SCOR’s consolidated financial statements for the financial years ended December 31, 2018, 2017 and 2016 have been prepared in compliance with IFRS issued by the International Accounting Standards Board (IASB) as adopted by the European Union (“EU”) and effective as at December 31, 2018. The term “IFRS” refers collectively to International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) and to the interpretations of the Standing Interpretations Committee (SIC) and the IFRS Interpretations Committee (IFRIC), mandatorily applicable as at December 31, 2018. See Note 1.3 – IFRS Standards applied for the first time and IFRS Standards published but not yet effective for a detailed overview on the new and amended International Financial Reporting Standards applicable in 2018 that are relevant to SCOR and adopted by the Group as endorsed by the European Union and the standards relevant to SCOR and expected to have a significant impact that were issued by the IASB but have not yet been adopted by the European Union.
Please refer to Section 1.3.3. of the Registration Document for a description of the significant events 2018.
Where the functional currency of an entity is not the same as the reporting currency used to present the Group’s consolidated financial statements, assets and liabilities of the entity are translated using the exchange rate at the reporting date and the statement of income is translated using the average exchange rate for the period. Translation differences are recognized directly in shareholders’ equity in the reserve line denominated “Currency translation adjustment”.
Movements in the translation adjustment are primarily due to the translation of financial statements of subsidiaries and branches not using EUR as their functional currency.
As at December 31, 2018, 2017 and 2016, the Group has one net investment hedge in place.
— at the end of period exchange rates if they are measured at fair value, and
— to the extent that any gains or losses arise, these are directly recorded in shareholders’ equity. In particular this affects foreign exchange differences for available for sale equity securities and exchange differences resulting from the conversion of these items which are also directly recorded in shareholders’ equity; ◆ the gains and losses resulting from the translation of net foreign investment hedges are recorded in shareholders’ equity. They are recognized in the statement of income upon the disposal of the net investment.
For the measurement of deferred acquisition costs (DAC), value of business acquired (VOBA) and reserves recognized for different insurance portfolios, SCOR applies the shadow accounting principles stipulated in IFRS 4. As the amortization of DAC (for the Life business) and VOBA is calculated using expectations for estimated revenues from investments and the measurement of reserves is based on the discount rate reflecting directly the performance of assets, the corresponding portion of the unrealized gains and losses recorded under available-for-sale financial investments are considered as shadow DAC, shadow VOBA and shadow reserves and offset directly in shareholders’ equity.
The amended International Financial Reporting Standards and Interpretations as adopted by the European Union applicable for the first time for annual periods beginning January 1, 2018, did no materially impact the Financial Statements.
◆ On January 1, 2018, IFRS 15 – Revenue from contracts with customers became applicable. The IASB issued the Standard in May 2014 and deferred the effective date to January 1, 2018 in September 2015. The EU endorsed IFRS 15 and the amended effective date on September 22, 2016. Clarifications to IFRS 15 were issued in April 2016. This amendment was endorsed by the European Union on October 31, 2017. IFRS 15 replaces IAS 11 – Construction contracts, IAS 18 – Revenue and related interpretations. The new Standard provides a comprehensive framework for recognizing revenue from contracts with customers. Revenues resulting from insurance contracts, financial instruments and leasing contracts are not in scope of IFRS 15 and consequently the impact of IFRS 15 on SCOR is only limited. Based on the Group’s analysis of the limited scope of customer contracts to which IFRS 15 must be applied, mainly such as the sale of real estate and fees from asset management for third parties, the implementation of this standard did not have a material impact on the Group’s financial position or performance.
Fair value as of 2018 year-end and the amount of change of fair value during the financial year 2018 for the two groups of financial assets meeting or not meeting the SPPI criteria are the following: In EUR millions Fair value as at
Financial assets with contractual terms that meet the SPPI test definition 17,393 (346)
◆ On May 18, 2017, the IASB published IFRS 17 – Insurance Contracts which will replace the current guidance in IFRS 4 – Insurance Contracts. On November 14, 2018, the IASB voted to propose a one-year deferral of the effective date for IFRS 17 to January 1, 2022. The IASB also decided to propose extending to 2022 the temporary exemption for insurers to apply IFRS 9, so that both IFRS 9 and IFRS 17 can be applied at the same time. IFRS 17 will significantly change the accounting for insurance contracts as currently applied. IFRS 17 introduces a current fulfilment measurement approach as the general model for all insurance and reinsurance contracts. Insurance obligations will be the sum of current fulfilment cash flows and the unearned profit for a contract or group of contracts. Current fulfilment cashflows comprise the discounted expected future cash in- and outflows in the boundary of a contract or group of contracts, including a risk adjustment. The unearned profit is called CSM (Contractual Service Margin). Contracts that are onerous on initial recognition require an immediate loss recognition. Insurance contracts will be re-measured based on current market information at each reporting date. Under IFRS 17, the performance of the Group will mainly be depicted through the insurance service result (the profit earned from providing (re)insurance coverage) and the financial result (investment income from managing insurance assets and insurance finance expense from discounting insurance obligations). Gross written premiums will no longer be presented on the face of the income statement. Presentation of balance sheet and income statement will change under IFRS 17 compared to current practice. The new Standard also requires additional disclosures and reconciliations to enable users of the Financial Statements to understand the amounts recognized on the balance sheet and in total comprehensive income as well as the risks embedded in insurance contracts that the Group issues. IFRS 17 is expected to require significant changes in systems and processes at potentially substantial cost. SCOR has worked on the implementation phase of the IFRS 17 project throughout 2018. Developments of potential changes to IFRS 17 are being closely monitored to ensure consequential impacts on the implementation work are timely taken into account. The IASB’s tentative decision to postpone the effective date of IFRS 17 by one year has been considered in the overall project planning.
Investment funds and real estate entities are fully consolidated or recorded using the equity method in accordance with the aforementioned principles. Non-controlling interests in fully consolidated investment funds are presented in “Other liabilities” as the third-party holders have an unconditional right to sell their holdings to SCOR. 100% of assets (including insurance business investments and cash and cash equivalents), liabilities, cash flows and income statement of the fully consolidated funds, are therefore reflected in SCOR’s consolidated financial statements.
SCOR Services Asia-Pacific Pte Ltd Singapore 100 100 100 100 Full
SCOR Global Life Australia Pty Ltd. Australia 100 100 100 100 Full
Aggregate amount of the reporting entity’s share of net income/(loss) (8) (1)
The table above is based on 2018 and 2017 provisional financial information.
During the first quarter 2018, MutRé and M&S Brazil/Essor ceased being accounted for under equity method, for the carrying value of EUR 45 million and EUR 8 million respectively, and are fully consolidated as SCOR obtained control. (See Note 3 – Acquisitions and disposals).
During the second quarter 2018, the Group sold its remaining participation in Asefa for EUR 4 million. In 2017, the Group had partially sold its participation for EUR 3 million (investment held decreased from 19.97% to 9.97%), but had retained its significant influence.
The Group sponsors a number of special purpose vehicles (SPVs) designed to reduce SCOR’s exposure to catastrophe losses and to extreme mortality events through the transfer of risk to external investors.
In February 2015, SCOR sponsored a catastrophe bond, Atlas IX Series 2015-1, which provides the Group with a multi-year risk transfer capacity of USD 150 million for US Named Storm and
On January 13, 2016, SCOR successfully sponsored a new catastrophe bond, Atlas IX Series 2016-1, which provides the Group with multi-year risk transfer capacity of USD 300 million to protect itself against US Named Storm and US and Canada Earthquake events. The risk period for Atlas IX 2016-1 runs from January 13, 2016 to December 31, 2019. The instrument is accounted for as a derivative instrument.
Following the exceptional series of large natural catastrophes that occurred during the second half of 2017, 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.
On June 1, 2018, as part of its policy of diversifying its capital protection tools, SCOR sponsored a new catastrophe bond , Atlas
The transaction, which was subject to the authorization of the ACPR and the relevant competition authorities, received approval from all regulatory bodies.
SCOR has been a 33% shareholder and a major technical and commercial partner of MutRé since the company was created in 1998. Until December 31, 2017, MutRé was accounted for as an equity method investee. It has been fully consolidated in the SCOR Group financial statements since January 1, 2018.
The purchase price has been allocated based on a provisional estimate of the fair value of assets acquired and liabilities assumed at the date of acquisition. The assets acquired and liabilities assumed are recorded at their fair values for purposes of the opening balance sheet and included in the consolidated accounts of SCOR using the Group’s accounting principles in accordance with IFRS from January 1, 2018.
On February 13, 2018, the Boards of Directors of SCOR Global Life SE and MutRé approved the merger of the two entities with a retroactive effect on January 1, 2018. The merger was approved by the ACPR on March 20, 2018.
The provisional fair value of the assets acquired and liabilities assumed as of January 3, 2018 is as follows: MutRé – Fair value of the assets acquired and liabilities assumed In EUR millions Provisional allocation
The main impact results from the consideration paid (EUR 68 million) and is presented in investment activities.
On April 10, 2017, SCOR exercised an option over 80% of the capital and voting rights of Château Mondot S.A.S., a French company managing a vineyard located in the Bordelais region of France, Château Troplong Mondot (Premier Grand Cru Classé B of Saint-Émilion). This acquisition was subject to the regulatory approval by the SAFER (a French agricultural authority) at the end of a two-month review period, which ended on July 6, 2017. The acquisition of control generated a gain of EUR 13 million on the previously held 20% equity interest, recognized in other operating income.
Fair values have been determined by independent appraisers, having a wide and extensive experience in the valuation of French vineyards, including related trademarks.
Tangibles assets refer to lands and vineyards, wine inventories and other tangible assets. Their fair values have been determined by an independent appraiser based on comparable transaction method, market prices or independent expert valuation.
No pro forma information was required since the financial situation of the Group was not significantly impacted by the consolidation of Château Mondot S.A.S.
Impact of Château Mondot S.A.S acquisition on consolidated statement of cash flows
The main impact resulted from the consideration paid (EUR 178 million) and was presented in investment activities.
The Group did not enter into any acquisition or disposal of consolidated subsidiaries in 2016.
SCOR Global Investments is the asset management division of the Group. Its role is complementary to the two reportable operating segments as it manages SCOR Global P&C’s and SCOR Global Life’s investment assets associated with their contract liabilities. SCOR Global Investments also manages third-party assets, however this activity is currently considered not material. Therefore, SCOR Global Investments is not considered a separate reportable operating segment for the purposes of IFRS 8 – Operating segments.
Management reviews the operating results of the SCOR Global P&C and SCOR Global Life segments individually for the purpose of assessing the operational performance of the business and to allocate resources. The amount of intersegment transactions, primarily in relation to gross written premiums, is not significant. Hub shared service costs are allocated to the divisions using a headcount allocation key.
Change in unearned premiums reserves (42) (161) - (203) (26) (165) - (191) (15) (86) - (101)
Revenues associated with financial reinsurance contracts 11 - - 11 7 - - 7 8 - - 8
Change in ceded unearned premiums reserves - 35 - 35 - 8 - 8 (2) (12) - (14)
OPERATING RESULT (BEFORE IMPACT OF ACQUISITIONS) 371 393 (132) 632 342 265 (116) 491 396 680 (125) 951
Goodwill arising from insurance activities 45 743 788 49 739 788
Share of retrocessionaires in insurance and investment contract liabilities 650 1,491 2,141 702 1,335 2,037
Share of retrocessionaires in insurance and investment contract liabilities 1,601 506 34 2,141 1,636 370 31 2,037
Cash and cash equivalents at January 1 509 492 1,001 682 1,006 1,688 861 765 1,626
Net cash flows provided by/(used in) operations 299 592 891 558 586 1,144 250 1,104 1,354
Net cash flows provided by/(used in) investing activities (93) (8) (101) (356) (924) (1,280) (259) (109) (368)
Net cash flows provided by/(used in) financing activities (145) (493) (638) (330) (137) (467) (158) (737) (895)
Cash and cash equivalents at December 31(1) 576 599 1,175 509 492 1,001 682 1,006 1,688
Goodwill arising on companies accounted for under the equity method is included within the carrying amount of those investments.
Goodwill arising from non insurance activities is allocated to a separate CGU and tested for impairment at entity level.
As of December 31, 2018, a change of 0.5 point in the post-tax risk adjusted discount rate or in the growth rate applied beyond the plan would not lead to the recognition of an impairment loss.
(1) Disposals and amortization of VOBA in 2018 include EUR 146 million (2017: EUR 6 million) resulting from the derecognition of VOBA due to treaty terminations. Regular amortization related to business in force amounts to EUR (89) million for the year ended December 31, 2018 and EUR (41) million for the year ended December 31, 2017.
The Group classifies its financial assets in the following categories: available-for-sale, fair value through income, loans and receivables, derivative instruments and cash and cash equivalents. Currently no assets are classified as heldto -maturity. Sales and purchases of assets are recognized on the trade date. Once a financial asset has been recorded, it is measured according to its asset category, determined according to the methods set forth below. Financial assets are derecognized when the contractual rights to the cash flow of the financial asset expire or are transferred, and the Group has transferred substantially the risks and rewards incidental to the ownership of the financial asset.
Cash and cash equivalents Note 11 1,175 1,175 - - -
Investments at fair value through income 1,157 266 891 - -
Cash and cash equivalents Note 11 1,001 1,001 - - -
Available-for-sale investments include EUR 71 million of investments which are measured at cost (December 31, 2017: EUR 59 million). These investments primarily include equity securities and funds which are not listed.
In 2018 and 2017 respectively, there were no material gains or losses realized on the disposal of available-for-sale investments which were previously carried at cost.
Total impairment losses recognized in 2018 amounted to EUR 6 million (2017: EUR 8 million), relating mainly to EUR 4 million on the equity portfolio (2017: EUR 3 million), EUR 0 million on loans and receivables (2017: EUR 4 million) and EUR 2 million on the debt securities portfolio (2017: EUR 0 million).
The Group provides disclosures on the measurements of financial instruments held at fair value using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The level in the fair value hierarchy is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement. Assessing the significance of a particular input to the fair value measurement requires judgment, considering factors specific to the asset or liability. At each reporting date, the Group considers the classification relevancy of financial instruments that are measured at fair value. The valuation methodology of financial instruments is regularly monitored to identify potential reclassifications. The fair value hierarchy has the following levels: ◆ Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
The Group has certain investments which are valued based on models prepared by internal and external experts using observable market inputs. These primarily comprise structured products, other than securities issued by government agencies for which the market is considered active, hybrid tier 1 and tier 2 corporate debt, private placements, inflationlinked government assimilated bonds, specific alternative investments and derivative instruments.
◆ Level 3: valuation inputs for the asset or liability which are not based on observable market data (unobservable inputs).
The value of these instruments is neither supported by prices observable on current market transactions in the same instrument nor is it based on available market data. If a fair value measurement uses inputs based significantly on unobservable inputs it is classified within level 3 of the fair value hierarchy. Level 3 instruments consist mainly of derivative instruments primarily relating to the Atlas catastrophe and mortality bonds.
For available-for-sale equity securities which are listed on an active market, a line-by-line analysis is performed when there has been a decline in fair value as compared to the initial purchase price of more than 30%, or a consistent unrealized loss over a period of more than 12 months. The different factors considered in this analysis include the existence or inexistence of significant adverse changes in the technological, market, economic or legal environment in which the issuer operates. After consideration of these factors, if a security remains unimpaired, the Group ultimately considers objective evidence of impairment, as per IAS 39, by reference to three further key criteria being the existence or not of: ◆ a consistent decline of more than 30% for 12 consecutive months; or
For certain investments, in addition to the above impairment guidelines, SCOR takes into consideration other important factors such as: ◆ the fact that the asset is specifically excluded from any actively traded portfolio; ◆ its ability and intent to continue to hold the investment for a significantly longer period than a normal investment; ◆ its business relationship with the investee; and
◆ there is a duration of decline of more than 48 months without recovery in net asset value being observable; and
◆ the net asset value has not recovered to at least its initial purchase price after an additional 12-month period.
(2) Additions to derivative instruments include the new contingent capital facility. (3) Disposals of derivative instruments correspond to the derecognition of Atlas IX Series 2013-1 (Extreme Mortality Risk Transfer Contract). Refer to Note 2.3
There were no material transfers between level 1 and level 2 in 2018 and 2017, respectively. There were also no changes in the purpose of a financial asset that subsequently resulted in a different classification of that asset.
