 options exercised under the stock option plan of March 29, 2009 vested on March 23, 2013, 287,737 options exercised under the Stock option of March 18, 2010 vested on March 18, 2014, 1,700 options exercised under the stock option plan of November 25, 2009 vested on November 25, 2013, 187,898 options exercised under the stock option plan of October 12, 2010 vested on October 12, 2014, 112,500 options exercised under the stock option plan of March 22, 2011 vested on March 22, 2015, 11,000 options exercised under the stock option plan of September 1, 2011 vested on September 1, 2015, 148,500 options exercised under the stock option plan of March 23, 2012 vested on March 23, 2016, 154,000 options exercised under the stock option plan of March 21, 2013 vested on March 21, 2017, 8,000 options exercised under the stock option plan of October 2, 2013 vested on October 2, 2017, 5,000 options exercised under the stock option plan of November 21, 2013 vested on November 21, 2017, 38,750 options exercised under the stock option plan of March 20, 2014 vested on March 20, 2018 and 3,750 options exercised under the stock option plan of December 1, 2014 vested on December 1, 2018.
The amount of 2018 profit-sharing payouts has been estimated in the accounts and set aside for EUR 0,9 million.
As of January 1, 2015, the personal training account (Compte Personnel de Formation – CPF) replaces the individual training entitlement (Droit Individuel à la Formation – DIF), in accordance with Law No. 2014-288 of March 5, 2014 relating to professional training, employment and social democracy. It should be noted that the CPF is managed externally by the Caisse des dépôts et consignations.
Confirmed credits, letters of credit and guarantees given 197 195 11 11
In 2018, currency forward purchases and sales generated unrealized loss of EUR (1) million.
On December 26, 2018, SCOR SE received from BNP PARIBAS SA a EUR 150 million commitment as an overdraf facility.
As at December 31, 2018, SCOR SE has an outstanding letter of credit capacity of EUR 47 million (EUR 195 million in 2017), recognized as a commitment received from banks. This outstanding capacity can be used to provide collateral on the forthcoming underwritten business. The allocation per bank is the following: ◆ BNP Paribas: USD 13 million (EUR 12 million); ◆ Deutsche Bank: USD 1 million (EUR 1 million); ◆ Natixis: USD 11 million (EUR 10 million); ◆ Helaba: USD 2 million (EUR 2 million); ◆ Commerzbank: USD 10 million (EUR 9 million); ◆ Citibank: USD 15 million (EUR 13 million).
The guarantee given in consideration for underwriting commitments with the cedent ACE was USD 13 million (EUR 11 million). This guarantee was in the form of securities pledged to ceding companies.
As at December 31, 2018, commitments given by SCOR SE for parental guarantees amount to EUR 17,521 million (EUR 15,706 million in 2017), and benefit mainly to: ◆ SCOR Global Life SE: EUR 5,250 million (EUR 5,211 million in 2017); ◆ SCOR Global P&C SE: EUR 3,756 million (EUR 4,086 million in 2017); ◆ SCOR Holding Switzerland AG: EUR 2,705 million (EUR 2,857 million in 2017); ◆ SCOR Reinsurance Company: EUR 1,517 million (EUR 1,116 million in 2017); ◆ SCOR Global Life America Holding Inc: EUR 963 million (EUR 1,273 million in 2017); ◆ SCOR Global Life Ireland: EUR 2,203 million (no commitment in 2017).
Apart from commitments mentioned in the note above, the Company no longer has any commitment with respect to hybrid transactions such as asset swaps or index default swaps. No facts in connection with the aforementioned commitments given and received have been brought to SCOR’s knowledge, which may have an adverse impact on cash flows, cash positions or on its liquidity requirements.
In September 2016, SCOR announced that it was considering merging SCOR SE with its two European reinsurance affiliates SCOR Global P&C SE and SCOR Global Life SE, wholly-owned subsidiaries of SCOR SE, with a retroactive effect on January 1, 2019.
We conducted our audit engagement in compliance with independence rules applicable to us, for the period from January 1, 2018 to the date of our report and specifically we did not provide any prohibited non-audit services referred to in Article 5(1) of Regulation (EU) No 537/2014 or in the French Code of ethics (Code de déontologie) for Statutory Auditors.
To cover the risk related to the technical reserves estimation, our audit approach was as follows: ◆ we updated our understanding of the procedures and methods of measurement used in determining the technical reserves; ◆ we obtained an understanding of the internal controls framework and tested the efficiency of key controls established by management in order to assess the completeness and reliability of the data and of the implemented models; ◆ we examined the relevance of actuarial methods and parameters used as well as the assumptions chosen for a selection of contracts; ◆ we performed procedures to analyze differences between expected claims and occurred claims in order to control subsequently the quality of estimates performed by the management; ◆ we performed, with the support of our Non-Life actuarial team, a recalculation using our own assumptions and tools, of technical reserves for the most sensitive actuarial segments reserves; ◆ for Non-Life business, we analyzed the documentation supporting the measurement of reserves related to catastrophes, both man-made and natural; ◆ we included within our team members with specific skills in IT systems to perform procedures aiming at reviewing the internal control environment of the systems used by the management and test the functioning of several automated processes.