Real estate held by the Group is classified as investment property when it is held to earn rental income, for capital appreciation or both. Properties are measured at cost, net of accumulated depreciation and impairment losses. Depreciation is recorded on a straight-line basis over the useful lives of the assets as follows: Category Useful life
Rental income Rental income from investment properties is recognized on a straight-line basis over the term of current rental agreements.
In 2018, increase in real estate investments related to the costs of existing buildings currently under construction and renovation work for a total of EUR 37 million. Disposals relate to the sale of one building, resulting in a gain on sale of EUR 9 million. Impairments for the period are recognized to reflect the recoverable amount related to two retail buildings for a total of EUR 7 million.
The following table summarizes the debt and equity securities and unrealized gains/(losses) by class of securities classified as available for sale and at fair value through income: In EUR millions
(1) During 2018 and 2017, SCOR had no exposure to the sovereign debt of Portugal, Ireland, Italy, Greece.
As at December 31, 2018, the net unrealized gain (loss) on debt securities comprised EUR 56 million in unrealized gains and EUR 434 million in unrealized losses (as at December 31, 2017: EUR 144 million in unrealized gains and EUR 129 million in unrealized losses).
The net unrealized gain (loss) on equity securities as at December 31, 2018 comprised EUR 72 million in unrealized gains and EUR 30 million in unrealized losses (as at December 31, 2017: EUR 216 million in unrealized gains and EUR 20 million in unrealized losses).
Short-term investments include EUR 40 million that are carried at fair value at December 31, 2018 (December 31, 2017: EUR 8 million). Other loans and receivables are carried at cost, which approximates their fair value at December 31, 2018 and 2017.
◆ the hybrid instrument is not measured at fair value through income.
Where the embedded derivative represents a significant part of the instrument and cannot be separated from the host contract, the hybrid instrument is treated as an instrument held for trading. Gains and losses resulting from changes in the fair value of the hybrid instrument are recognized in the statement of income in the period during which they occur.
Atlas IX – extreme mortality risk transfer contract - - - - - (3) - -
Atlas IX 2015 and 2016 catastrophe bond transactions (see Note 2.3 – Information related to unconsolidated structured entities) are recorded as derivative assets recognized at fair value through income and as other liabilities representing the value of interest payments. Atlas IX catastrophe bonds are valued using an expected cumulative loss model that is based on a combination of market inputs, to the extent that trades in these instruments are active, and catastrophe modeling tools developed by third-party companies (AIR/RMS). These assets are disclosed as level 3 investments within insurance business investments (see Note 7.1 above).
The significant unobservable inputs used in the valuation model are: Unobservable inputs Atlas IX Series 2016-1
Expected loss US and Canadian Earthquake based on AIR model: 2.59%
Amounts recorded in the statement of income include transaction costs that are expensed at inception as other operating expenses. Changes in fair value through income as presented above are recognized as other operating expenses or other operating income.
Cash-flow hedge accounting is applied. The fair value of the swaps is obtained from the banking counterparty using market inputs. As part of the usual analysis of accounts processes these thirdparty valuations are checked for reasonableness against internal models. The total related notional amount is USD 625 million as at December 31, 2018 (December 31, 2017: CHF 565 million). The fair value of cross currency swaps is EUR 34 million as at December 31, 2018 (EUR 20 million as at December 31, 2017). No inefficiency was identified on the remaining swap during 2018.
At December 31, 2018 and 2017, one forward currency contract is designated as a hedge of a net investment (see Note 12 – Information on share capital, capital management, regulatory framework and consolidated reserves).
The outstanding contracts at December 31, 2018 and 2017, converted into EUR at the closing rates, were as follows: In EUR millions
See Note 12 – Information on share capital, capital management, regulatory framework and consolidated reserves, for the details on the issuance of warrants to UBS in the context of the contingent capital facility program.
NOTE 8. ACCOUNTS RECEIVABLE FROM AND PAYABLE ON ASSUMED AND CEDED INSURANCE AND REINSURANCE TRANSACTIONS
Accounts receivable from ceded reinsurance transactions 112 155 267 73 73 146
Liabilities for cash deposits from retrocessionaires (258) (311) (569) (340) (334) (674)
Accounts receivable from and payable to cedents and retrocessionaires are mostly due in less than one year. A complete aging of financial assets is included in the Registration Document in 3.5.2 – Management of credit risks.
Other intangible assets consist primarily of customer-related intangible assets arising from Non-Life business combinations and purchased software or development expenditure related to software.
Other intangible assets with finite useful lives as at December 31, 2018 amounted to EUR 289 million (December 31, 2017: EUR 159 million).
The increase during the year ended December 31, 2018 of EUR 27 million net of amortization mainly comprises the capitalization of software development costs relating to the Group’s accounting system and technical accounting system.
The increase during the year ended December 31, 2017 of EUR 142 million net of amortization mainly comprises EUR 136 million for a trademark with indefinite life due to the change in scope relating to Château Mondot (see Note 3 – Acquisitions and disposals).
The Group conducted its annual assessment of the amortization periods and amortization methods of these finite useful life intangible assets and concluded that both the amortization periods and existing amortization methodology are appropriate. The amortization expense recognized for other intangible assets with finite useful life was EUR 19 million, EUR 8 million, and EUR 17 million, for the years ended December 31, 2018, 2017, and 2016 respectively.
Other intangible assets also include indefinite useful life intangible assets associated with Lloyd’s syndicate participations acquired through the Converium business combination. The Lloyd’s intangible assets with a carrying amount of EUR 9 million as at December 31, 2018 (as at December 31, 2017: EUR 9 million) are deemed to have an indefinite useful life due to the ability to realize cash for these contractual rights through the Lloyd’s auction process.
Further intangible assets with an indefinite useful life amounted to EUR 12 million as at December 31, 2018 (December 31, 2017: EUR 13 million).
Intangible assets with an indefinite useful life are tested for impairment at least annually. The prices of the Lloyd’s syndicate participations from the Lloyd’s auction process are key inputs in the impairment tests conducted, which demonstrated that there was no impairment. The trademark related to Château Mondot’s was tested for impairment with the result that no impairment charge needs to be recognized (refer to Note 5 – Goodwill, for details).
Tangible assets as at December 31, 2018 amounted to EUR 718 million compared to EUR 702 million as at December 31, 2017 and primarily relate to own use property, office furniture and equipment, and building fixtures and fittings.
The increase in 2018 is related mainly to an acquisition of EUR 21 million and to improvements to own use properties for a total of EUR 21 million. These increases are partially offset by the disposal of partially amortized tangible assets (furniture and office equipment) for EUR 17 million. The change in scope of consolidation corresponds to the integration of ESSOR SEGUROS S.A for EUR 1 million.
The change in scope of consolidation in tangible assets in 2017 is related to the acquisition of Château Mondot S.A.S. for EUR 96 million (see Note 3 – Acquisitions and disposals).
SCOR entered into an agremment in November 2016 to purchase a building in Paris.This building has been delivered in 2017 in accordance with the terms of the contract.
Capitalization of new contracts over the period/Change over the year 148 598 746 233 602 835 160 553 713
Change in scope of consolidation and contract portfolio exchanges - 12 12 - - - - - -
Changes in foreign exchange rates 18 7 25 (48) (38) (86) 9 (16) (7)
In EUR millions As at December 31, 2018 As at December 31, 2017 in 2018
The Group’s liquidity, defined as cash, cash equivalents, bank overdrafts and short-term government bonds with maturities of more than three months and less than twelve months, which is well diversified across a limited number of banks, amounts to EUR 1,215 million as at December 31, 2018 (December 31, 2017: EUR 1,009 million). It includes EUR 40 million of short-term governments bonds as at December 31, 2018 (December 31, 2017: EUR 8 million).
The following table reconciles consolidated net income to net cash flows provided by/(used in) operations as presented in the consolidated statement of cash flows: In EUR millions 2018 2017 2016
Net cash flows provided by/(used in) operations, excluding changes in working capital 740 1,310 860
Dividend and interest cash receipts relating to investments held during the year were EUR 20 million (2017: EUR 23 million and 2016: EUR 24 million) and EUR 551 million (2017: EUR 445 million and 2016: EUR 494 million), respectively.
NOTE 12. INFORMATION ON SHARE CAPITAL, CAPITAL MANAGEMENT, REGULATORY FRAMEWORK AND CONSOLIDATED RESERVES
Treasury shares and any directly related costs are recorded as a deduction from shareholders’ equity. When treasury shares are subsequently sold or reissued, any consideration received is included in consolidated shareholders’ equity net of any directly related costs and tax effects. Accordingly, there is no related income, gain or loss recognized in the statement of income.
The caption “Share-based payments” is used to offset the cost of services received in exchange for the granting of shares or stock options to Group employees. As the instruments granted are subordinated to the fulfillment of a vesting period by the employee, the increase in equity is initially recognized at the grant date in the line “Sharebased payments”. Once the shares are fully vested, they are recognized as ordinary shares under “Share capital” and “Additional paid-in capital”.
The authorized share capital of the Company at December 31, 2018 was 193,085,792 shares with a par value of EUR 7.8769723 each compared with authorized share capital of 193,500,317 shares with a par value of EUR 7.8769723 at the end of 2017 and with authorized share capital of 192,534,569 shares with a par value of EUR 7.8769723 at the end of 2016.
The number of ordinary shares which were issued and fully paid in circulation as at December 31, 2018, 2017 and 2016 was as follows: Share capital decrease – decision of the board (1,692,602) (554,112) (672,638)
Share capital increase – exercise of stock options – during the year 1,278,077 1,519,860 554,112
In 2018, the movements are due to the following operations: ◆ the Board of Directors’ meeting held on April 26, 2018 decided to reduce the Group’s share capital by cancellation of 1,692,602 treasury shares for EUR 50 million (EUR 13 million in share capital and EUR 37 million in additional paid-in capital); ◆ the issuance of new shares relates to the exercise of stock options for EUR 23 million (EUR 10 million in share capital and EUR 13 million in additional paid-in capital). This resulted in the creation of 1,278,077 new shares throughout the year.
In 2017, the movements are due to the following operations: ◆ the Board of Directors’ meeting held on April 27, 2017 decided to reduce the Group’s share capital by cancellation of 554,112 treasury shares for EUR 14 million (EUR 5 million in share capital and EUR 9 million in additional paid-in capital); ◆ the issuance of new shares relates to the exercise of stock options for EUR 27 million (EUR 12 million in share capital and EUR 15 million in additional paid-in capital). This resulted in the creation of 1,519,860 new shares throughout the year.
The number of shares held as treasury shares by the Group and or its subsidiaries at December 31, 2018 amounted to 9,137,286 shares compared to 5,866,249 shares at the end of 2017. These treasury shares are not entitled to dividends.
The resolution to be presented to the Annual Shareholders’ Meeting called to approve, during the first half of 2019, the financial statements for the financial year 2018, sets out the distribution of a dividend of EUR 1.75 per share for the financial year 2018.
The primary source of capital used by the Group is shareholders’ equity and subordinated debt. The leverage ratio as at December 31, 2018 is 27.5%. For a description of the leverage ratio, see Registration Document, Section 1.3.6 – Financial position, liquidity and capital resources.
SCOR believes that its working capital is sufficient to meet the requirements of its consolidated companies. The Group reconciles its strategic objectives with the protection of its capital through its “capital shield” policy, which articulates the Group’s risk appetite. This policy is based on an economic approach and aims to protect the Group against potential shock losses, some of which are not immediately recognized from a pure accounting view. The policy builds on the following four concepts: Traditional retrocession
Retrocession used by the Group includes a wide range of protections including Proportional and Non-Proportional covers. The Group selects the level of its retrocession to third parties once a year to ensure that its retained risk profile is in line with its specific risk tolerance limits, to help the Group achieve its return on capital and solvency objectives.
On July 27, 2017, SCOR announced its intention to buy-back own shares on the basis of robust underlying fundamentals and strong solvency. From that date, SCOR started buying back its own shares with an amount up to EUR 200 million over the next 24 months, subject to market conditions. The buy-back has been conducted within the framework approved by the Annual Shareholders’ Meeting held on April 27, 2017, renewed by the 2018 Annual Shareholders’ Meeting, which authorizes a share buy-back program capped at 10% of the Group’s share capital.
The following table sets out an overview of the debt issued by the Group: In EUR millions Maturity
(1) Includes EUR 38 million in accrued interest at December 31, 2018 (December 31, 2017: EUR 38 million). (2) These debts are not publicly traded. Therefore, the carrying amounts are reflective of their fair value.
SCOR has entered into a cross-currency swap which exchanges CHF 250 million of the principal for EUR and exchanges the CHF coupon on the notes for EUR 6.2855% and matures on June 8, 2018. SCOR has entered into a second cross-currency swap which exchanges CHF 65 million of the principal for EUR and exchanges the CHF coupon on the notes for fixed-rate EUR 6.235% and matures on June 8, 2018. See Note 7 – Insurance business investments (Derivative instruments).
On November 30 2018, SCOR redeemed the CHF 250 million undated subordinated debt. The related cross currency swaps matured.
Real estate financing relates to the acquisition of investment property financed by bank loans of EUR 510 million (December 31, 2017: EUR 479 million), including real estate financing related to MRM property for EUR 75 million (December 31, 2017: EUR 74 million). The main real estate financing amounts to EUR 200 million and is used to finance the Group’s head office in Paris, avenue Kléber. This asset was refinanced for EUR 200 million in June 2018 for a term of 10 years at a fixed interest rate of 1.73%.
The other real estate financing is used to finance other property owned by the Group and bears fixed-rate interest or interest indexed to 3-month Euribor covered by interest rate swaps and redeemable between 2019 and 2026. Interest rate swaps related to this financing have been accounted for as cash flow hedges (for further details, see Note 7 – Insurance business investments – Derivative instruments).
In 2018, the main variation in property debts is due to the refinancing of the head office for EUR 42 million. The increase in other debts corresponds mainly to the new financing of Château Mondot for EUR 32 million.
The post-employment benefits granted by the Group vary based on legal obligations and local requirements. Group employees are entitled to short-term benefits, recognized as an expense for the period by the different entities of the Group (paid leave, sick leave and profit sharing), and long-term benefits and post-employment benefits classified as defined benefit or defined contribution plans (pensions).
Defined benefit plans are those where an amount is paid to the employee upon retirement, which is dependent upon one or several factors such as age, years of service and salary. Defined benefit obligations and contributions are calculated annually by independent qualified actuaries using the projected unit credit method, taking into consideration actuarial assumptions, salary increase, retirement age, mortality, turnover and discount rates. Assumptions defined are based on the macroeconomic environment of each country where the Group operates. Modifications to actuarial assumptions or differences between these assumptions and actual outcomes give rise to actuarial differences which are recorded in other comprehensive income during the period in which they occur, in accordance with Group accounting principles. The obligation recognized on the balance sheet represents the present value of the defined benefit obligation at reporting date, less the market value of any plan assets, where appropriate, both adjusted for actuarial gains and losses and unrecognized past service cost.
In assessing the Group’s liability for these plans, the Group uses external actuarial valuations which involve professional judgments and estimates of mortality rates, rates of employee turnover, disability, early retirement, discount rates, future salary increases and future pension increases. These assumptions may differ from actual results due to changing economic conditions, higher or lower departure rates or longer or shorter life spans of participants. These differences may result in variability of pension income or expenses recorded in future years. Actuarial gains and losses arising from experience adjustments and the effects of changes in actuarial assumptions are reflected in shareholders’ equity.
Provisions amounted to EUR 202 million and EUR 182 million at December 31, 2018 and 2017 respectively, and include postemployment benefits related to pension plans of EUR 198 million (2017: EUR 177 million) and provisions for other long-term benefits of EUR 4 million (2017: EUR 5 million).
The amounts paid under defined contribution plans were EUR 29 million, EUR 27 million, and EUR 26 million for the years ended December 31, 2018, 2017, and 2016 respectively.
Service cost, net of plan amendments 7 3 4 - 11 4 7 - 10 4 6 -
The actual returns on plan assets were EUR (4) million for the year ended December 31, 2018 (2017: EUR 17 million and 2016: EUR 5 million).