With regards to the specific review for the measurement of Life and Non-Life technical reserves from the affiliates, we reconciled the technical reserves and claims recorded in the financial statements of your company with the financial statements of reinsured affiliates.
SCOR SE gross written premiums amount to EUR 2,056 million, during 2018 financial year. As stated in Note 5.3.1 of the notes to the corporate financial statements, premiums written by your company are mainly premiums assumed as part of the internal reinsurance program of the Group. They include affiliates’ estimated written premiums which are then ceded to your company. Accounts not received from ceding companies at the year-end are estimated, as stated in the Note 5.1.7 of the notes to the corporate financial statements. Overall, the premiums recorded for the year (premiums reported in the accounts received from cedants and estimated premiums) correspond to the estimated premium expected at the time the policy was underwritten. Your company and its affiliates periodically review their assumptions and estimates based on experience as well as various other factors. Actual premiums can turn out to be different from management estimates. Observing a large portion of estimates in the written premiums of a financial year is specific to the reinsurance business. In this context, we considered the measurement of reinsurance premiums as a key audit matter.
We examined the reciprocity of premiums booked with the financial statements of reinsured affiliates. On the specific area of the evaluation of affiliates reinsurance premiums, our audit approach was the following: ◆ 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 premiums estimates over the period, comparing them both to the operational plan prepared by management and approved by 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 2018, we performed on a sampling basis, controls on the consistency of premium estimates based on new business information available at the underwriting department; ◆ we included, within our team, members with specific skills in IT systems to perform procedures aimed at testing automated computations and controls of Non-Life premiums estimates.
On December 31, 2018, investments in affiliates were recorded for a net book value of EUR 7,949 million, representing 60% of the total balance sheet. They are initially measured at historical acquisition cost. Subsequently, their value is determined based on their nature and holding period: ◆ For active reinsurance companies, the fair value is the revaluated net assets value including the value of Life reinsurance portfolio and the forecasts of future profits of Non-Life reinsurance, net of taxes. At each reporting date, if the fair value 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, 2018, are detailed in 5.2.1 of the notes to the corporate financial statements.
To cover the risk related to the measurement of investments in affiliates, our audit approach was as follows: ◆ examining of the estimates determined by management and analyzing the valuation methodology and the figures used, based on the information communicated to us; ◆ comparing the data used in the impairment tests of investments in affiliates to source data per entity as well as results of audit work on these affiliates, if appropriate; ◆ examining, on a sample basis, the calculation of recoverable values used by the Company.
In accordance with French law, we have verified that the required information concerning the purchase of investments and controlling interests and the identity of the shareholders and holders of the voting rights has been properly disclosed in the management report.
As at December 31, 2018, MAZARS and ERNST & YOUNG were in the 29th year and 23rd year of total uninterrupted engagement.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless it is expected to liquidate the Company or to cease operations.
Our role is to issue a report on the 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 financial statements.
◆ Obtains an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the internal control.
The Group(2) is a three-engine group driven by SCOR Global Life, SCOR Global P&C and SCOR Global Investments. The Group’s organizational choices are guided by the principles of mobilization of skills and expertise, operating efficiency, structural simplicity, clear reporting lines and balance between teams from the Group’s different entities.
The reinsurance industry has a specific feature that it does not share with other economic sectors, which tend to be marked by cycles and trends: our industry is structurally exposed to shocks. Large risks and catastrophes, which make up the raw material of reinsurance, are shocks with varying origins, sizes and consequences affecting economies and populations.
In this context, reinsurance creates diversified risk portfolios in order to minimize correlation between risks. This is achieved through the aggregation of large risks that, as a reinsurer, SCOR mutualizes by business line and by geographical area. Our Group thus builds a portfolio with a relatively regular and predictable risk profile, and SCOR limits its exposure by transferring part of these risks through retrocession and Insurance-linked securities.
(1) Except for the Remark Group (direct marketing) and Château Troplong 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 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.
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 Registration Document. Additional information about developments in the Life and Non-Life reinsurance market is provided in Section 1.3.1 of the Registration Document.
The ability to alleviate the negative consequences of risks 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 considerations.
In order to ensure that the Life division is continually up-to-date with biometric trends and scientific developments, the expertise of eight dedicated Research & Development (R&D) Centers is used to assess the key factors inherent to mortality, longevity, morbidity and policyholder behavior. Biometric risks such as 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: the Assmann Foundation on cardiovascular diseases (until June 2018), 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.
In addition, the Group has established the SCOR Corporate Foundation for Science to promote scientific research. Founded in 2011 with a EUR 7.5 million endowment for its first five-year program, the Foundation is now working on its next five-year program. Since 2011, SCOR has devoted more than EUR 13 million to promoting scientific research.
Additional information about the R&D centers, the SCOR Corporate Foundation for Science, and other research activities, including the Insurance Risk and Finance Research Centre at the Nanyang Business School (Singapore), is presented in Section 1.2.6.2 of the Group’s Registration Document.
The Group’s Executive Committee also has a CSR Committee and an operational committee encompassing the divisions, Group functions (e.g., human resources, communication, investor relations), and representatives of the Hubs.