Actuarial (gains)/losses due to change in assumptions(2) 7 19 (7) (5) (4) 1 (10) 5 28 15 10 3
Interest income on plan assets 4 1 1 2 4 1 1 2 5 1 1 3
Asset gains/(losses) due to experience (8) (1) (3) (4) 13 2 7 4 (1) 1 2 (4)
Fair value of plan assets as at December 31 248 30 159 59 242 30 154 58 238 28 148 62
TOTAL FUNDED STATUS AS AT DECEMBER 31 – DEFICIT 202 134 28 40 182 112 28 42 197 112 41 44
(1) In 2016, the US plans beneficiaries had the opportunity to decide to settle their benefit by perceiving a lump sum instead of annuities. The election period ended on December 31, 2016.
Actuarial (gains)/losses immediately recognized in other comprehensive income (OCI) 24 23 1 - (12) (2) (11) 1 39 17 13 9
Accrued/(Prepaid) as at December 31 202 134 28 40 182 112 28 42 197 112 41 44
As at December 31, 2018, employer contributions for the year ahead were expected to amount to EUR 14 million (2017: EUR 16 million).
At December 31, 2018, other provisions (EUR 22 million; at December 31 2017: EUR 22 million) include mainly EUR 15 million related to provisions for litigation (2017: EUR 13 million) and EUR 4 million for provisions mainly covering contingent liabilities related to the Generali US acquisition in 2013 (2017: EUR 6 million).
The Group maintains reserves to cover its estimated liability for future claims and benefit payments resulting from reinsurance treaties known and incurred but not reported (IBNR). Reserves are reviewed by management during the year, using new information as soon as it is available, and are adjusted if necessary. Management considers many factors when establishing reserves, including: ◆ information from ceding companies; ◆ historical developments, such as reserve patterns, claims payments, number of claims to be paid and product mix; ◆ internal methods to analyze the Group’s experience; ◆ most recent legal interpretations concerning coverage and commitments; ◆ economic conditions; ◆ biometric developments such as mortality, morbidity and longevity; and
Reinsurance reserves are presented gross excluding the share retroceded to SCOR’s reinsurers and measured on the level of individual reinsurance contracts or homogeneous segments of contracts. Retroceded reserves are estimated using the same methods and assumptions and are presented as assets.
However, it is difficult to accurately value the amount of reserves required, especially in view of changes in the legal environment, including civil liability law, which may impact the development of the reserves. While this process is complicated and subjective for the ceding companies, the inherent uncertainties in these estimates are even greater for the reinsurer, primarily because of the longer time period between the date of an occurrence and the request for payment of the claim to the reinsurer, the diversity of contract development schemes, whether treaty or facultative, dependence on the ceding companies for information regarding claims, and differing reserve practices among ceding companies. In addition, trends that have affected development of liabilities in the past may not necessarily occur or affect liability development to the same degree in the future. Thus, actual losses and policy benefits may deviate, perhaps significantly, from estimates of reserves reflected in the Group’s consolidated financial statements.
claims, and are calculated on the basis of their ultimate cost, undiscounted, except for workers’ compensation claims in the US, payment in annuity on Motor Liability and Medical Malpractice which are discounted.
For the Non-Life segment, the test is performed in the event the ultimate underwriting combined ratio is in excess of 100% of the unearned premium reserve, net of deferred acquisition costs. The liability adequacy test is performed at the level of the actuarial segment and then aggregated at the entity level.
Derivatives embedded in reinsurance contracts that meet the definition of an insurance contract and are closely linked with the features and risks of the reinsurance host contract are not separated and are measured in accordance with the reinsurance host contract.
The next table of the section provides Non-Life claims development information per underwriting year and reporting period, taking into account the neutralization of fluctuations in foreign exchange rates.
The second part of the table shows net paid claims only and net earned premiums per underwriting year at constant exchange rates.
Gross UPR – end of year 1,099 1,135 1,384 1,516 1,683 1,663 1,938 2,239 2,261 2,270 2,496
Ceded UPR – end of year 40 40 51 84 93 101 142 187 167 160 208
Net UPR – end of year 1,059 1,095 1,333 1,432 1,590 1,562 1,796 2,052 2,094 2,110 2,288
Gross DAC – end of year 227 238 278 325 359 379 441 536 551 560 615
Ceded DAC – end of year 1 - 1 5 7 8 10 14 13 9 25
(1) At period end exchange rate. (2) At constant exchange rate.
The table below presents a reconciliation of the opening and closing liability for claims reserves and claims estimates of SCOR Global P&C for the years ended December 31, 2018 and 2017.
Gross claims reserves and claims estimates as at january 1 12,318 11,784
Ceded claims reserves and claims estimates as at January 1 (1,175) (660)
SCOR was notified after the year-end close of one material deviation in the evaluation of reserves recognized for incurred claims, in respect of typhoon Jebi (increase by EUR 28 million gross, which represents a negative impact of EUR 22 million net of external retrocession and reinstatement premium). At the same time, additional late information was received regarding three contracts, leading to a decrease in their loss estimates compared to the amounts recognized, thereby offsetting the negative deviation on typhoon Jebi. In aggregate, these post-close evolutions have no material impact on the P&C technical provisions recognized in the Consolidated Financial statements as at 31 December 2018.
Net % of Group Non-Life claims paid 0.2% 0.3% 0.0% 0.3%
Change in reserves from portfolio movements and actuarial calculation 143 (166)
The liability adequacy test conducted at each closing date did not detect any deficiencies for either SCOR Global P&C or SCOR Global Life.
An analysis of the share of retrocessionaires in the Group’s contract liabilities by rating of the retrocessionaires and collateral from retrocessionaires in favor of SCOR at December 31, 2018 and 2017 is as follows: In EUR millions AAA AA A BBB < BBB Not rated Total as at
Total collateral from retrocessionaires in favor of SCOR - 112 641 23 6 561 1,343
Share of retrocessionaires contract liabilities net of collateral(1) - 362 610 2 2 (282)(2) 694
The Group has established various long term compensation plans (stock options and free shares allocations) in favor of some of its employees and Corporate Executive Officers. The terms of these plans are defined, and approved or agreed by its Board of Directors at the grant date. The plans are equity settled only.
The average weighted remaining life of the options was 5.55 years in 2018 and 5.30 years in 2017.
The fair value of options is estimated by using the Black & Scholes method which takes into account the terms and conditions under which the options were granted. The following table lists the characteristics used during 2018, 2017 and 2016: December 22, 2018 Plan
Fair value at grant date (in EUR) 1.61 1.88 2.44 4.00 2.61 1.98
The Group allocates free shares to its employees under the following terms: Date of grant Date of vesting Number of shares originally granted
All shares granted under the “LTIP” plans of December 22, 2018 are subject to a 6-year presence condition and to performance conditions which are based on the strict compliance with the Group’s ethical principles as set out on the Group’s code of conduct (the “Group Code of Conduct“), on the fulfilment of the corporate social responsibility (CSR) training obligation, on the solvency ratio and the SCOR Group’s ROE between 2018 and 2023.
The fair value of the free shares corresponds to the market value adjusted for dividends and non-transferability costs, estimated using a forward acquisition/disposal method. The following table lists the characteristics used in 2018, 2017 and 2016: December 23, 2018 Plan
Impact from US tax reform reported in statement of income (68) - -
TOTAL INCOME TAX (EXPENSE)/BENEFIT REPORTED IN STATEMENT OF INCOME (175) (56) (166)
Income before income tax (excluding share in results of associates) 505 342 766
Theoretical income tax at 34.43% (for 2018), 44.43% (for 2017) and 34.43% (for 2016) (174) (152) (264)
Differences between French and local corporate income tax rates 77 67 84
For 2018 the French corporate income tax rate is 34.43%. In 2017, the French Finance Bill for 2018 has enacted a new progressive decrease of the global corporate income tax rate from 34.43% to 25.83% by 2022. The global French corporate income tax rate will be respectively reduced to 32.02% for 2019, 28.92% for 2020, 27.37% for 2021 and 25.83% from 2022 onwards. Even if, with reference to the urgency measures taken by the French government in late December 2018 as an answer to the yellow vest movement, there has been some announcement that the decrease of the corporate income tax rate may be postponed by one year, as at today there is no formal draft bill nor official announcement therefore a possible postponement could not could not be considered as substantially enacted. In addition, the possible deferment of the decrease by one year would have a minimal impact on SCOR 2018 financials.
On December 22, 2017, the US Congress enacted the Tax Cuts and Jobs Act (the “TCJA”), reducing the statutory rate of US federal corporate income tax to 21% effective January 1, 2018. The TCJA also introduces a new minimum tax regime, referred to as the Base Erosion and Anti-Abuse Tax (BEAT) which acts almost as a 5% tax on all deductible payments to non US related persons – and gross premiums specifically – starting in 2018. The BEAT will increase to 10% for tax years beginning in 2019 and to 12.5% for taxable years beginning in 2026 or later. BEAT is payable if, calculated on a modified taxable income base, it is higher than the regular federal corporate tax in a given year.
For the year ended December 31, 2017, the impact of this new legislation mostly related to the DTA on US tax losses carry forward and was estimated to be a net loss of EUR 39.3 million through profit and loss and a net loss of EUR 4.9 million through Other Comprehensive Income. The BEAT had no impact on the financial statements as at and for the year ended December 31, 2017.
In 2018, SCOR has assessed the TCJA implications, in particular with respect to certain complex provisions including the Base Erosion and Anti-Abuse Tax («BEAT»). SCOR has implemented an alternate business structure to adapt to the new environment by establishing a new Irish entity, SCOR Life Ireland dac, which is treated as a US taxpayer.
The execution of this implementation was subject to certain standard regulatory approvals which have been obtained before the end of 2018. The TCJA implications including the implementation of the new business structure resulted in an expense of USD 81 million (EUR 68 million) which has been recognized in SCOR’s 2018 result.
NOTE 17.3. CORPORATE INCOME TAX EFFECTS RELATING TO OTHER COMPREHENSIVE INCOME
Effects of changes in foreign exchange rates 145 2 147 (521) (6) (527) 75 (4) 71
Revaluation of available-for-sale assets (511) 111 (400) 66 (12) 54 (25) 12 (13)
Items that will be reclassified subsequently to profit income (254) 90 (164) (486) (10) (496) 117 (3) 114
Deferred tax assets and liabilities and the related expense or benefit as at and for the years ended December 31, 2017 and December 31, 2018, were generated by the following items: In EUR millions
Unrealized revaluations and temporary differences on investments (48) (1) (15) 8 1 (55) (10) 33 (5) 1 (36)
Unrealized revaluations and temporary differences on investments 67 (2) (2) (1) (2) 60 (35) 57 - 3 85
As at December 31, 2018, the operating tax losses available for carryforward expire as follows: In EUR millions
Interest income on funds withheld and contract deposit 157 187 194
Interest expense on funds withheld and contract deposit (6) (10) (12)
Other (including cash and cash equivalents), net of other investment expenses (28) (43) 93
The retrocession results of SCOR Global Life in the reporting periods reflect changes in the retrocession portfolio, the claims development over the 3-year period, correlated reserving adjustments and experience refund calculations.
Other operating and administrative expenses include expenses incurred by the Group, excluding gross commissions, as follows: In EUR millions 2018 2017 2016 in 2018
Potential or contingent share issues are considered as dilutive when their conversion into shares would decrease net earnings per share.
Basic and diluted earnings per share are calculated as follows for the years ended December 31, 2018, 2017 and 2016 respectively: In EUR millions
At December 31, 2018 At December 31, 2017 At December 31, 2016
Net income attributable to ordinary shareholders and estimated conversions 322 189,596 1.70 286 189,663 1.51 603 188,275 3.20
The Group has several business relationships with related parties. Transactions with such parties are carried out in the ordinary course of business and on substantially the same terms and conditions – including interest rates and collateral – as those prevailing at the same time for comparable transactions with third parties.
The total gross compensation of key management personnel, allocated or paid, which includes short-term employee benefits, post-employment benefits, other long-term benefits, termination benefits and share-based payments, for the years ended December 31, 2018, 2017, and 2016 is outlined below: Fixed cash compensation 5,832,784 6,061,319 5,974,813
In EUR millions As at December 31, 2018 As at December 31, 2017
SCOR has pledged financial assets to ceding companies, regulators, financial institutions and pension plans for a total amount of EUR 4,313 million (2017: EUR 4,172 million).
In addition, SCOR pledges assets to the benefit of its consolidated subsidiaries as collateral for its internal retrocessions. As at December 2018, the amount of assets pledged internally is EUR 2,432 million (as at December 2017: EUR 2,259 million).
The total carrying amount of financial assets pledged to the benefit of SCOR as collateral is EUR 1,262 million (2017: EUR 834 million). These amounts include securities pledged by retrocessionaires for a total amount of EUR 930 million (2017: EUR 527 million) detailed in Note 15 – Net contract liabilities. The remaining amount relates to pledged assets received on assumed reinsurance.
All of the following paragraphs form an integral part of the Group consolidated financial statements. They are disclosed in Section 3 – Risk factors and risk management mechanisms.
Please see Section 3.3 – Underwriting risks related to the P&C and Life reinsurance businesses.
On December 28, 2012, the AN issued its judgment on the appeal, annulling the decision of the CNC. The AN accepted SCOR’s grounds and declared that the Company had not infringed the Competition Act. Consequently, the economic sanction imposed on SCOR by the CNC was annulled.
On March 9, 2017, the CNMC issued a resolution in which it confirmed SCOR’s fine at the amount of EUR 18.6 million. SCOR has appealed the CNMC’s resolution in front of the AN and on June 16, 2017 the court has accepted SCOR’s appeal. In this appeal procedure SCOR’s fine is capped to the amount of EUR 18.6 million.
Litigation gives rise to an accrual when it meets the recognition requirements of a provision under IAS 37 – Provisions, Contingent Liabilities and Contingent Assets. See Note 14 – Employee benefits and other provisions for details of accruals booked. In certain instances, in accordance with IAS 37.92, some required information, in particular the amount of accruals, is not disclosed as they could seriously prejudice the position of SCOR in a dispute with other parties.
Subsequent events relate to relevant and material events that occur between the reporting date and the date when the financial statements are approved for issue by the Board of Directors. Such events lead to: ◆ an adjustment of the consolidated financial statements if they provide evidence of conditions that existed at the reporting date, and if relevant and material; ◆ additional disclosure if they relate to conditions which did not exist at the reporting date, and if relevant and material.
As announced in SCOR’s press release dated January 29, 2019, the gravity of the facts brought to the attention of SCOR and its governance bodies relating to the misconduct committed to the detriment of SCOR, in the context of the preparation and submission by Covéa of its unsolicited proposed combination with SCOR, compelled SCOR to initiate legal actions against Thierry Derez, Covéa SGAM, Covéa Coopérations, Barclays and Rothschild. These legal actions consist of: ◆ a criminal action, by way of a direct prosecution (“citation directe”) before the Criminal Court of Paris (“Tribunal correctionnel de Paris”), against Thierry Derez, for breach of trust (“abus de confiance”); ◆ a criminal action, by way of a direct prosecution (“citation directe”) before the Criminal Court of Paris (“Tribunal correctionnel de Paris”), against Covéa, for concealment of breach of trust (“recel d’abus de confiance”); ◆ a civil action against Rothschild in France and against Barclays before the High Court of Justice of London, for serious breach of confidence and trade secrets; ◆ a civil action (“action en responsabilité civile”), before the Commercial Court of Paris (“Tribunal de commerce de Paris”), against Thierry Derez, for serious breach of his legal and fiduciary duties and obligations as a director of SCOR in his personal capacity (regarding in particular loyalty, conflicts of interest, and confidentiality) as well as SCOR’s trade secrets (“secret des affaires”); and
These proceedings are intended to sanction and remedy the alleged criminal and civil misconduct having resulted from, inter alia, the unlawful misappropriation, disclosure, communication and use of SCOR’s sensitive and strictly confidential documents and information which Thierry Derez had access to as a director of SCOR in his personal capacity. SCOR considers in particular that this unacceptable misconduct was committed with the aim of wrongfully favoring the preparation and submission by Covéa of its unsolicited proposed combination with SCOR.
The holdings held directly by SCOR SE are detailed in the following sections: ◆ Section 1.2.3 – Organizational structure of SCOR; ◆ Appendix C – 5 – Notes to the corporate financial statements, Note 2 – Investments – Subsidiaries and affiliates.