Significant risks as defined in the aforementioned article are identified through the analysis of non-financial risks, based on the information categories referenced above and their first-level breakdown in Article R. 225-105 of the Code of Commerce, on the perception of stakeholder expectations as identified from a set of documentary sources, and on the Group’s relationship with those stakeholders. This analysis is led by the department in charge of corporate social responsibility.
2.1. THE HUMAN CAPITAL AS KEY SUCCESS FACTOR FOR THE GROUP
Thanks to the recruitment process and tools, the Group identifies the best candidates available on the market and facilitates their integration. Once hired, new employees are supported throughout their SCOR career path. The Group pays particular attention to the recognition of each individual’s performance, thanks to a homogeneous and global remuneration structure, aligned with our shareholders interests, with regulatory requirements, and with the labor market practices prevailing in the reinsurance industry. The Group also offers employees the opportunity to develop their individual skills regarding the business needs and it encourages professional mobility.
2.1.1. ALIGN STAKEHOLDERS INTERESTS AND RETAIN TALENTED PEOPLE THROUGH A MERIT-BASED COMPENSATION POLICY
SCOR maintains a holistic approach to compensation. Compensation comprises several components: a fixed and a variable portion, an immediate and a deferred portion, 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.
For employees who are not Partners, the SCOR cash bonus rewards individual performance over the previous year.
In addition, the Group pursues a policy of employee share ownership, which resulted in shares allocation to the employees (depending on their performance) in 2010, 2011, 2013, 2014, 2015 and 2018.
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 sub-divided into two levels, to take into account seniority or special achievement promotions.
The Company has a formalized and carefully designed procedure for appointing and promoting Partners implemented every year during an Executive Committee meeting. Candidates to a nomination or a promotion within the partnership must have consistently demonstrated their skills, leadership and commitment in the past.
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 pre defined 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 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.
In terms of risk and regulatory, SCOR is committed to maintaining a Remuneration 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 Remuneration Policy, to motivating and retaining its pool of talent and to being fully compliant with the regulations and guidelines defined by the regulators as regards Remuneration Policy.
(2) Amount calculated by multiplying the number of shares granted by the fair value of each plan which is calculated in accordance with IFRS.
As part of this program, the Group has implemented several initiatives in 2018. Objectives of these initatives was to promote diversity in all its forms and to encourage a global culture and good working relationships.
Equality of treatment between women and men is the subject of a global charter, in place since 2016. This charter is supported by a policy whose objective is to build a more mixed talent pool, in particular through balanced succession plans and coaching programs for leadership positions.
At the end of 2018, 29% of the Partners are women.
◆ Development of a pilot mentoring program: this program of development for high-potential employees, based on an individual sponsorship, was launched in 2017, developed in 2018 and proposed to 14 women. Due to the positive feedback, this program was integrated into the action plan proposed by the human resources department and extended to the Group’s male population.
◆ Collective agreements, regional networks and local events: signing of the agreement on the life quality at work including equal treatment between women and men (Paris); joining The Women’s Insurance Network (London); partnership with “Advance” to increase the share of women in leading positions (Zurich); organization of a lunchtime talk with the Group Secretary General to discuss the role of women in leading positions (Singapore).
More than 60 years 51-60 years 41-50 years 31-40 years Less than 31 years
With 65 nationalities and substantial cultural differences, the Group pays close attention to the conditions necessary for a collaborative work, to the integration of new employees, and to support the older and junior employees in the Company. Ambition of SCOR is thus 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.
◆ Promotion of cultural differences in the United States (“Color My World: Costumes from around the world”). In Australia, China and Japan, lunch and learn webinars were organized to raise awareness on the cultural differences. In France, employees were invited to express their feelings about the diversity question during painting and writing workshop. In the United-Kingdom, a conference has presented to employees the evolution of the LGBT matters in the insurance market in coordination with LINK (Lesbian, Gay, Bisexual, Transgender Network).
◆ Declared employees with disabilities account for 0.82% of SCOR’s workforce, or 23 employees. Over the last 5 years, this share has remained steady. They are all employed in the EMEA region that accounts for 60% of SCOR’s total workforce.
2018 achievements: ◆ Participation to the French-led governmental initiative called the “DuoDay” which took place on April 26, 2018.
◆ Provision of Yammer, innovative and secure enterprise social network through which SCOR employees connect, collaborate and coordinate in an agile way.
◆ Implementation of specific initiatives to raise awareness on employees wellbeing: “wellbeing week”, “health awareness” event, information meetings. They are a key opportunity for employees and Company to discuss the balance between private and professional life.
◆ Due to its geographical locations and applicable local laws, the Group complies with all the provisions of the International Labor Organization. The themes related to the “Elimination of discrimination in respect of employment and occupation” and “Freedom of association and the effective recognition of the right to collective bargaining” are described, in particular, in the paragraph Equal treatment between female and male employees and in Section 2.1.4 – Developing social dialogue. Labor relations within the Group can be considered as good. A good social dialogue exists in each Hub and at the European level.
Developing the expertise, knowledge and career paths is a key condition to ensure employees motivation and wellbeing, and finally the Group performance. In this regard, a whole range of facilities has been implemented to support and assist employees in their professional development. This objective of skills development has resulted in the training of nearly 98.5% of employees in 2018(1).
The annual Appraisal and Development Interview gives employees annual objectives and concrete appraisal of his or her 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.