11625 Rosewood Street, Suite 300 – 66211 Leawood, Kansas – United States Reinsurance 100%
Date of the Shareholders’ Meeting called to approve the financial statements for the financial year ending December 31, 2019
Date of the Shareholders’ Meeting called to approve the financial statements for the financial year ending December 31, 2019 4.8.3. RESIGNATION OR NON-RENEWAL OF AUDITORS
In our opinion, the consolidated financial statements give a true and fair view of the assets and liabilities and of the financial position of the Group as at December 31, 2018 consisting of the persons and entities included in the consolidation and of the results of its operations for the year then ended in accordance with IFRS accounting principles as adopted in the European Union.
In accordance with the requirements of Articles L.823-9 and R.823-7 of the French Commercial Code (Code de commerce) relating to the justification of our assessments, we inform you of the key audit matters relating to risks of material misstatement that, in our professional judgment, were of most significance in our audit of the financial statements of the current period, as well as how we addressed those risks.
Technical reserves related to Life business are estimated using actuarial methods based on the present value of projected future payments to cedants less the present value of projected future premiums to be paid by cedants.
To cover the risk on the measurement of technical reserves, our audit approach was the following: ◆ we obtained an understanding of the report of the Group chief actuary on the global adequacy of reserves; ◆ 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 produced 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 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 evaluating the internal control environment of the systems used by the management and test the functioning of several automated processes; ◆ we examined the methodology and outputs of the liability adequacy tests carried out by management.
Gross written premiums in 2018 amount respectively to EUR 9,083 million for the Life segment SCOR Global Life and EUR 6,175 million for the Non-Life segment SCOR Global P&C, as stated in note 4 of the notes the consolidated financial statements. The reinsurance entities of the Group record accounts transmitted by ceding companies upon receipt. Accounts not yet received from ceding companies at the end of the financial year are estimated, in order to better reflect the Group’s reinsurance commitments in the financial statements. Written and earned reinsurance premiums are also estimated. As stated in note 1 of the notes to the Consolidated statements: gross written and earned premiums are based upon reports received from ceding companies, supplemented by the Group’s own estimates of premiums for which ceding companies’ reports have not yet been received. Observing a large part of estimates in the written premiums related to a year is specific to the reinsurance business. Management reviews its estimates and assumptions periodically, based on experience and other factors. Actual premiums can turn out to be different from management estimates. In this respect, we considered that the measurement of reinsurance premiums constituted a key audit matter.
To cover the risk on the measurement of reinsurance premiums, we implemented the following audit approach: ◆ we obtained an understanding of the internal controls framework on processes related to Life and Non-Life premium estimates and we tested the efficiency of key controls established by management; ◆ we examined the consistency of premium estimates over the period, comparing them both to the operational plan prepared by management and approved by the Board of Directors and to premiums actuals from previous financial years and we investigated, if any, significant differences identified; ◆ we performed, for a selection of contracts, a deep analysis of underlying assumptions taking into account the activity, the records of reinsurance accounts received, and any new information received from ceding companies; ◆ for new contracts underwritten in 2018, we performed on a sampling basis, controls on the consistency of premium estimates based on new business information available at the underwriting department;
(Please refer to Notes 5, 6 of the notes to the consolidated financial statements)
Goodwill Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. It is initially measured at cost which is calculated as the difference between the business combination cost and the net fair value of identifiable assets and assumed liabilities at the acquisition date. Their fair value depends on forecasts and budgets established by the management. As part of the yearly impairment testing on goodwill, the Group assesses whether the recoverable amount of cash generating units (CGU) to which the goodwill is allocated, is at least equal to their total carrying value, as stated in note 5 of the notes to the Consolidated financial statements. If it is determined that an impairment exists, the total carrying amount is adjusted to the recoverable value. Estimates performed to determine the recoverable value of the Group CGUs are based on assumptions and extrapolations involving a significant part of judgement. Furthermore, any negative deviation of expected future results could have an impact on the recoverable value and lead to an impairment of the goodwill.
With the support of our Life Actuarial Specialists, we have completed the following procedures: ◆ we assessed the proper application of internal procedures on the evaluation of VoBAs, as well as their depreciation schedules; ◆ in order to analyze the valuation of VoBAs and their correct amortization, we examined the expected cash flows on the relevant portfolios; ◆ we assessed the recoverability of the VoBAs taking into consideration the liability adequacy test.
Impacts of the US Tax reform On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was enacted. As stated in note 17 of the notes to consolidated financial statements, in 2018, SCOR has assessed the TCJA implications, in particular with respect to certain complex provisions including the Base Erosion and Anti-Abuse Tax («BEAT»). Your group has implemented an alternate business structure to adapt to the new environment by establishing a new Irish entity, SCOR Life Ireland dac, which is treated as a U.S. taxpayer. The execution of this implementation was subject to certain standard regulatory approvals which have been obtained before the end of 2018. The TCJA implications including the implementation of the new business structure resulted in an expense of USD 81 million (EUR 68 million) which has been recognized in SCOR’s 2018 result. Given the implications of the TCJA on SCOR business, we consider the assessment of the impacts of the US tax reform to be a key audit matter.
We have also performed, in accordance with professional standards applicable in France, the specific verifications required by French law regarding group related information, given in the management report of Board of Directors.
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS accounting principles as adopted in the European Union and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Our role is to issue a report on the consolidated financial statements. Our objective is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with professional standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
◆ 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.
◆ evaluates the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management in the consolidated financial statements.
◆ evaluates the overall presentation of the consolidated financial statements and assesses whether these statements represent the underlying transactions and events in a manner that achieves fair presentation.
◆ collects information related to persons and entities included in the scope of consolidation that it deems sufficient and appropriate to express an opinion on the consolidated financial statements. The auditor is responsible for the management, supervision and execution of the audit of the consolidated financial statements as well as the opinion expressed on these accounts.
The related party agreements executed in 2018 or continued during 2018, as defined by Articles L. 225-38 et seq of the French Commercial Code are the subject of a specific report by the Statutory Auditors in Section 2.3.3.
SCOR SE’s corporate accounts for the financial years ended December 31, 2018, 2017 and 2016, included respectively in Appendix C of this Registration Document, in Appendix C of the Registration Document filed with the AMF on February 23, 2018 under the number D.18-0072 and in Appendix C of the Registration Document filed with the AMF on March 3, 2017 under the number D.17-0123, were the subject of reports by the Statutory Auditors, featured respectively in Appendix C of this Registration Document, in Appendix C of the Registration Document filed with the AMF on February 23, 2018 under the number D.18-0072 and in Appendix C of the Registration Document filed with the AMF on March 3, 2017 under the number D.17-0123.
Notes 1, 2, 3, 4 and 5 in Appendix D of this Registration Document relate to the non-financial performance declaration. The information published in this section has been reviewed by one of the Statutory Auditors whose report is presented in Appendix D.
5.1. CHARTER AND BYLAWS 258 5.1.1. Corporate purpose of the issuer (Article 3 of the bylaws) 258 5.1.2. Summary of the bylaws and internal regulations of the Company concerning the members of its administrative, management and supervisory bodies 258 5.1.3. Rights, privileges and restrictions attached to existing shares 259 5.1.4. Actions required to modify shareholders’ rights 260 5.1.5. Conditions for calling Annual Shareholders’ Meetings and Extraordinary Shareholders’ Meetings (Articles 8 and 19 of the bylaws) 262 5.1.6. Provisions that could delay, defer or prevent a change in control or in the shareholder structure 262 5.1.7. Disclosure thresholds 263 5.1.8. Conditions governing modifications to the share capital (other than legal provisions) 263 5.2. DESCRIPTION OF SCOR’S SHARE CAPITAL 264 5.3. THIRD-PARTY INFORMATION AND STATEMENTS BY EXPERTS AND DECLARATIONS OF ANY INTEREST 266 5.3.1. Expert’s report 266 5.3.2. Information from third parties 266 5.4. PUBLISHED INFORMATION 266 5.5. MATERIAL CONTRACTS 266
French corporate law and the Company’s bylaws provide for prior approval and verification of agreements, entered into directly or indirectly, between the Company and one of its directors, Chief Executive Officer, Deputy Chief Executive Officer (Directeur Général Délégué), any of its shareholders holding more than 10% of the registered capital or of the voting rights or, if a legal entity, the company controlling it within the meaning of Article L. 233-3 of the French Commercial Code and, or any entity in which any of these persons is at the same time an owner, partner with unlimited liability, manager, director, member of the supervisory board or an executive officer, unless pursuant to the provisions set forth under Article L. 225-39 of the Commercial Code: (i) the agreement is entered into in the ordinary course of business and under normal terms and conditions; and/or (ii) those agreements reached between two companies, one of which holds, directly or indirectly, all of the other’s capital, where applicable, minus the minimum number of shares required to fulfil the requirements of Article 1832 of the Civil Code or Articles L. 225-1 and L. 226-1 of the Commercial Code. Article L. 225-38 of the French Commercial Code also provides that the prior approval of the Board of Directors must be justified by the interest for the Company of the agreement, in particular by specifying the financial conditions related thereto.
Extraordinary Shareholders’ Meetings are required for approval of matters such as amendments to the Company’s bylaws, changes to shareholders’ rights, approval of mergers, increases or decreases in share capital, the creation of a new class of shares and authorization to issue securities giving access to capital, by conversion, exchange or otherwise. In particular, shareholder approval will be required for any merger in which the Company is not the surviving entity or in which it is the surviving entity but which would involve issuing a portion of our share capital to shareholders of the acquired entity.
Meetings are held at corporate head offices, or elsewhere as indicated in the meeting notice.
Company, by any reliable identification process that safeguards the link between the signature and the form as determined by the Board of Directors and in accordance with the conditions defined by the legal and regulatory provisions in force.
The Company’s Board of Directors may also determine that shareholders may participate in and vote at any Shareholders’ Meeting by videoconference or by any other mode of telecommunication permitting the identification and effective participation of the shareholders, under the conditions set forth by the legal and regulatory provisions in force.
Pursuant to Article L. 322-4-1 of the French Insurance Code, the ACPR shall also inform the European Commission, the European Insurance and Occupational Pensions Authority (EIOPA) and the supervisory authorities of the other Member States of any acquisition of a stake that may grant control of a reinsurance company to a company whose registered office is located in a State not party to the European Economic Area agreement.
ADDITIONAL INFORMATION Description of SCOR’s share capital 05 5.2. DESCRIPTION OF SCOR’S SHARE CAPITAL
05 ADDITIONAL INFORMATION Third-party information and statements by experts and declarations of any interest 5.3. THIRD-PARTY INFORMATION AND STATEMENTS BY EXPERTS AND DECLARATIONS OF ANY INTEREST
APPENDIX A INTERNAL CONTROL AND RISK MANAGEMENT PROCEDURES 268 1. Internal environment 269 2. Setting of objectives 271 3. Identification and assessment of risks 272 4. Main control activities 273 5. Information and communication 275 6. Monitoring of the internal control and risk management system 276 7. Financial reporting 277 8. Conclusion on the control procedures implemented 278
APPENDIX C UNCONSOLIDATED CORPORATE FINANCIAL STATEMENTS OF SCOR SE 280 1. Significant events of the year 280 2. Balance sheet 282 3. Income statement 284 4. Off-balance sheet commitments 287 5. Notes to the corporate financial statements 288 6. Certification of audit of historical financial information 311
APPENDIX D NON FINANCIAL PERFORMANCE DECLARATION 316 1. Business model and presentation of the risks 316 2. Social impact of SCOR’s activity 318 3. Business conduct and Compliance 326 4. Climate change 329 5. Note on methodology 333 6. Statutory Auditor’s report on the review of selected SCOR SE environmental and social indicators 335
APPENDIX F ADDITIONAL INFORMATION RELATING TO THE MANAGEMENT REPORT OF THE COMPANY AND THE GROUP – CORRESPONDENCE TABLE 343 1. Operating and financial review of SCOR SE 343 2. Trends in the SCOR SE share price throughout 2018 346 3. Social and environmental impact of SCOR’s activity 346 4. Consequences of respect of human rights, the fight against corruption and fiscal evasion 346 5. Related party agreements 346 6. Additional information provided in the management report of the Company and the Group – correspondence table 347
The Group has identified the following categories of risks, as described in Section 3 – Risk factors and Risk Management Mechanisms: ◆ strategic risks; ◆ underwriting risks related to the Non-Life and Life reinsurance business; ◆ market risks; ◆ credit risks; ◆ liquidity risks; ◆ operational risks.
All these risks are managed through a variety of mechanisms in SCOR’s ERM (Enterprise Risk Management) Framework, further described below.
The four general objectives sought through the application of a risk management system and, within it, of an internal control system are: 1. Ensure that strategic objectives are properly implemented in the Group; 2. Ultimately achieve better operating efficiency and use of resources; 3. Ensure compliance with applicable laws and regulations; 4. Ensure reliable accounting and financial information.
Each component is composed of several complementary mechanisms. These mechanisms are adapted to Divisions and legal entities when appropriate. Some mechanisms are only relevant at Group or Division level and are not implemented specifically at the legal entity level in line with materiality principles.
The Group has set up a functional organization structured around regional management platforms, or “Hubs” in the EMEA (Europe,
Middle East and Africa), the Asia-Pacific and the Americas regions. Each subsidiary, branch and representative office has a functional link to a Hub.
Transverse functions • Claims • Finance and Planning • Legal • Pricing and Modelling • Reserving, Capital
Operational Departments • Portfolio Management • Portfolio administration • Reporting • Sales & Marketing
Within this environment, control responsibilities are exercised as follows: ◆ SCOR SE’s Board of Directors relies on several dedicated committees, including, but not limited to, the Audit Committee and the Risk Committee to exercise its control responsibility over the objectives it has set for the Company. These two committees are both chaired by independent directors; ◆ SCOR SE’s Board of Directors, following a recommendation made by the Compensation and Nomination Committee, decided that several independent directors of SCOR SE should be members of the Boards of some of the main subsidiaries in various countries with a view to enhancing the Group’s oversight of local operations; ◆ the Group’s Executive Committee is chaired by the Chairman and Chief Executive Officer of SCOR SE and meets on a weekly basis. The Executive Committee defines the procedures for implementing the strategy approved by SCOR SE’s Board of Directors in line with the principles set out in Group policies, approved by the Board of Directors, for its main areas of activity (e.g. investment, finance, risk management) and for certain topics, such as the underwriting plan and the allocation and management of resources. The Executive Committee also supervises the functioning of the Group and the Hubs by monitoring, on a quarterly basis, the bodies contributing to the sound administration of the Group. In addition to the Chairman and Chief Executive Officer, the Executive Committee is currently made up of: — the Group Chief Financial Officer (CFO), — the Group Chief Risk Officer (CRO), — the Group Chief Operating Officer (COO), — the SCOR Global P&C Chief Executive Officer (CEO) and his deputy,
Every year, SCOR reviews Group policies for accuracy, completeness and reliability.
The Group Risk Management Department is supported in these tasks by the departments in charge of risk management at SCOR Global P&C, SCOR Global Life and SCOR Global Investments. Compliance with local regulations and constraints is ensured by Hub General Counsels.