D NON FINANCIAL PERFORMANCE DECLARATION Social impact of SCOR’s activity 2. Considering career prospects
3. Identifying the Group’s strategic needs and skills and supporting and assisting each employee
The Strategic Talent Workforce Reviews bring together the top management and the human resources department of each Company department. The reviews are organized by activity in three steps: review of the organizational structure and the business challenges, definition of action plans (training, professional development, remuneration, etc.), definition of succession plans.
2018 achievements: ◆ Implementation of new self-service e-learning modules: in compliance with the Group values and with the business requirements, SCOR University proposes a set of solutions to limit the risk taken by the employees in their daily operational activities: digital training on the code of conduct, on the cyber-risks prevention and on the personal data protection.
Additional trainings are also implemented to limit the risk taken by the employees in terms of business (training supporting the implementation of the “Solvency II” policies, training on the insurance cyber-risk, e-learning on the basics of the Enterprise Risk Management).
◆ The training represents a cost of almost EUR 1.95 million in 2018(1)(3).
◆ SCOR’s ambition is to establish a coherent and harmonized social dialogue aimed at sharing the Group’s main principles with all employees.
◆ In addition to these meetings held at the European level, social dialogue takes place at local level too. In 2018, 78 meetings (72 in 2017) were held with staff representatives (31 meetings in France(4), one meeting in Italy, 22 meetings in Switzerland, 12 meetings in Germany and four meetings in Sweden, eight meetings in Brazil).
(1) The figure includes the global e-learning programs. (2) For the EMEA Hub, the number of training hours is calculated on the basis of attendance sheets. For the other Hubs, the number of training hours is calculated on the basis of the information mentioned in the invoices sent by the providers.
“Grenelle II” Indicator: Breakdown of employees by geographical area in 2018
(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 headcounts for this year. For a breakdown of countries per Hub, see Section 2.1.5. From 2018, Essor (76 employees at December 31, 2018) is a subsidiary of SCOR Global P&C SE, managed independently from the Group in terms of human resources and therefore not aggregated in the Group figures.
Breakdown by status “Grenelle II” Indicator: Breakdown of employees by status
(1) Definition of Partner: see Section 2.1.1 – Key elements of compensation policy. The executive corporate officer is included in this population. This figure includes the decisions taken during the 2019 Partners promotions and nominations process which took place at the end of 2018.
(1) In 2018, SCOR is in exclusive negotiations with the company Workplace Options to conclude a worldwide distribution partnership agreement and the acquisition by Workplace Options of Réhalto.
(1) During the period covered, the Lloyd's Channel Syndicate (132 employees at December 31, 2018) is a subsidiary of SCOR Global P&C SE, managed independently from the Group in terms of human resources and therefore not aggregated in the Group figures.
(1) All employees paid and under a tripartite relationship between the Company, the school and the student as trainees. SCOR had 143 trainees as at December 31, 2018 (39 in France, 10 in Switzerland, 28 in Germany, nine in the US, one in Canada, 18 in the United Kingdom, five in Russia, four in Spain, one in Australia, three in Hong Kong, one in South Korea, nine in China, two in Singapore, one in India and 12 in Ireland). The trainees’ employment contracts differ depending on the country and training objectives. All trainee programs aim to introduce the students to the world of work, whether through work-study programs or vocational training courses for specific professions.
Breakdown of employees by type of working time (and by gender) “Grenelle II” Indicator: Organization of working time
“Grenelle II” Indicator: New hires (by contract type and by gender)
(1) The Group had no particular difficulties in hiring in 2018.
Methodology: the definitions of “fixed-term contract” and “trainee” may vary from one country to another. A “fixed-term contract” is a signed employment contract mentioning a termination date, a “trainee” is an employee paid by the Company under a tripartite agreement between the Company, school and student employed.
End of Fixed-term contract 3 4 7 5 14 19 11 7 18
For employees who signed several similar employment contracts during the year, only the initial hiring and the final departure are counted.
The collective agreements are concluded for a positive impact, in particular on the working conditions of employees and on the economic performance of the Company.
The programs implemented in these areas and the associated performance indicators (trainings) are described in this section.
The Group Compliance Policy is inseparable from the Group Code of Conduct. This Policy defines several principles to support the Compliance framework. One of the major principles is the respect of a risk-based approach to compliance in accordance with the SCOR Group Policy on Risk Management. This involves identifying areas of high risk within SCOR and prioritizing dedicated efforts and resources around these risks according to severity and probability, and establishing ongoing procedures aimed at Prevention, Detection and Response.
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: ◆ Group data protection policy and its related guidelines on data breach response; ◆ Group policy on anti-bribery and its appendix the corruption risk mapping; ◆ Group guidelines on sanctions and embargoes and its related processes; ◆ Group guidelines on anti-money laundering, combating the financing of terrorism and Know-Your-Customer; ◆ Group Guidelines on 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.
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 the E-learning modules, 2018 training activities included 31 training sessions in APAC, 36 training sessions in the Americas and 25 training sessions in EMEA.
In 2018, the Group completed a project designed to comply with the requirements of the GDPR that has led to the implementation of several organisational and technical measures.