For several years, SCOR has implemented and formalized threeyear strategic plans. On September 7, 2016, SCOR publicly presented “Vision in Action”, its latest three-year strategic plan (2016 to 2019). “Vision in Action” is largely a continuation of SCOR’s previous strategic plan, “Optimal Dynamics”, representing in particular the Group’s core objectives: ◆ a return on equity (ROE) equal to or greater than 800 basis points above the 5-year risk-free rate over the cycle(1); and
Different techniques and initiatives for identifying and assessing risks have been implemented, to analyse risk from different angles and to deal with them in an exhaustive manner. These include: ◆ a risk information process: every quarter, the Group Risk Committee reviews the “Group Risk Dashboard” which describes and assesses the major risks the Group is exposed to. This report assembles various risk assessments from different identification and assessment processes for all risk categories; ◆ a process for the monitoring of risk exposures compared to risk tolerances, i.e. the limits established in order to ensure that the Group’s risk profile remains aligned with the risk level validated by SCOR SE’s Board of Directors. The Group uses various risk measures to define these exposures, which are measured based on either model outputs and/or expert opinions, depending on the technical constraints and the level of information available. This includes: — a “risk driver” system that enables the Group to manage the annual aggregate exposure to each major risk. The objective is to avoid overconcentration of risk and hence maximize diversification benefits. For the majority of SCOR’s risk drivers, the amount of post-tax retained annual exposure per main risk driver (with a probability of 1 in 200 years) is limited to a percentage of the Group’s available capital. Other risk drivers have limits expressed in terms of reduction in the Group’s solvency ratio or duration for invested assets,
— sub-limits for invested assets, — limits per risk which are set in the underwriting and investment guidelines; ◆ “footprint scenarios”, which aim to review and assess the potential impact of selected deterministic scenarios on the Group. This process provides an alternative perspective on the Group’s exposures. Working groups dedicated to specific subjects are composed of experts across the Group and coordinated by the Group Risk Management Department with the support of the divisional Chief Risk Officers. These groups perform quantitative studies which are summarized in specific reports; ◆ an Emerging Risks process which is part of SCOR’s ERM Framework and is linked to other risk management methods, such as the use of “footprint scenarios”. Potential emerging risks are identified and Individual risk assessments are carried out by experts from SCOR Global P&C, SCOR Global Life and the Group functions. Significant emerging risks are then reported to SCOR’s Executive Management and Board. SCOR, as a member of the CRO Forum, also actively participates and contributes to the CRO Forum Emerging Risks Initiative alongside other major insurers and reinsurers; ◆ certain risks related to climate change are assessed via the Emerging Risks process. The scientific consensus is that humaninduced increases in global temperatures will impact human and natural systems. Resulting climate change is also expected to alter the frequency and/ or severity of extreme weather events, although the long-term impacts on underwriting activities are difficult to estimate. SCOR’s asset portfolio may equally be exposed to potential physical and transition risks over the longer term. Additionally, as part of its Corporate Social Responsibility program, SCOR is gradually implementing a set of low-Carbon initiatives in an effort to limit anthropogenic Carbon emissions. These initiatives are further described in Appendix D of this Registration Document; ◆ SCOR’s ORSA (Own Risk Solvency Assessment), which provides the Group’s Board and those of the legal entities, the Group Executive Committee and senior management of legal entities, with forward-looking information on SCOR’s risks and capital position; ◆ SCOR’s internal model, which is deeply embedded in SCOR’s risk management system and contributes to the assessment of risks. SCOR uses its internal model for determining economic capital. Its results are used to implement SCOR’s underwriting and asset management policies and guidelines.
Because of its activities, SCOR is exposed to many risks: reinsurance related risks, market risks and other risks (e.g. liquidity, rating). These risks are detailed in Section 3 – Risk factors and Risk Management Mechanisms of this Registration Document. These activities rely on the control mechanisms including adequate reporting mechanisms to the main governance bodies throughout the Group (see paragraph 1.1).
◆ The Group Treasury Department manages the Group’s operating cash flow, directly or indirectly and prepares a weekly centralized report of the Group’s cash situation.
◆ The Group Financial Planning & Analysis Department establishes an annual financial plan for the Group by company and monitors actual data in relation to this plan on a quarterly basis. The purpose of the plan is to enable effective management and control of the business to achieve the strategic targets set by the Group. Detailed annual financial plans are developed by the business engines at a company level, by geographic market and line of business, and incorporated into a Group-wide plan against which an in-depth analysis of the actual quarterly results is conducted. The results and analyses are presented to the Executive Committee every quarter, highlighting variations compared with expectations to allow identification of appropriate management actions. The plan, and the quarterly results against the plan, are additionally reported in detail to the Board.
◆ The Group tax function sets the Group tax policy with the purpose of ensuring that the various entities of SCOR meet their tax obligations and promote the use of best practices in this domain.
◆ The IFRS Center of Excellence (IFRS CoE) determines IFRS accounting policies, handles the accounting of complex transactions and manages the production process of the Registration Document and the Half-Year Report.
◆ The Consolidation, Systems and Solvency II quantitative reporting departments play a major role in both internal management reporting and external reporting, and the analysis thereof.
◆ The Group Risk Management Department’s primary focus is to develop and manage ERM mechanisms, promote ERM concepts throughout the Group and to provide risk management challenge and support for reinsurance underwriting and asset management.
◆ The Group Actuarial Department provides quarterly approval on the adequacy of the reserves held for both the Life and P&C Divisions. In the context of Solvency 2, the Group Actuarial Department provides an opinion on the underwriting policy and the retrocession arrangements, validates the Group’s Internal Model. and contributes to the effective implementation of risk management throughout the Group.
The investment strategy at SCOR is risk based and the portfolio’s positioning is derived from the risk appetite allocated by the Group to invested assets as well as the Group’s risk tolerance.
◆ creates value for its shareholders in line with the objectives set out in the strategic plan.
A INTERNAL CONTROL AND RISK MANAGEMENT PROCEDURES Monitoring of the internal control and risk management system 6. MONITORING OF THE INTERNAL CONTROL AND RISK MANAGEMENT SYSTEM
In addition, SCOR implements dedicated risk management mechanisms in the three divisions in order to evaluate the appropriateness and effectiveness of controls and propose risk-management and mitigation measures. See Section 3.3 – Underwriting risks related to the Life and P&C reinsurance businesses for further details on these risk management mechanisms.
The approach used to develop and maintain the internal control system is specified in the ICS Group Policy. The policy sets out the reference framework and details the Group principles, the responsibilities of the different participants in internal control and the quality requirements. The principal characteristics of the internal control system are as follows: ◆ a risk-based approach, i.e. addressing critical operational risks that, if not controlled, could significantly impact SCOR’s franchise, balance sheet or statement of income and indirectly its solvency. The optimal risk response is obtained through appropriately designed key controls; ◆ on a process level, appointment of global process owners (GPO) at Group, SCOR Global P&C, SCOR Global Life and SCOR Global Investments levels and local process owners (LPO). The GPOs’ responsibility is to document the processes, identify the related critical risks, define the appropriate key controls and to ensure their deployment and application in the various entities of the Group. The LPOs’ main responsibilities are to assess processes, risks and key controls on a local level based on the defined global process and to ensure application of risk-based control activities; ◆ monitoring, upon completion of the initial documentation, through a self-assessment procedure on the maturity (quality) of control processes based on pre-defined criteria by their owners.
Furthermore, Group Internal Audit must inform the Executive Committee and the Audit Committee of any unsatisfactory conditions or risks.
The Chief Financial Officer does not, however, exercise direct control over all accounting information systems and relies on the accounting departments of operating companies, which provide him with quarterly consolidation packages, as well as on the accounting departments of SCOR Global P&C, SCOR Global Life and SCOR Global Investments which assist him in coordinating aspects relative to the processes, methods and reporting.
A quarterly liability adequacy test is performed for portfolios that are subject to broadly similar risks and managed together as a single portfolio.
Regarding the processes of preparation of consolidation packages and consolidation of accounting data by the Group Consolidation, Systems & Process Department, internal control is ensured by: ◆ the definition of a closing process, clear responsibilities and a detailed financial statement closing schedule, which is monitored, in the closing period, on a daily basis; ◆ use of a market recognized consolidation software package (“SAP BFC”) common to all Group entities, which ensures the whole consolidation process through automated and formalized controls; ◆ the use of a general accounting software tool shared by all Group entities; ◆ the centralized management of charts of accounts and the use of a single chart of accounts (with minimum local specificities, aligned with existing Group systems); ◆ a definition of responsibilities for controlling the integration of auxiliary accounting systems; ◆ the formalization of the reconciliations between auxiliary, general and consolidation accounting systems; ◆ at least three levels of control of the consistency and completeness of the consolidation packages, one by the entity concerned, another by the finance departments of SCOR Global P&C and SCOR Global Life relative to technical accounting and the third by the Group Finance Department; ◆ systematic analyses of results, shareholders’ equity, taxation and cash flow; ◆ internal monitoring of changes in legislation and accounting standards, together with the Group’s external consultants and auditors; ◆ the work of the IFRS Center of Excellence, whose objectives are to (1) communicate developments in accounting standards to all contributors, (2) determine IFRS accounting policies and (3) coordinate justification and documentation of accounting treatment for complex operations; ◆ an audit performed by external auditors as at December 31, and a review as at June 30.
Denis Kessler, Chairman of the Board of Directors and Chief Executive Officer of SCOR SE.
◆ I declare that, having taken all reasonable care to ensure that such is the case, the information contained in this Registration Document is, to the best of my knowledge, in accordance with the facts and contains no omission likely to affect its import.
◆ I confirm that, to the best of my knowledge, the financial statements have been drawn up in accordance with applicable accounting standards and accurately show the position of the assets and liabilities, the financial position and the net income or loss of the Company and of all businesses and firms included within the scope of the consolidated group, and that the management report, mentioned in Appendix F, accurately reflects the evolution of the business, the results and the financial position of the Company and of all businesses and firms included within the scope of the consolidated group, and describes the main risks and contingencies which they are faced with.
◆ I have obtained an audit completion letter from the Statutory Auditors, in which they indicate that they have verified the information concerning the financial situation and the accounts provided in this Registration Document, and have read the entire Registration Document.
Pursuant to Article 28 of Regulation (EC) No. 809/2004 of the European Commission, the following information is included by reference in this Registration Document: (i) the corporate financial statements for the year ended December 31, 2017 and the Statutory Auditors’ report pertaining thereto published on pages 264 to 294 and 295 to 299, respectively, of the Registration Document filed with the AMF on February 23, 2018 under number D.18-0072 and from pages 264 to 294 and from pages 295 to 299, respectively, of the free translation into English of the Registration Document filed with the AMF with such translation being available on SCOR’s website www.scor.com; (ii) the corporate financial statements for the year ended December 31, 2016 and the Statutory Auditors’ report pertaining thereto published on pages 249 to 276 and 277 to 278, respectively, of the Registration Document filed with the AMF on March 3, 2017 under number D.17-0123 and from pages 249 to 276 and from pages 277 to 278, respectively, of the free translation into English of the Registration Document filed with the AMF with such translation being available on SCOR’s website www.scor.com.
SCOR SE’s corporate financial statements for the financial year ended December 31, 2018 are presented below: 1. SIGNIFICANT EVENTS OF THE YEAR
“Significant events of the year” are an integral part of the notes to the corporate financial statements.
Redemption of the outstanding amount of the CHF 315 million and CHF 250 million undated subordinated notes
On June 8, 2018, SCOR SE completed the call of the entire balance of its CHF 315 million perpetual subordinated notes placed in October 2012 in two tranches of CHF 250 million and CHF 65 million.
During 2018, SCOR SE received EUR 602 million in dividends from its affiliates.
As at December 31, 2018, SCOR SE has completed the execution of the share buy-back program launched in July 2017 for EUR 200 million (of which EUR 194 million in 2018 and EUR 6 million in 2017).
During the financial year, SCOR SE carried out a capital increase in its subsidiary SCOR Africa Ltd for ZAR 37.5 million (EUR 2.6 million).
SCOR Auber SAS received shares in SCOR Capital Partners SAS as compensation for its contribution in kind of shares in SAS Château Mondot to SCOR Capital Partners. SCOR Auber SAS sold SCOR Capital Partners’ shares to SCOR SE for EUR 269 million. The sale was settled by the repayment of the EUR 40 million treasury advance granted to SCOR Auber SAS and the issuance by SCOR Auber SAS of a treasury advance of EUR 229 million to SCOR SE.
In May 31, 2018, SCOR SE incorporated its wholly-owned subsidiary SCOR Europe SE. The Company’s share capital is EUR 5 million. Its business purpose is mainly direct insurance of major industrial risks across Europe.
Prerequisites for the merger between SCOR SE (“the Company”) and its subsidiaries SCOR Global Life SE and SCOR Global P&C SE, both directly wholly-owned by SCOR SE
On September 2016, SCOR SE announced it was considering merging the three European reinsurance companies, “The Company”, SCOR Global Life (“SGL SE”) and SCOR Global P&C SE (“SGP&C SE”), to optimize its organizational structure.
Given the retroactive effect of transactions undertaken, financial statements that will serve as a basis for the Merger Agreement and the calculation of the merger gain/loss, will be the current financial statements as well as annual financial statements of SGL SE and SGP&C SE for the financial year ended December 31, 2018.
Accrued income and deferred expenses 5.2.8 & 5.2.9 234 - 234 214
Due and accrued interests on rental income 30 - 30 32
C UNCONSOLIDATED CORPORATE FINANCIAL STATEMENTS OF SCOR SE Income statement 3. INCOME STATEMENT
Expenses for Life reinsurance and other underwriting reserves 360 (3) 357 35
Internal and external investment management expenses and interest expenses - - - (1)
The corporate financial statements for the year ended December 31, 2018 are presented in accordance with the accounting provisions grouped under title IV of book III of the Insurance Code and with the French standard-setter (Autorité des Normes Comptables – ANC) regulation No. 2015-11 of November 26, 2015 approved by the Order of December 28, 2015, relative to the annual accounts of insurance undertakings, as amended by the ANC regulation No. 2016-12 of December 12, 2016. In the absence of specific provisions in the aforementioned ANC regulation No. 2015-11, the provisions of ANC regulation No. 2014-03 relating to the general accounting plan (Plan Comptable Général – PCG) are applicable.
Intangible assets consist of: ◆ software acquired or created by the Company which is capitalized and amortized over a period ranging from one to five years; ◆ goodwill depreciable over 10 years.
Investments in affiliates are initially recorded at historical acquisition cost, including expenses. The fair value of investments in affiliates is an estimated value based on the usefulness of the investment to the Company and on its market value (in light of its actual share price, revalued shareholders’ equity, actual results and future outlook).
At each reporting date, if the carrying amount of an investment in affiliates is below its historical cost, an analysis is conducted in order to determine if an impairment loss should be recorded. The assumptions and outcome of this analysis, conducted as at December 31, 2018, are detailed in 5.2.1.
Bonds and other fixed-income securities are recorded at cost, excluding accrued interest. In compliance with Article 122 – 1 of regulation No. 2015-11 dated November 26, 2015 of the French standard-setter (Autorité des Normes Comptables – ANC), the difference between cost and redeemable par value is amortized to income over the remaining period until maturity using the effective interest rate method.
Within the framework of reinsurance treaties, the ceding companies can request cash deposits to guarantee the technical provisions ceded to the reinsurer. The receivables representing those cash deposits are recorded in the item “Cash deposited with ceding companies” on the asset side of the balance sheet or in the item “Investments in associates” if the ceding company is an associate company, according to the Reinsurance accounting plan (Plan Comptable Assurance). The remuneration of the cash deposits is contractually stipulated and at each closing date accrued interest on the cash deposited with ceding companies is recorded in the item “Accounts receivable from reinsurance transactions” on the asset side of the balance sheet.
Provision for liquidity risk on underwriting commitments (Provision pour risque d’exigibilité)
A liquidity risk reserve is recorded for the possible need to liquidate assets in order to make immediate payment on major claims. This reserve is included in underwriting reserves and is recorded when the total net book value of investments assets, excluding bonds and other fixed income securities (investments valued according to Article R. 343-9 of the French Insurance Code), exceeds their fair value. Fair value corresponds to the average price calculated over the last thirty days preceding the day of the inventory or, failing that, the market price for listed shares, net asset value for unlisted shares and net realizable value for investments in subsidiaries as described in 5.2.1.
Based on the calculations performed, such reserve was neither required nor recorded in the financial statements for 2018 or 2017.
C UNCONSOLIDATED CORPORATE FINANCIAL STATEMENTS OF SCOR SE Notes to the corporate financial statements 5.1.3. PROPERTY, PLANT AND EQUIPMENT
Items included in this caption are recorded at their historical cost.
— updated mortality tables for the various plans, with turnover data for managers and salary increases; ◆ long-term service awards: CNC (“Conseil National de la Comptabilité”) Opinion No. 2004-05 dated March 25, 2004 requires the recognition of a provision for long-term service awards as from 2004.
Pursuant to the provisions of Article 152-1 of regulation No. 2015-11 dated November 26, 2015 of the French standardsetter (Autorité des Normes Comptables – ANC), accounts not yet received from ceding companies at the end of the financial year are estimated, in order to better reflect SCOR’s reinsurance commitments in the financial statements. This method applies to most contracts underwritten during the current financial year and to prior-year contracts where relevant. Estimates of premiums and commissions not yet received from ceding companies at period end are recorded in the income statement with a counter entry in the balance sheet under “Accounts receivable from reinsurance transactions”.
As at December 31, 2018, SCOR SE has no such treaty underwritten.
The mathematical reserves for Life reinsurance are submitted by ceding companies and completed by estimates calculated by Life actuaries using statistics based on historical data and information provided by underwriters.
Additionally, estimated claims are included in the provisions for claims payable.
At each reporting date, items in foreign currencies are converted into Euros by allocating the underlying transactions as follows: ◆ transactions relating to assets and liabilities generating a “structural” foreign currency position, primarily investments in subsidiaries and related impairments; ◆ other transactions generating an “operational” foreign currency position.