The Group has appointed a Data Protection Officer in accordance with the Regulation who is in charge to maintain and build the overall compliance structure created. He works mainly with compliance officers, Legal Counsels and IT Security teams worldwide.
As a key component to Data Protection, cybersecurity has also been part of the training program for 2018.
These documents are owned by the Group Data Protection Officer, Group Chief Compliance Officer and Group Chief Information Officer, respectively. These documents are maintained and updated pursuant to SCOR’s internal procedures and define the mandatory rules applicable to all staff across the Group.
Additionally, the Group conducted a thorough risk assessment to identify the countries, sectors and activities that, within the context of SCOR’s business, expose the Group to a particular risk of corrupt activity, as well as indications of corruption that may be present regardless of country, sector or activity. This risk assessment, which is attached to the Group Policy on Anti-Bribery, is updated annually as part of the Group Compliance Plan.
The corruption risk mapping has also identified the employees that are most exposed to corruption or corrupt activity. Targeted training was provided to those employees in 2018 through a dedicated E-Learning module.
In addition to this E-Learning, SCOR regularly raised awareness of all employees on this subject via training sessions and e-mail alerts. These sessions are conducted by the Group’s legal and compliance teams.
It is the policy of SCOR to comply with all applicable laws and regulations regarding economic financial and trade sanctions. In that perspective, the Compliance function has developed and implemented a global framework to ensure the Group’s compliance with applicable laws and regulations in this area. This framework, outlined in the Group guidelines and procedures on sanctions and embargoes and their identification includes: ◆ a risk-based Analysis – differentiated by Life and P&C divisions – This analysis is updated twice yearly and guides employees (1) as to when there is a mandatory referral to the legal team, (2) plus, matters which may involve sectors subject to sanction such as military and nuclear goods; and (3) a manual screening requirement (before going on risk and before paying claims); ◆ a risk-based Know-Your-Customer process for the evaluation of new business partners and insureds; ◆ a risk-based screening protocol for database and manual screening; ◆ a clear definition of roles and responsibilities and a dedicated process for escalation, blocking and remediation in case the screening procedure results in an alert.
In addition to the above, sanctions and embargoes constitute a mandatory topic for the legal and compliance trainings conducted every year. These face-to-face training sessions are supplemented by 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.
As a reinsurer SCOR does not have any relationship with an underlying policyholder of its cedents. Most global anti-money laundering laws and regulations do not apply to reinsurance. However, as an international financial group, SCOR still has established a process to assess and analyze SCOR’s exposure to anti-money laundering and combating the financing of terrosism.
SCOR has put in place a risk-based approach, described in the SCOR’s Guidelines on Anti-Money Laundering, Terrorism Financing and Know-Your-Customer (revised in 2018). A Knowyour -Customer process is in place within the Group and specific enhanced due diligence for high-risk clients.
When SCOR carries out its activities the Group does not engage in any artificial structure that lacks business purpose or economic substance. The use of tax heaven to avoid the paiement of taxes due for activities that take place elsewhere is not a practice pursued by the Group. The Group ensures that the pricing of SCOR’s intragroup transactions complies with the OECD arm’s length principles as well as with local regulations. Accordingly, SCOR pays its taxes on the profit where the economic activities are performed.
Lastly, other compulsory disclosure exist that tend to provide further transparency on the operations of the Group. This is the Country by Country Reporting which provides an overall map of the profit, activities and tax paid by the Group worldwide. Also the “DAC 6” Directive makes the disclosure of certain aggressive tax scheme compulsory, starting for transactions occurred after June 2018.
The Group’s Climate policy sets out the main components of SCOR’s “low-carbon” strategy, as well as its objectives. It identifies the means to achieve those objectives and specifies the Group’s organization in order to ensure proper implementation. It focuses on holistic, integrated risk management, developing solutions contributing to climate change adaptation and mitigation, drawing up business segment guidelines, reducing the carbon intensity of operational processes and offsetting carbon emissions from business trips.
D NON FINANCIAL PERFORMANCE DECLARATION Climate change 4.1. HOLISTIC AND INTEGRATED RISK MANAGEMENT
Moreover, SCOR is one of the earliest supporters of OASIS, a British non-profit organization developing an open source platform for the modeling of climate events. The Group has also partnered with Climate-KIC, one of the largest public-private partnerships designed to combat climate change. Through this partnership, at the beginning of 2018 SCOR launched a feasibility study on the modeling of fire risk for property insurance and on how to reduce this risk in a broader risk context.
The Group regularly makes its expertise in risk management and managing the impact of climate change available to the French financial marketplace and public policymakers, in order to help to draw up methodologies offering insurance and reinsurance operators a better understanding of the challenges relating to combating climate change. In 2018, SCOR took part in various working groups at the Fédération Française de l’Assurance and was selected to join the Technical Group of Experts on Sustainable Finance set up under the aegis of the European Commission.
SCOR analyzes “acute” physical risks which could affect its portfolio of real estate debt, infrastructure debt and direct real estate investments. Acute physical risks are defined as risks related to events such as natural catastrophes, which include extreme weather phenomena such as cyclones, hurricanes and floods. The physical risks are analyzed using SCOR’s internal model for simulating natural catastrophes. Based on scenarios validated by the Group’s modeling teams, this model estimates potential losses from natural catastrophes. In this respect, the fact that the bulk of the investments are located in France affords reasonable protection against physical risk.
In addition, the natural catastrophe modeling teams within the Group’s P&C division try to factor the latest usable scientific knowledge into the models they use. The natural catastrophe modeling tools used by the P&C division to assess insurance risks take account of climate risk both implicitly (for example, claims activity is used as the basis for calibrating models) and explicitly (for example, using current estimates of the increase in sea levels to assess the risk of coastal flooding rather than long-term averages).
The Group also makes a quantitative measurement of its transition risk exposure that may affect its asset portfolio. Drawing on the work of Moody’s Investor Service, SCOR has identified the sectors most exposed to transition risk depending on different investment horizons and quantified the risk depending on the maturity of the securities held.
The Group takes a proactive approach to the environmental certification of its real estate investment portfolio. In addition to office buildings acquired for SCOR’s own use (see below), the real estate portfolio contains assets purchased solely for investment purposes, most of which are undergoing renovation works with the aim of obtaining environmental or energy efficiency certification.
The green part of the portfolio, which also includes green bonds, represented 6.9% of the portfolio at the end of 2018.
In addition, the Group is also involved in adaptation strategies via its asset management subsidiary, a signatory of the Principles of Responsible Investment (PRI), by creating, distributing and investing in financial products for covering natural catastrophes (cat bonds and insurance-linked securities).
For many years, the SCOR Group has practiced a policy of exclusion. Standard exclusions have gradually been added to by themed exclusions guided by risk management demands or a logic of commitment, particularly against the effects of global warming. SCOR excludes companies that generate more than 30% of their turnover from coal or that are included in the list of the 120 biggest coal-fired power plant developers published by NGO Urgewald. These exclusions have led to the liquidation of holdings in the portfolio.
Despite its lack of appetite for equities and the very limited share of this type of investment in its portfolio, SCOR exercised all the voting rights of the equities held directly.
The Group’s ESG scoring grid for coal extraction therefore comprises thresholds expressed as a percentage of Company turnover and as an absolute value in terms of thermal coal produced each year. Other criteria such as coal quality, the trend in coalmining, observance of industry standards and CSR rating are taken into account. Within the electricity generation sector, the Group’s ESG scoring grid includes a threshold expressed as a percentage of GWh generated from the use of thermal coal. Other criteria are used, such as the technology used, type of coal, CSR rating and the purpose and location of the plant in question.
To do so, the Group focuses on the following areas: ◆ environmental quality of offices and certification; ◆ energy consumption management, and renewable energy use; ◆ greenhouse gas emissions and voluntary offsetting.
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 so-called 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.
While SCOR takes environmental considerations into account in its extension or relocation projects, the Group also promotes eco-responsible operation by rolling out environmental management systems where possible. In 2018, a new office building in London was BREEAM In-Use certified. At the end of 2018, 55% of the Group’s employees within the scope of the environmental reporting process were covered by an environmental management system (50% in 2017).
The Group focuses on the management of its energy consumption sources and the purchase of energy produced from renewable sources.
Policy Section 2.1. The human capital as key success factor for the Group Section 3. Compliance policy Section 4. Climate policy
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; ◆ Combat food waste; ◆ Fight against food insecurity; ◆ Animal welfare; ◆ Responsible, equitable and sustainable food.
The environmental data presented in Section 4.4 – Business process management covers the Group as defined in Section 5.1 and integrates Channel Syndicate back into it. These companies account for 91.8% of employees 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 92% of globally consolidated employees due to the exceptions stipulated in Section 5.1 – Scope and correspondence table, and 99.6% of them were able to report on this indicator.
Consolidated data covers a 12-month period, generally from November 1, 2017 to October 31, 2018.
◆ “Scope 3”: other indirect emissions. This Scope usually includes emissions from the use of offices (so-called depreciation), business travel, commuting, waste and so on. In this Scope, SCOR focuses on air travel (the most important source of emissions) as well as rail travel and paper purchases.
NON FINANCIAL PERFORMANCE DECLARATION Statutory Auditor’s report on the review of selected SCOR SE environmental and social indicators D
Report by the independent third party, on the extra-financial performance declaration included in the management report
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.
Our independence is defined by the requirements of article L. 822-11-3 of the French Commercial Code and the Code of Ethics of the profession. In addition, we have implemented a system of quality control including documented policies and procedures regarding compliance with the ethical requirements of the professional doctrine and of the applicable legal and regulatory texts.
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.
Our work described hereinafter was performed in accordance with the provisions of article A.225-1 and seq. of the Commercial Code defining the conditions under which the independent third party performs its engagement and in accordance with the professional doctrine from the National Body of the auditors (Compagnie nationale des Commissaires aux comptes) relating to this intervention with the international standards ISAE 3000 – Assurance engagements other than audits or reviews of historical financial information.