C UNCONSOLIDATED CORPORATE FINANCIAL STATEMENTS OF SCOR SE Notes to the corporate financial statements 5.1.11. PRINCIPLES RELATING TO THE PRESENTATION OF THE FINANCIAL STATEMENTS
General expenses, previously recorded by type, are allocated to the following five functions: acquisition expenses, claims settlement expenses, administrative expenses, investment portfolio management expenses, and other underwriting expenses.
The use of and accounting for financial instruments comply with European Directive 2005/68/EC (also known as the Reinsurance Directive), with the French General Statement of Accounting Principles (Plan Comptable Général) of 1982, and with French Decree No. 2002-970 dated July 4, 2002, relating to the use of forward financial instruments by French insurance companies.
Such instruments may include foreign currency and interest rate swaps, caps and floors, forward currency contracts, puts and calls on equity securities and other rate options.
In case of unrealized loss positions on swaps not defined as a hedging strategy, a provision for loss risks on swaps is recognized.
Shares in and advances to land and real estate companies 1 - - - 1
On May 15, 2018, SCOR SE received the refund of the EUR 22 million loan to SCI Noratlas, an affiliate of MRM.
The increase of investments in affiliates during the year is mainly driven by the capital increase in SCOR US Corporation for USD 500 million (EUR 425 million) and in SCOR Capital Partners for EUR 269 million.
On March 19, 2018, SCOR SE sold its 9.97% share in ASEFA for EUR 4 million exercising the option to sell the third and last portion of shares to the buyer.
At December 31, 2018, cash deposited with ceding companies breaks down as follows: ◆ SCOR Global Life SE Paris: EUR 1,442 million compared to EUR 1,398 million in 2017; ◆ SCOR Global Life SE Milan: EUR 234 million compared to EUR 271 million in 2017; ◆ SCOR Global Life SE Madrid: EUR 27 million compared to EUR 29 million in 2017; ◆ SCOR South Africa: EUR 53 million compared to EUR 56 million in 2017; ◆ SCOR Perestrakhovaniye.O.O.O: EUR 2 million compared to EUR 7 million in 2017.
◆ The EUR 69 million cash advance to SCOR Global P&C SE was fully repaid.
◆ The USD 250 million surplus notes (EUR 221 million) to SCOR Reinsurance Company were replaced by a contribution in kind as part of SCOR US Corporation’s capital increase.
◆ The cash advance to SCOR GIE Informatique increased by EUR 37 million.
◆ During the year, SCOR SE granted a EUR 75 million loan to SCOR Capital Partners SAS. The EUR 12 million cash advance to SCOR Capital Partners SAS increased by EUR 7 million before being converted into a loan.
Unrealized gains and losses 1 – Real estate investments and real estate investments in process 287 286 361 75 2 – Shares and other variable-income securities (other than mutual fund units) 4,619 4,616 10,645 6,029 3 – Mutual funds units (other than those in 4) 3 3 3 4 – Mutual fund units exclusively invested in fixed-income securities 18 18 18 5 – Bonds and other fixed-income securities 1,022 1,022 1,020 (2)
7 – Other loans and similar bills 1,577 1,577 1,577 9 – Cash deposits (other than those in 8) and security deposits 108 108 108 -
◆ investments valued according to Article R. 343-9 1,021 1,021 1,020 (1)
◆ investments valued according to Article R. 343-10 8,370 8,366 14,470 6,104
◆ investments valued according to Article R. 343-13 - - - -
◆ investments and forward instruments issued in OECD countries 8,287 8,284 14,351 6,067
◆ investments and forward instruments issued in non-OECD countries 1,147 1,146 1,182 36
Foreign currency hedging: Forward trades Yield less than 1 year 8 8 37 5
On March 19, 2018, SCOR SE sold its remaining 9.97% share in ASEFA exercising the option to sell the third portion of shares to the buyer.
As of December 31, 2018, loans and advances granted by SCOR SE to its subsidiaries amounted to EUR 1,576 million, breaking down as follows: ◆ EUR 732 million with SCOR Global Life SE; ◆ EUR 400 million with SCOR Global P&C SE; ◆ EUR 199 million with SCOR GIE Informatique; ◆ CHF 125 million (EUR 110 million) with SCOR Holding Switzerland AG; ◆ EUR 94 million with SCOR Capital Partners SAS; ◆ USD 40 million (EUR 35 million) with SCOR Reinsurance AsiaPacific Pte LTD; ◆ SGD 8 million (EUR 5 million) with SCOR Services Asia-Pacific Pte LTD; ◆ USD 1 million (EUR 1 million) with GIE Colombus.
◆ SCOR AUBER S.A.S (France) 5 avenue Kléber, 75116 Paris, France EUR 54 11 100.00% 149 149 - 2 - 1 18 130
◆ SCOR Holding (Switzerland) AG General Guisan-Quai 26, 8022 Zurich, Switzerland EUR 407 1,203 20.68% 399 399 110 - - - 163 41
◆ SCOR GLOBAL LIFE SE 5 avenue Kléber, 75116 Paris, France EUR 466 374 99.99% 471 471 732 671 5,250 3,696 100 100
◆ SCOR GLOBAL P&C SE 5 avenue Kléber, 75116 Paris, France EUR 1,569 488 99.99% 1,615 1,615 400 450 3,756 2,832 291 250
◆ SCOR US CORPORATION 199 Water Street, New York, NY 10038-3526 USA USD 2,000 (340) 100.00% 1,739 1,739 - - - - - -
◆ MRM 5 avenue Kléber, 75116 Paris, France EUR 98 (6) 59.90% 56 56 - - - 9 (2) 3
◆ SCOR AFRICA LTD 2nd Floor, West Tower, Maude Street, Nelson Mandela Square, Sandton 2196, South Africa ZAR 345 (43) 100.00% 24 24 - 27 18 1,260 43 -
◆ SCOR BRAZIL PARTICIPAÇOES LTDA Sao Bento St 18 Centro, 17th floor, Rio de Janeiro RJ, Brasil, 20090-010 Rio de Janeiro, Brasil BRL 100 17 99.90% 34 34 - - 24 420 26 -
As of December 31, 2017, loans and advances granted by SCOR SE to its subsidiaries amounted to EUR 1,801 million, breaking down as follows: ◆ EUR 732 million with SCOR Global Life SE; ◆ EUR 469 million with SCOR Global P&C SE; ◆ USD 250 million (EUR 210 million) with SCOR Reinsurance Company; ◆ EUR 162 million with SCOR GIE Informatique; ◆ CHF 125 million (EUR 107 million) with SCOR Holding Switzerland AG; ◆ EUR 40 million with SCOR Auber SAS; ◆ USD 40 million (EUR 34 million) with SCOR Reinsurance AsiaPacific Pte LTD; ◆ EUR 22 million with MRM; ◆ EUR 12 million with SCOR Capital Partners SAS; ◆ EUR 7 million with SCOR Properties; ◆ SGD 8 million (EUR 5 million) with SCOR Services Asia-Pacific Pte LTD; ◆ USD 1 million (EUR 1 million) with GIE Colombus.
C UNCONSOLIDATED CORPORATE FINANCIAL STATEMENTS OF SCOR SE Notes to the corporate financial statements 5.2.2. OTHER ASSETS
◆ The EUR (5) million net income for 2017 was completely allocated to the retained earnings of which EUR 317 million were distributed in dividends.
◆ The issuance of shares relating to the exercise of options until December 31, 2018 for a total of EUR 23.3 million was allocated to the share capital of the Company for EUR 10.1 million and to additional paid-in capital for EUR 13.2 million. The exercise of options resulted in the creation of 1,278,077 shares.
◆ CHF 125 million in fixed rate perpetual subordinated notes was issued on October 20, 2014. The notes are redeemable by SCOR from October 20, 2020 on an annual basis on the interest payment dates. The coupon has been set at 3.375% until October 20, 2020 and will be reset every 6 years at the prevailing 6-year CHF mid-swap rate plus a margin of 3.0275% thereafter. The notes are not hedged by a cross-currency swap.
◆ EUR 250 million in fixed rate perpetual subordinated notes was issued on October 1, 2014. The notes are redeemable by SCOR from October 1, 2025 on an annual basis on the interest payment dates. The coupon has been set at 3.875% until October 1, 2025 and will be reset every 11 years at the prevailing 11-year EUR mid-swap rate plus a margin of 3.70% thereafter.
◆ On December 7, 2015, SCOR issued EUR 600 million in dated subordinated notes, redeemable at interest payment dates from June 8, 2026. The coupon has been set at 3.00% (until June 8, 2026), and will be reset every 10 years at the prevailing 10-year EUR mid-swap rate +3.25%.
◆ On May 27, 2016, SCOR issued EUR 500 million in dated subordinated notes, redeemable as at interest payment dates from May 27, 2028. The coupon was set at 3.625% (until May 27, 2028), and will be reset every 10 years at the prevailing 10-year EUR mid-swap rate +3.90% (until May 27, 2048, final redemption date).
C UNCONSOLIDATED CORPORATE FINANCIAL STATEMENTS OF SCOR SE Notes to the corporate financial statements
◆ As of December 31, 2017, the breakdown was as follows: — EUR 7.3 million with SCOR Investment Partners SE; — EUR 3.4 million with SGF SAS; — EUR 0.3 million with SCOR Global Life SE.
The maturity of assets and liabilities at December 31, 2018 is as follows: In EUR millions
Receivables on related companies and other affiliates 82 82 - - 159
Payables on related companies and other affiliates 12 12 - - 59 5.2.6. CONTINGENCY RESERVES
Contingency reserves amount to EUR 177 million, of which: ◆ EUR 54 million for free share allocation plans with the following expiry EUR 35 million at 2019, EUR 15 million at 2020, EUR 4 million at 2021 and beyond; ◆ EUR 96 million in reserves for post-employment benefits: retirement provisions (EUR 34 million), supplementary retirement (EUR 62 million); ◆ EUR 27 million in other provisions.
The quota share retrocession treaty with SCOR Global Life SE ended as of December 31, 2018 without any formal notices of termination. The Life retrocession contract requires a termination at December 31, 2018. Thus, the automatic withdrawn of the Life portfolio has been performed in SCOR SE’s accounts at the end of 2018 and the parties were relieved from all liability and all reciprocal rights and obligations as of January 1st, 2019.
SCOR SE was notified after the year-end close of one material deviation in the evaluation of reserves recognized for incurred claims, in respect of typhoon Jebi (increase by EUR 11 million). At the same time, additional late information was received regarding three contracts, leading to a decrease in their loss estimates compared to the amounts recognized, thereby offsetting the negative deviation on typhoon Jebi. In aggregate, these post-close evolutions have no material impact on the technical provisions recognized in the statutory financial statements as at December 31, 2018.
The analysis of accrued income and deferred expenses at December 31, 2018 is as follows: In EUR millions
Due and accrued interests on rental income 30 32 - -
The breakdown of other accruals mainly consists of, as at December 31, 2018: ◆ cross currency swaps for EUR 43 million and foreign exchange derivative instruments for EUR 8 million as assets; ◆ foreign exchange derivative instruments for EUR 8 million as liabilities.
Cash deposits with ceding companies 1,758 - 108 1,866 1,761 - - 1,761
Accounts receivable from reinsurance transactions 1,567 - 903 2,470 356 - 287 643
Accrued income and deferred expenses 78 - 156 234 74 - 140 214
Cash deposits received from retrocessionaires 420 - - 420 431 - 1 432
Deferred income and accrued expenses 57 - 9 66 78 - 11 89
Deferred commissions received from reinsurers (Non-Life) 57 - - 57 71 - - 71
The non-recurring loss amounted to EUR (1) million mainly due to the following items: ◆ French tax depreciation on acquisition costs of EUR (0.4) million; ◆ several write-off of EUR (1) million; ◆ other exceptional revenues of EUR 0.4 million.
The Group in France is consolidated for tax purposes and is composed of SCOR SE as the parent company of the Group, SCOR Global P&C SE, SCOR Global Life SE, SCOR Investment Partners SE, SGF SAS, SCOR Auber SAS and its subsidiaries: Mondot Immobilier SAS, Marbot Real Estate SAS and SAS DB Caravelle, SCOR Capital Partners SAS and its subsidiaries Marbot Management SAS, Château Mondot SAS, Mondot Immobilier SAS
and Les Belles Perdrix de Trolong Mondot EURL, ReMark France SAS, Réhalto SA. Under the tax agreement, SCOR SE benefits from the tax loss carry-forwards of its subsidiaries, and tax benefits are transferred back to the individual subsidiary concerned in the case of future profits.
Directors meeting Number of options open to subscription Of which to corporate officers Date of availability of options Plan expiration date Subscription of purchase price
The table below summarizes the status of the various stock option plans in force in 2018: Plan
Number of options oustanding as of options exercised under the stock option plan of September 1, 2011 vested on September 2, 2015, 135,500 options exercised under the stock option plan of March 23, 2012 vested on March 24, 2016, 98,000 options exercised under the stock option plan of March 21, 2013 vested on March 22, 2017 and 20,000 options exercised under the stock option plan of October 2, 2013 vested on October 3, 2017.
C UNCONSOLIDATED CORPORATE FINANCIAL STATEMENTS OF SCOR SE Notes to the corporate financial statements 5.3.6. EMPLOYEE SHARE OWNERSHIP PLANS
Amount distributed under the profit-sharing plan 182 1,665 1,216 1,055 1,247
The following table presents the gross cash compensation paid in 2017 and 2018 to the Group Chairman and Chief Executive Officer: Chairman and Chief Executive Officer
The Chairman and Chief Executive Officer benefits from a company car and a shared driver.
Cross-currency swaps are used to hedge foreign exchange and interest rate risks of perpetual notes in USD issued in 2018: the instruments convert the principal of 2018 placements for a total of USD 625 million into EUR and the coupon on the USD 400 million tranche to 2.945 % and on the USD 225 million tranche to 2.955 %. Both instruments will mature on March 13, 2029.
Various financial institutions provide sureties for our Company 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 (EUR 4 million in 2017) as at December 31, 2018.
As at December 31, 2018, commitments received by SCOR SE for parental guarantees amount to EUR 6,638 million (EUR 6,010 million in 2017), and come from: ◆ SCOR Global Life SE: EUR 3,319 million (EUR 3,005 million in 2017); ◆ SCOR Global P&C SE: EUR 3,319 million (EUR 3,005 million in 2017).
This Statutory Auditors’ report includes information required by European regulation and French law, such as information about the appointment of the Statutory Auditors or verification of the management report and other documents provided to shareholders.
In compliance with the engagement entrusted to us by your Annual General Meeting, we have audited the accompanying financial statements of SCOR SE for the year ended December 31, 2018.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on specific items of the financial statements.
C UNCONSOLIDATED CORPORATE FINANCIAL STATEMENTS OF SCOR SE Certification of audit of historical financial information
On the specific area of the evaluation of reinsurance premiums assumed from affiliates, we examined the reciprocity of premiums booked with the financial statements of reinsured affiliates.
We have no matters to report as to the fair presentation and the consistency with the financial statements of the information given in the management report of the Board of Directors and in the other documents provided to shareholders with respect to the financial position and the financial statements, except for the below mentioned observation reminded that it is not our responsibility to conclude on the fair presentation and consistency with the financial statements of the solvency related information required by article L. 355-5 of the French Insurance code (Code des assurances).
The sincerity and consistency of the information relating to the payment terms mentioned in Article D.441-4 of the French Commercial Code (Code de commerce) with the financial statements lead us to report the following observation: As indicated in the management report, this information does not include insurance and reinsurance transactions, as your company considers that they do not fall within the scope of the information to be produced, in accordance with the circular of the Fédération Française de l’Assurance of May 22, 2017.
Concerning the information given in accordance with the requirements of Article L. 225-37-3 of the French Commercial Code (Code de commerce) relating to remunerations and benefits received by the directors and any other commitments made in their favor, we have verified its consistency with the financial statements, or with the underlying information used to prepare these financial statements and, where applicable, with the information obtained by your Company from controlling and controlled companies. Based on this work, we attest the accuracy and fair presentation of this information.
We were appointed as Statutory Auditors of SCOR SE by the Annual General Meeting held on June 22, 1990 for MAZARS and on May 13, 1996 for ERNST & YOUNG Audit.
UNCONSOLIDATED CORPORATE FINANCIAL STATEMENTS OF SCOR SE Certification of audit of historical financial information C
As specified in Article L.823-10-1 of the French Commercial Code (Code de commerce), our statutory audit does not include assurance on the viability of your Company or the quality of management of the affairs of your Company.
As part of an audit conducted in accordance with professional standards applicable in France, the Statutory Auditor exercises professional judgment throughout the audit and furthermore: ◆ Identifies and assesses the risks of material misstatement of the financial statements, whether due to fraud or error, designs and performs audit procedures responsive to those risks, and obtains audit evidence considered to be sufficient and appropriate to provide a basis for the audit opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
◆ Evaluates the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management in the financial statements.
◆ Assesses the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. This assessment is based on the audit evidence obtained up to the date of the audit report. However, future events or conditions may cause the Company to cease to continue as a going concern. If the Statutory Auditor concludes that a material uncertainty exists, there is a requirement to draw attention in the audit report to the related disclosures in the financial statements or, if such disclosures are not provided or inadequate, to modify the opinion expressed therein.
SCOR, the world’s fifth-largest reinsurer, established in about 30 countries and providing its services to over 4,000 clients worldwide, is chiefly active via two reinsurance divisions (Life and P&C) and a division specialized in proprietary investments and third-party asset management.
The inverse nature of our production cycle is another specific feature of the reinsurance business model: the selling price of reinsurance products and services is settled before their actual cost is precisely known.
Reinsurance is therefore a business that involves deliberately taking calculated risks. It enables the Group’s clients to cover their risks by transferring some of them, so that they can be shared worldwide. In return for a premium that it invests to generate income while applying strict criteria, reinsurance absorbs the financial consequences of the major events to which it is exposed.
(2) In the context of Solvency II, SCOR announced in September of 2016 that it was considering merging its three reinsurance SE entities (SCOR SE, SCOR Global P&C SE and SCOR Global Life SE) as a way to optimize its organizational structure. At the date of this non-financial performance declaration, the merger is on track and is expected to be completed in 2019.
NON FINANCIAL PERFORMANCE DECLARATION Business model and presentation of the risks D
The Group is active in two reinsurance segments via its divisions: ◆ the SCOR Global P&C Division operates in three business areas: Specialty insurance (e.g. Business Solutions, Managing General Agencies, Channel 2015), reinsurance (e.g. Property, Casualty, Credit and Surety, Decennial Insurance, Transport, Construction, Agriculture risks and Natural Catastrophes), and P&C Partners (alternative solutions and new products); ◆ the SCOR Global Life division covers Life and Health insurance risks through three product lines – Protection, Longevity and Financial Solutions – with a strong focus on biometric risks.
The Group also conducts investment activities via SCOR Global Investments, its third division, which is tasked with managing the investment portfolio of the Group’s legal entities. Within this division, SCOR Investment Partners directly manages the assets of many of the Group’s entities and also manages funds on behalf of third-party clients.
SCOR Global Investments, its organizational structure and vehicles open to third parties are presented in sections 1.2.3.1 and 1.2.5.6 of the Registration Document. Additional information about developments in the financial markets is provided in Section 1.3.1 of the Registration Document.
At the forefront of risk modeling, particularly extreme risks in Life and P&C business, the Group devotes considerable resources to fundamental research and the promotion of scientific risk management techniques in various disciplines.
Since it was created, the SCOR Corporate Foundation for Science has financed seminars and colloquiums on scientific subjects such as emerging infectious diseases, longevity risk for modern retirement schemes and the expectations of economic agents in an economic crisis, as well as an international seminar in Paris on meteorites in collaboration the French Muséum national d’Histoire naturelle. The Foundation also jointly organizes events like this. Moreover, it supports research projects across a variety of disciplines, as well as scientific and actuarial awards and research chairs.
SCOR and the SCOR Foundation also organize Actuarial Awards in Europe (France, Germany, Italy, Spain & Portugal, Sweden, Switzerland and the United Kingdom), and in Asia (Singapore). The Group places great importance on the development of actuarial science and each year awards prizes for the best academic papers in this field.
At the end of 2017, SCOR SE’s Board of Directors established a committee devoted to social and environmental issues: The Corporate Social and Societal Responsibility and Environmental Sustainability Committee. A majority of the Committee’s members are independent directors, and it is chaired by Fields WickerMiurin. This Committee’s missions, its composition and a report on its activities during the year covered by this declaration are presented in Section 2.1.4.5 – The Corporate Social and Societal Responsibility and Environmental Sustainability Committee of the Registration Document.
(1) These concepts are defined in Section 1.2.5 of the Group’s Registration Document.
D NON FINANCIAL PERFORMANCE DECLARATION Social impact of SCOR’s activity 1.3. STAKEHOLDERS
The extra-financial performance statement represents the current view of the non-financial risks of the activity assessed on the basis of the categories of information referred to in III of Article 225-102-1 of the French Commercial Code.
The main risks identified in this review concern: ◆ risks of diminished talent attractiveness that may arise through an inadequate remuneration policy, a lack of support in terms of skills development, or an insufficient consideration of diversity; ◆ business ethics risks that may arise from matters regarding economic sanctions programs or anti-corruption, antimoney -laundering and anti-terrorism regulations, personal data protection and security requirements, and regulatory tax requirements, including tax evasion matters; ◆ risks related to climate change that may arise from physical risks and transition risks if they are not factored in the various components of the Group’s activities, and expectations in terms of supporting the energy transition.
These risks and their associated policies and programs, along with performance indicators, are set out in the following sections of this declaration.
Programs implemented in these areas and associated performance indicators are described in the following sections.
Considering diversity and inclusion as a strong asset, the Group has implemented a global harmonized human capital management strategy, based on respect and dignity and where individual differences are valued, and skills and knowledge are developed throughout the employees’ career.
Proposing an innovative working environment, SCOR finally facilitates the transmission of knowledge and know-how through the implementation of dedicated programs (e.g. mentoring) and the definition of succession plans.
The Group’s compensation policy is uniformly applied and designed with the objective of aligning interests by discouraging excessive risk taking, while attracting and retaining employees and rewarding individual performance.
This program involves approximately 25% of the total number of employees. In addition to specific compensation plans, this program gives access to selective information and proposes specific career development solutions.
This compensation policy reflects the Group’s desire to implement compensation schemes in accordance with best market practices and enables it to involve key employees in the long-term development of the Group.
(1) The corporate officer is not included. Total compensation is calculated on the basis of 2,810 employees as at December 31, 2018.
(3) Average fixed compensation is based on the annual base salary paid to the employee, prorated to actual hours worked.
D NON FINANCIAL PERFORMANCE DECLARATION Social impact of SCOR’s activity 2.1.2. PROMOTING THE INCLUSION THROUGH DIVERSITY AND EQUAL TREATMENT
Promoting diversity and equal treatment is an essential objective of the Group’s human capital management policy. It is part of the social commitments assumed by the Group while contributing to its economic and financial performance and helping to attract and retain skills.
This commitment to provide a work environment free from discrimination and/or harassment based on gender, sexual orientation, race, religion, disability, or acting as a staff representative or participating in a trade union is part of the Group code of conduct. Non-compliance to this commitment may lead to sanctions within the limits of applicable laws and regulations.
Publicized and promoted to employees, particularly during the annual Global Diversity Week, the diversity policy is part of the #WorkingWellTogether program launched in 2018, whose main lines are aligned with the Code of Conduct: #Gender diversity, #Generational diversity, #Multicultural, #Employee with disabilities, #Wellbeing.
2018 Achievements: ◆ Review of a roadmap for gender diversity and equal treatment: the Corporate and Social Responsibility Committee heard the Group Head of Human Resources & Transformation on the results achieved in terms of diversity and on the initiatives proposed to facilitate women’s access to positions of responsibility within the Group and to enhance the female talent pool. This roadmap is based on the fight against the risks of discrimination through adapted recruitment processes, and on a proactive approach when taking decisions (salary increase, performance assessment, promotion within the partners program, identification of the high potential employees during the Strategic Talent Workforce Reviews).
◆ Continuing the actions implemented by the internal network dedicated to the promotion of diversity: launched in 2016 and animated by a mixed network of volunteer employees, the SIGN network (SCOR International Gender Network) organizes events and activities in favor of gender diversity, deployed both globally and regionally.
◆ Personal coaching and support for older employees are also in place, along with a pension scheme adaptable according to employee’s personal situation (Cologne).
In an incentive regulatory environment, SCOR intends to scale-up its support to disabled-people’s employment. The Group aims at communicating better on disabilities to change biased attitudes about people with disabilities, to inform this group of employees about their rights and to offer them tools and solutions to ensure their full integration and retention.
◆ Promotion of the disability as an integral part of diversity through the Global Diversity Week and to facilitate the integration of the employees with disabilities.
◆ First edition of “la semaine du handicap” organized in 2018 in Paris. An internal communication campaign is implemented to enhance employees’ knowledge on the inclusion of employees with disabilities.
The Group aims at retaining talented employees by facilitating work-life harmony through the development of an innovative and flexible working environment and dedicated events raising awareness on health and wellbeing at work. In 2018, the turnover rate was 8.6% (number of departures in 2018 (excluding dismissals, deaths, Company transfers and trainees)/headcount as at December 31, 2017)). This rate is at an acceptable level in regards to this challenge.
2018 achievements: ◆ Specific attention is paid to the flexible office solutions proposed to the employees. The principle locations of the Group (France, UK, Switzerland, Germany, USA) have implemented a teleworking program.
◆ In most of the locations, medical and health services offered to the employees (medical appointments, examination, sport activity, work stating assessment and ergonomic solutions, specific solutions for stress management).
◆ In some countries, possibility offered to employees to give their own paid vacation days to other employees in a critical personal situation (e.g.: sick child).
◆ In 2018, introduction of the “Future@SCOR” program in Asia. It is anchored around three guided objectives: enhanced employees benefits, supported scheme to help employee’’s wellbeing in the workplace, implement flexible work arrangement.
◆ Although no collective agreement related to health and safety in the workplace was signed in 2018, 23 meetings were held with the Group’s staff representatives to discuss local health and safety conditions (seven meetings in France, three en Suisse, two in Brazil, nine in Colombia, one in Mexico).
◆ In 2018, a computerized solution has been implemented to better identify the reasons of departure for the employees who has resigned from the Group. In addition, regular surveys are conducted to identify the level of satisfaction of the new employees concerning their on-boarding.
◆ In 2018, the Group’s staff absenteeism rate was approximately 4.55%. (number of days of absence in 2018 including sick leave, maternity, paternity, parental leave, sabbatical vacation and exceptional leave)/(total theoretical number of days worked in 2018)).
Beyond analyzing the employee’s performance over the past year and setting new objectives, the annual appraisal facilitates the professional development of each employee. With their managers, employees examine the career prospects available within the Group, based on their personal aspirations and the needs of the Company. Together, they also identify any training actions that could help them to achieve new objectives. Strategic Talent Workforce Reviews also provide the possibility to implement individual action plans (training, professional development, remuneration, etc.) for each employee.
SCOR University is designed to promote a global and dynamic approach to training, supporting the Group’s career management policy.
The training offer is structured around three pillars: Business, Management & Leadership, Excellence. The strategic objectives are to: ◆ have a consistent SCOR-wide training approach to ensure career development for all employees; ◆ maintain and develop employees’ technical and transversal skills, thus contributing to the Group’s performance; ◆ apply a stringent process for analyzing, controlling and monitoring SCOR’s strategic needs; ◆ make the training policy a powerful means of developing and retaining staff while adhering to local legal requirements.
◆ Accompaniment of the digital transition In 2018, the Digital Academy has been created within SCOR University to with the objective to reinforce employees’ knowledge on digital topics. Three objectives are associated to this initiative: increasing employee’s productivity through a better use of collaborative and mobility tools, developing the digital culture on emerging trends, new methodologies and impact on society and insurance, acquiring digital expertise and new skills. E-learning, training, videos and specific communications have been implemented since 2017 to achieve these objectives.
2018 achievements: ◆ The Common European Companies Committee (Comité Commun des Sociétés Européennes – CCSE) met five times in 2018 on March 7, April 26, June 20, July 26, October 17.
◆ Seven collective agreements were signed within the Group in 2018 (four for France, one in Italy, two in Brazil). These collective agreements are intended to improve the economic performance of SCOR and the working conditions of employees, in particular by associating them more significantly with the Company’s performance and improving employee benefits.
(3) For technical reasons, this amount excludes taxes for France. (4) For France, this figure includes meetings with the works council and with staff representatives.
The items mentioned in the document above pertain to the entire Group except ReMark (150 employees, fully consolidated entity), MRM (five employees, fully consolidated entity), Château Mondot SAS (22 employees, fully consolidated entity), Les Belles Perdrix de Troplong Mondot EURL (nine employees, fully consolidated entity), Telemed (38 employees), Réhalto(1) (28 employees) and the Lloyd’s Channel Syndicate (132 employees) and ESSOR (76 employees). ReMark, Telemed and Réhalto are wholly-owned by SCOR Global Life SE. The Lloyd’s Channel Syndicate and ESSOR are indirect subsidiaries of SCOR Global P&C SE. MRM, Château Mondot and Les Belles Perdrix de Troplong Mondot EURL are indirect subsidiaries of SCOR SE. They are all managed independently from the Group in terms of human resources (HR policies, processes, rules and frameworks, etc.).
Breakdown by gender “Grenelle II” Indicator: Breakdown of employees by gender
(2) During the period covered, Remark (150 employees at December 31, 2018), Réhalto (28 employees at December 31, 2018) and Telemed (38 employees at December 31, 2018), wholly-owned subsidiaries of SCOR Global Life SE, are managed independently from the Group in terms of human resources and are therefore not aggregated in the Group figures.
(3) The “Group Functions and Support” division includes the departments reporting to the CFO, CRO and COO of the Group as well as the departments directly managed by the Chairman and Chief Executive Officer. SCOR SE controls 59.9% of the capital of MRM (five employees at December 31, 2018). From 2018, Château Mondot SAS (22 employees at December 31, 2018) and Les Belles Perdrix de Troplong Mondot EURL (nine employees at December 31, 2018) are indirect subsidiaries of SCOR SE. Due to their specific activities, their business models and their organizations, MRM, Château Mondot SAS and Les Belles Perdrix de Troplong Mondot EURL are managed independently from the Group in terms of human resources and therefore not aggregated in the Group figures.
(4) 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 type of contract “Grenelle II” Indicator: Total headcount (by contract type)
Methodology: employees on fixed-term contracts are considered to have definitively left SCOR when their contracts expire. Therefore, the 11 employees who signed a permanent contract in 2018 at the end of their fixed-term contract are not included in the indicator “End of fixed-term contract”.
The report covers the 12-month period from January 1, to December 31, of the year under review.
Employees on fixed-term contracts are considered as definitively leaving SCOR when their contracts expire. Employees who signed a permanent contract in 2018 at the end of their fixed-term contract are not included in the fixed term contract endings.
2018 Group staff turnover is calculated as follows: number of departures in 2018 (excluding dismissals, deaths, Company transfers and trainees)/headcount as at December 31, 2017.
Average fixed compensation is calculated on the basis of the annual compensation of reference paid to employees, prorated to actual hours worked. The average bonus includes the profit sharing scheme for France and takes into account bonuses equal to 0 for unsatisfactory performance. The average granted shares takes into account persons who have not been granted shares.
Annual working time: annual period of time (calculated in days) that an individual spends at work. This definition is based on the legal (or conventional) approach and does not take into account absences for sick leave, maternity leave, sabbatical leave, etc.
Number of training hours: total number of hours of training received by all the employees during the year. These training hours are directly managed by SCOR or by an external training organization at the behest of SCOR. For collective training, the number of hours of training is multiplied by the number of participants.
An employee is considered to have a disability when the disability is recognized as such by the relevant body. The disability may be physical or mental or a combination of both. A disability may be present from birth, or develop during a person’s lifetime.
SCOR aims to be a trusted partner. This trust implies a strong focus on business ethics and compliance matters in particular in terms of compliance with economic sanctions programs, anti-corruption, anti-money laundering and anti-terrorism regulations, data privacy and protection, as well as regulatory tax requirements, including tax evasion matters.
In this respect, it is SCOR’s policy to ensure compliance with all applicable laws and regulations and its Code of Conduct wherever it conducts business. SCOR holds itself to high standards of integrity, professionalism and responsibility and is committed to a strong ethical and compliance culture.