We lead works enabling us to appreciate the compliance of the Declaration with the legal provisions and regulations and the accuracy of the Information: ◆ we took note of activity of all of the companies included in the scope of consolidation, of the presentation of the main social and environmental risks associated with this activity, and its impacts regarding respect of human rights, the fight against corruption and tax evasion with the policies related from them; ◆ we assessed suitability of the Guidelines in terms of relevance, completeness, reliability, neutrality and understandability, taking into account industry best practices where appropriate;
◆ we verified that the Declaration covers each category of information provided for in the III of Article L. 225-102-1 relating to social and environmental information, including the respect of the human rights and the fight against corruption and tax evasion; ◆ we verified that the Declaration includes an explanation of the reasons justifying the absence of the required information by the sentence 2 of the III of Article L. 225-102-1; ◆ we verified that the Declaration presents the business model and the main risks associated to the activity of all entities included in the consolidation scope, including, when relevant and proportionate, the risks created by its business relations, its products and services, with related policies, actions and results, including key performance indicators; ◆ we verified that, when they are relevant regarding the main risks and policies presented, that the Declaration presents the information required at the II of Article R. 225-105; ◆ we checked the process of selection and validation of the main risks; ◆ we verified existence of internal control and risk management procedures; ◆ we appreciated consistency of the results and key performance indicators selected regarding the main risks and policies presented; ◆ we verified that the Declaration covers the scope of consolidation, i.e. the companies included in the scope of consolidation pursuant the Article L. 233-16 with the limits specified in the Declaration.
◆ we appreciated the data collection process implemented by the entity aiming at the exhaustivity and reliability of the Information; ◆ we implement for key performance indicators and the other quantitative results which we considered the most important(1): — Analytical review to verify the correct consolidation of the collected data along with the consistency of their evolutions, — Detailed tests based on sampling to verify the correct application of the definition and procedures and to reconciliate the data with supporting documents. These works were conducted alongside some contributor entities(2) and cover between 19% and 54% of the consolidated data of the key performance indicators and results selected for these tests; ◆ we consulted documentary sources and lead interviews to corroborate the qualitative information (actions and results) which we considered the most important(3); ◆ we appreciated the overall consistency of the Declaration relatively to our knowledge of SCOR.
Risk-management technique aimed at earning stable and adequate returns and protecting capital by simultaneously managing the duration and other relevant characteristics of assets and liabilities.
An actuarial “best estimate” refers to the expected value of future potential cash flows (probability weighted average of distributional outcomes) related to prior underwritten business. Best estimates are based upon available current and reliable information and take into consideration the characteristics of the underlying portfolio.
Provision for claims which have already occurred but have not been reported yet to the insurer at the reporting date.
SCOR’s internal model is used to quantify the risks that SCOR faces. In particular, it is used to calculate the Solvency Capital Requirement (SCR).
The loss ratio is calculated by dividing Non-Life claims (including claims arising from natural catastrophes) by Non-Life premiums earned. This ratio is net of retrocession.
Sum of the Non-Life net attritional ratio, natural catastrophe ratio, commission ratio and the management expense ratio.
Gross premiums diminished by the portion of premiums paid for retrocession, as opposed to gross written premiums.
Return on equity is based on the Group’s share of net income divided by average shareholders’ equity (calculated as shareholders’ equity at the beginning of the period adjusted for the effect of all movements during the period using a prorata temporis). This return is annualized when calculated quarterly.
SCOR Global Life refers to the operating segment recording all business underwritten by entities in the Life operating segment. SCOR Global Life SE refers to the legal entity.
The technical ratio is a P&C indicator and is calculated as the sum of the loss ratio and commission ratio. This ratio is net of retrocession and is used to assess the net performance of reinsurance transactions excluding P&C management expenses.
The balance of income and expenses allocated to the insurance business and shown in the underwriting income statement.
This total displays the Group’s available short-term liquidity position. It is defined as cash and cash equivalents (which include cash held by the Group on behalf of third parties), short-term government bonds maturing between three months and twelve months from the date of purchase (included in loans and receivables) and bank overdrafts.
Present value of expected future income flows from the portfolio of in-force business, discounted by a currency-specific risk discount rate and determined in accordance with local accounting principles.
The total assets of SCOR SE as at December 31, 2018 amounted to EUR 13,288,421,215.
Shareholders’ equity stood at EUR 3,599,751,982 and subordinated liabilities at EUR 2,277,172,685. Liabilities amounted to EUR 3,595,099,722 including other loans of EUR 61,069,742.
Article D.441 I.2: Unpaid issued bills at the end of the financial year whose term is expired 0 day (indicative)
(C) Reference payment term used (contractual or legal term – article L. 441-6 or article L. 4431 of the commercial law)
In application of paragraph 5 of Article 39 of the French General Tax Code, EUR 17,178,009 of expenses are considered as non-deductible for tax income 2018. The related amount of taxation due by the Company adds up to EUR 5,914,389.
Pursuant to the provisions of Article R. 225-102 of the French Commercial Code, the following table presents a summary of SCOR SE’s operating results for each of the last five financial years: I. Financial position at the end of the year a) Social capital (in EUR millions) 1,521 1,524 1,517 1,518 1,518 c) Number of convertible bonds to shares - - - - -
II. Global Profit and loss of effectives transactions (in EUR millions)
b) Net profit before taxes, depreciations and reserves 508 (90) 507 802 355 d) Net profit after taxes, depreciations and reserves 499 (5) 647 844 387
Amount eligible for the deduction allowance specified by Article 158-3 of the French General Tax Code(2) EUR 1.65 EUR 1.65 EUR 1.50
Following the delisting by SCOR of its American Depositary Receipts (ADRs) from the New York Stock Exchange (NYSE), the final listing of the ADRs on the NYSE occurred on June 4, 2007. Since this date, the ADRs are traded on the US over-the-counter market under the code SCRYY. In addition, SCOR announced on May 24, 2007 to maintain its ADRs program managed by The Bank of New York Mellon as a sponsored level 1 facility. ADRs holders have been able to choose to hold their ADRs following the delisting from the NYSE and the end of the registration of the Company at the US Securities and Exchange Commission (SEC).
The following information and statements are fully incorporated into this Report, of which they are an integral part, in the various sections of the Registration Document referred to in the correspondence table below: Management report Registration document
Information on expenses and charges not deductible from taxes Appendix F – 1.1.2
Non financial performance declaration of the Group and SCOR SE Appendix D
Agreements entered into, directly or through an intermediary, between a corporate officer and a company which share capital is held, directly or indirectly, at more than 50% by the Company Section 2.3.2
List of the persons holding titles comprising special control rights and description thereof Section 2.3.1.2
Agreements between the shareholders of which the Company is aware likely to trigger restrictions to the transfer of shares and the exercise of voting rights Section 2.3.1.1
Rules applicable to the nomination and the replacement of the members of the Board as well as the modification of the articles of association of the Company Sections 2.1.2, 5.1.4,5.1.5 and 2.1.3
Regulation (EC) of April 29, 2004 Headings as listed in Appendix 1 of European Regulation n°809/2004 Paragraph Pages 1 Person responsible 1.1 Name and title of person responsible Appendix B Person responsible for the annual report 279 1.2 Declaration by person responsible Appendix B Person responsible for the annual report 279 2 Statutory Auditors 2.1 Auditors 4.8 Statutory Auditors 248 2.2 Resignation or non-renewal of Auditors 4.8 Statutory Auditors 248 3 Selected financial information 1.1 Selected financial information 5 to 7 4 Risk factors 3 Risk factors and risk management mechanisms 132 to 162 5 Information about the issuer 5.1 History and development of the issuer 1.2.1 & 1.2.2
Reinsurance market developments & Financial market developments 25 6.3 Extraordinary events influencing the principal business and markets 1.3.3 Significant events of the year 6.4 Dependency of the issuer with respect to patents or licenses, industrial, commercial or financial contracts and new manufacturing processes 1.2.6.2 Research and development, patents and licenses 6.5 Information on SCOR’s competitive position 1.3.4 Information on SCOR’s competitive position 27 7 Organizational structure 7.1 Brief description of the Group and of the position of the issuer 1.2.3 Organizational structure of SCOR
Information on SCOR’s competitive position & revenues and earnings summary 27 to 39 12.2 Known trends, uncertainties, demands, commitments and events reasonably likely to have a material effect on the issuer’s prospects
14 Administrative and management bodies 14.1 Information on the members of the Board of Directors and Senior Management
Board of Directors & Executive Committee 14.2 Administrative, management, and supervisory bodies and Senior Management conflicts of interest 2.1.3 Board of Directors 15 Compensation and benefits 15.1 Amount of compensation paid and benefits in-kind
Headings as listed in Appendix 1 of European Regulation n°809/2004 Paragraph Pages 17 Employees 17.1 Number of employees 2.1.7 Number of employees 78 17.2 Information on shareholdings and stock options or Company stock purchases by members of administrative and management bodies 2.2.3 Stock options and performance shares 17.3 Employee profit sharing plans 2.2.3 Stock options and performance shares 97 to 112 18 Principal shareholders 18.1 Significant shareholders known to SCOR
20.3 Financial statements 4 Consolidated financial statements 164 to 256 20.4 Auditing of historical consolidated financial information 4.9 Auditing of historical consolidated financial information 249 to 256 20.5 Date of most recently audited financial information 4.9 Auditing of historical consolidated financial information 249 to 256 20.6 Interim and other financial information N/A N/A N/A
20.7 Dividend distribution policy 1.1.3 Dividend distribution policy 7 20.8 Litigation and arbitration procedures 4.6.25 Notes to the consolidated financial statements – Note 25 – Litigation 246 20.9 Material change in financial or commercial situation 4.6.26 Notes to the consolidated financial statements – Note 26 – Subsequent events 247 21 Additional information 21.1 Share capital 5.2 Description of SCOR’s share capital 264 to 265 21.2 Charter and Bylaws 5.1 Charter and Bylaws 258 to 263 22 Material contracts 5.5 Material contracts 266 23 Third-party information and statements by experts and declarations of any interest 23.1 Expert’s report 5.3.1 Expert’s report 266 23.2 Information from third parties 5.3.2 Information from third parties 266 24 Documents on display 1.3.11 Documents on display 46 25 Information on holdings 4.7 Information on holdings 247
STATEMENT BY THE PERSON RESPONSIBLE FOR THE REGISTRATION DOCUMENT APPENDIX B 279
Statutory Auditors’ report on the report on the corporate governance prepared in accordance with article L. 225-37 of the French Commercial Code 2.4 129
Statutory Auditors’ report on the consolidated financial statements 4.9 249 to 256