The Group Code of Conduct reflects this commitment by setting out the key areas of legal and ethical obligations notably reminding the rules applicable to business confidentiality, the use of insider information, the rules relating to the acceptance of gifts and invitations, as well as those related to the “Know Your Customer” principle as a key way to defend the Group notably against money laundering and violation of economic sanctions risk.
The Code of Conduct must be accepted by the employees as part of the annual Appraisal and Development Interview and is binding. The Code of Conduct is addressed in the training (through E-Learning modules or classroom trainings) for new employees and as refreshers for existing employees.
Employees who fail to comply with the principles of SCOR’s Code of Conduct may be subject to disciplinary action in compliance with the laws applicable in the country of employment and/or may be subject to criminal/regulatory proceedings. In addition, as per the Group Compensation Policy, violations of the Code of Conduct can prevent for the acquisition of shares and stock options.
The Group Compliance Policy also defines the roles and responsibilities of key stakeholders, notably the teams in charge of compliance. The teams in charge of compliance carry-out a risk assessment annually (developed in conjunction with Group Risk management), and the results of that risk assessment are used to drive the annual Group Compliance Plan. The latter is submitted annually to the Audit Committee of the Board of Directors.
All employees are responsible for ensuring compliance with applicable laws, regulations and policies in their daily duties as well as for escalating any actual or suspected compliance breach in line with SCOR Guidelines on Reporting Concerns. This procedure ensures that concerns can be raised in a secure manner.
Apart from the processing of personal data relating to its staff, SCOR’s activities may lead to the processing of other personal data, which notably implies the respect of Personal Data protection and privacy regulation that is an essential component of SCOR’s activities. The Code of Conduct defines the most important principles related to the respect of Personal Data and privacy that are mandatory for all employees.
Additionally, the General Data Protection Regulation (GDPR) (EU 2016/679) of April 27, 2016, is applicable since May 25, 2018 and constitutes the overarching regulation on Data Protection in Europe with the objective to make the companies accountable for their processing of Personal Data. Although the GDPR is general and does not specifically relate to reinsurance, it has an impact on SCOR’s data processing activities.
As part of the global training program for the employees, Data Protection and the GDPR has been integrated in the legal and compliance curriculums. These sessions are conducted regularly by the legal and compliance professionals worldwide. During these sessions staff are trained on Data Protection obligations and the GDPR. These trainings are practical and include case studies to help them to identify the issues that can appear during their activities and the good practices resolve them.
In May 2018 the Group launched a digital module dedicated to Data Protection and GDPR to even more effectively raise awareness to the staff worldwide.
In September 2018 the Group IT launched a new mandatory E-Learning module dedicated to Cybersecurity to raise even more awaress on main security recommendations toward staff.
As noted above, the Group has implemented a response guideline in case of data breach that describes the process beginning with the discovery of a breach through to the notification to a Data Protection authority. This Guideline defines the roles and responsibilities of each employee, including the internal committees involved in the assessment, remediation and response to a breach.
D NON FINANCIAL PERFORMANCE DECLARATION Business conduct and Compliance 3.3. ANTI-BRIBERY
As expressly mentioned in the Code of Conduct, SCOR has a zero-tolerance approach towards corruption, including bribery and influence trafficking. The Group Policy on Anti-Bribery clearly defines corrupt practices and provides guidance to the employees to prevent and detect corrupt practices.
The Compliance function assessed the Group’s anti-bribery policy and its related processes, including its process for reporting concerns, with the French “Sapin II” law, published on December 9, 2016(1). This review resulted in updates to the Group’s Policy on Anti-Bribery, the Guidelines on Reporting Concerns and the Code of Conduct in 2017.
(1) Law on transparency, the fight against corruption and the modernization of economic life.
Transparency, accountability and credibility towards our investors are key values for SCOR as a listed company. Therefore, the Group Guidelines on Managing Insider Information clearly prohibit to trade in SCOR’s securities while in possession of information which, when made public, is likely to have a significant influence on the stock market price.
In addition, it is forbidden to directly or indirectly conduct any transaction with regard to SCOR’s securities during certain sensitive periods that the Group notifies to concerned persons or during any period preceding an important event affecting SCOR and likely to influence the stock market price (the “blackout periods”). SCOR emphasises to the employees the necessity of abiding by the rules on insider trading through regular awareness campaigns.
In line with the Group Code of Conduct, business owner shall not engage in tax planning or tax scheme which do not support genuine commercial activity. ICS processes ensure that a tax analysis is made and documented before entering into a transaction. The quarterly tax reporting process provides the Group with a complete analysis of the P&L tax expense as well as the tax balances of the balance sheet of each entity of the Group for each quarter.
Transfer pricing processes ensures a complete review and documentation of the most significant intra group transactions each year (for which the most significant entities of the Group have to submit a compulsory transfer pricing report – so called “local transfer pricing file” – to their local tax administration every year transfer-pricing documentation which is also reviewed by the Statutory Auditors of the Group).
Insurance companies are in a unique position to contribute to protecting society and the real economy against the risks relating to climate change, as well as supporting society in its transition and adaptation to new energy sources. The Group’s credibility and its ability to honor its commitments may be put at risk if the physical risks and transition risks relating to climate change are not factored into its activities. In this regard, the Group’s climate policy – which forms part of its Enterprise Risk Management approach – endeavors to maintain the relevance of the Group’s activities by defining a framework to identify and manage the physical and transition risks and their consequences, while also focusing on ways of responding to the challenges relating to climate change.
The monitoring of issues related to the Group’s environmental strategy is embedded in SCOR’s system of governance through a dedicated Corporate social and societal responsibility committee, the working sessions of which started in 2018, and at the level of the Group Executive Committee through the Group Chief Operating Officer.
At an organizational level, Climate policy is coordinated and monitored by the Group General Secretary through the Head of CSR.
The measures taken pursuant to this policy and performance indicators are specified in the following sections.
Climate risk management research, notably in terms of climate risk modeling techniques and climate risk transfer mechanisms, contributes to a better understanding of climate change challenges and adaptation. In this respect, SCOR provides institutional and financial support to targeted institutions involved in the aforementioned areas whilst enhancing its own tools and expertise.
This institutional commitment to climate change adaptation is backed at the highest level of the Group. SCOR’s Chairman and Chief Executive Officer has co-chaired the Geneva Association’s Extreme Events and Climate Risks working group since May 2015 and also is a member of the steering committee of the Insurance Development Forum, an institution that brings the United Nations, the World Bank and several other international bodies together with the (re)insurance industry. SCOR is also a member of Insuresilience (The InsuResilience Global Partnership for Climate and Disaster Risk Finance and Insurance Solutions), an initiative more specifically designed to bring insurance solutions to the most economically vulnerable populations.
The SCOR’s Corporate Foundation for Science also promotes climate-related research and modeling. Since 2015, the Foundation has organized two scientific climate seminars which brought together international experts representing different disciplines. The last one on “how will risk modeling shape the future of risk transfer?” took place on March 9, 2017. The Foundation also supports a research project on the exposure of coastal zones under different sea-level-rise scenarios.
4.1.2. ASSESSING THE IMPACT OF THE INVESTMENT PORTFOLIO ON THE CLIMATE
SCOR makes a quantitative assessment of the risks of its portfolio concerning the environment by means of two main metrics: the carbon footprint and alignment of the asset portfolio with the 2°C Scenario. However, the methodologies used by the service providers in charge of these calculations are not yet standardized, which limits the significance of the results.
Moreover, the carbon footprint is only an indicator at a given time. It provides little information on the approach or commitment of issuers with regard to climate risk, or on how SCOR can efficiently manage its assets with regard to risks related to greenhouse gas emissions.
Carbon intensity is defined as the ratio of total CO2 emissions to GDP for states and to turnover for companies. It is calculated excluding real estate debt, infrastructure debt and direct real estate. This data reflects the impact of the issuing company’s positioning on the environment. The carbon intensity per million euros invested was 285 tons at the end of 2018, up by 14% compared to the end of 2017. The calculation covers 89% of the Group’s portfolio(1) at the end of 2018.
The ratio of total CO2 emissions to the amount of investments made by SCOR (tons of CO2 equivalent per EUR million invested) reflects the impact of SCOR’s portfolio on the environment and depends directly on the investment strategy pursued. This metric is included in the ESG investment report, which is available on the Group’s website.
In its P&C activities, the Group protects itself against the “acute” physical risks to which the Company is exposed through its global capital shield strategy. For this, the Group uses primarily traditional retrocession, capital market solutions, a solvency buffer and a contingent capital.
(1) Total invested assets (cash, fixed-income, loans, equities, real estate, other investments).
By developing expertise associated with covering projects supporting the energy transition, reinsurance activities contribute to mitigation policies. In this area, in 2018 the Group’s P&C division launched a specific initiative in 2018 on renewable energies underwriting in order to identify reinsurance needs for each market and define its underwriting policy in this area.
In the area of investments, on the publication of its “Vision in Action” 2016-2019 strategic plan, SCOR reaffirmed its commitment to financing the energy transition through additional investments of up to EUR 500 million in renewable energy sources and energy-efficient buildings. SCOR intends to fully exercise its responsibility as an institutional investor while also making its portfolio more resilient.
In addition to its tertiary real estate business, the Group invests in real estate debt funds and infrastructure debt funds, most of which aim to provide funding for the transition to a low-carbon economy and energy efficient buildings.
By means of the cover offered and its risk pricing position, insurance and reinsurance play a role in companies’ resilience; they form part of solutions for adapting to climate change. SCOR provides effective reinsurance protection against natural catastrophes that benefits the Company as a whole, particularly in the context of accentuation in extreme events.
Contributing to adapting to climate change is a means of development pursued by the Group’s P&C division which – through its involvement in dedicated working groups within the Insurance Development Forum, or in the development of its activities – provides its support for means of covering national natural events and/or those initiated by international bodies.
SCOR has thus supported support the launch of a satellite Index Insurance for farmers in Ethiopia. This insurance product uses state of the art technology to help build drought resilience in poor farmer households. It has some unique features, including providing livestock Asset Protection insurance with the objective of keeping core breeding animals alive during major droughts. Under this project, initiated by the World Food Programme (WFP) SCOR not only provides reinsurance support but also provides technical support for model validation and program pricing.
In the area of underwriting, the Group has made a commitment not to offer facultative insurance or reinsurance that would specifically encourage the development of new thermal coal mines or lignite mines or plants. Furthermore, in order to submit all other projects to a reinforced selection process, the Group’s P&C division has adopted an environmental, social and governance practices internal assessment procedure for operations closely related to coal. This is based on a specific scoring grid for each activity subject to this assessment.
This approach allows for dialogue to be initiated with the sectors and activities concerned.
As part of the French Business Climate Pledge signed in November 2017, SCOR maintained its objective of reducing its carbon intensity(1) of the management of operational processes by 15% per employee for 2020 on the first two scopes of the GHG protocol. At the end of 2018, the Group’s carbon intensity reduction reached 25%. Moreover, the Group pursued and reinforced its carbon offsetting program for emissions relating to air transport (83% of the Group’s emissions); in 2018, around half of the Group’s emissions stemming from air transportation were offset, i.e. 10,000 TeqCO2. These carbon credits are not deducted from the greenhouse gas emissions reported below.
(1) The coverage rates corresponds to the number of employees working in the locations surveyed divided by the number of employees working in the entities which are fully integrated in the financial statements. Further information on the scope of reporting can be found in Section 5.3 of this declaration.
(2) Of which electricity (68%), fuel and gas (13%), other heating sources (5%) and other cooling sources (15%). (3) The increase in the air transport indicator is due to the integration of new data into the information collection system (e.g. expense reports).
Unless stated otherwise, this consolidated declaration covers SCOR SE and all its fully-consolidated subsidiaries, hereinafter “SCOR” or “the Group”, other than the exceptions of Groupe Remark (150 employees), de MRM (five employees), ESSOR (76 employees), Château Mondot SAS (22 employees), Les Belles Perdrix de Troplong Mondot (nine employees) and in function of the information required pursuant to the aforementioned texts, Channel syndicate (132 employees). These companies are excluded because of the specific nature of their activities, or their organisation, or the recent integration into the scope of consolidation. Associates and affiliates are excluded from the scope (see Section 4.6.22 – Notes to the consolidated financial statements, Note 22 – Related party transactions).
Performance indicators Section 2.1.2. Turn-over rate Section 2.1.3. Employee trainings Section 3. Compliance system – number of training sessions across the Hubs Section 4. “Green” investments Section 4. CO2 emissions/employee
D NON FINANCIAL PERFORMANCE DECLARATION Note on methodology 5.3.1. SCOPE OF DATA COLLECTION
Data was collected on a target scope including all active Group sites with more than 30 employees for all of the reporting indicators. This target scope accounts for 83.2% of employees (as of December 31, 2018) of legal entities fully consolidated in the financial statements.
A table has been included in Section 4.4 – Operational process management, providing an overview of the rate of coverage for a selection of indicators.
Energy consumption is expressed in kWh/m2, water consumption in m3/employee, and paper consumption in kg/employee. For some data, the ratio takes into account the service providers and other tenants located in the premises occupied by the staff managed by the Group.
In addition, the Group consolidates these indicators and presents them expressed in tons of CO2 equivalent. This conversion of the different energy sources into greenhouse gas emissions is performed centrally on the basis of the conversion factors taken from the “Base Carbone®” produced by the French “Environment and Energy Management Agency” (Ademe) and extrapolated from the data effectively collected in each Hub. The emissions calculated by the Group cover the following scope of the “Green House Gas Protocol”: ◆ “Scope 1”: direct emissions from the combustion of fossil fuel. Depending on the site, these emissions are generated by the consumption of fuel (heating and backup generator) and the use of fleets of vehicles.
◆ “Scope 2”: indirect emissions induced by electricity consumption, steam and cooling systems. For most of the sites surveyed, most of these emissions are induced by electricity procurement and for some sites, such as Paris, from urban cooling systems. For the calculation of the greenhouse emissions SCOR does not use a discounted factor for renewable energy if a certificate with the discounted rate to be applied is not provided by the energy supplier. Indeed, as the sources of renewable energy purchased are not always known, SCOR adopts a precautionary approach, using the emission factor resulting from the energy mix of a given country. Hence this approach tends to slightly overestimate the measured carbon footprint of the Group.
The main sources of greenhouse gas emissions of the Group may also include emissions stemming from investment. for Related metrics are available in the ESG report on investments that is available on the Group’s website.
6. STATUTORY AUDITOR’S REPORT ON THE REVIEW OF SELECTED SCOR SE ENVIRONMENTAL AND SOCIAL INDICATORS
This is a free English translation of the independent third party’s report issued in French and is provided solely for the convenience of English-speaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France.
In our capacity as independent third party and certified by COFRAC under number 3-1058 (scope of accreditation available at www. cofrac.fr), we hereby report to you on the extra-financial performance declaration for the year ended December 31, 2018, included in the management report (hereinafter named the “Declaration”), pursuant legal provisions and regulation of article L. 225-102-1, R. 225-105 et R. 225-105-1 of the French Commercial Code (Code de commerce).
D NON FINANCIAL PERFORMANCE DECLARATION Statutory Auditor’s report on the review of selected SCOR SE environmental and social indicators
Insurance primarily concerned with the losses caused by injuries to third parties by the policyholder and the legal liability imposed on the insured resulting therefrom.
Enterprise Risk Management is a process, deployed by an entity’s Board of Directors, Chief Executive Officer, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risks to be within its risk appetite, in order to provide reasonable assurance regarding the achievement of the entity’s objectives.
The Life technical margin is calculated as a percentage of the net technical result plus income from funds held by ceding companies and the net of gross and ceded earned premiums.
The natural catastrophe ratio is calculated by dividing Non-Life claims arising from natural catastrophes by Non-Life premiums earned. This ratio is net of retrocession.
PERILS provides index values which can be used in industry-lossbased ILS transactions. The underlying data for the index is thereby directly collected from insurance companies underwriting property business in the affected areas and is processed in a standardized procedure to estimate industry-wide insured losses, which then form the basis of the PERILS index service.
Reinsurer’s share of claims carried by the reinsurer in proportion to its share of premiums received. Proportional reinsurance is generally written as a quota share of business or as surplus reinsurance.
Reserve for claims reported but not settled yet. These are estimated by ceding companies and communicated to the reinsurer.
The return on invested assets is used to assess the return on the Group’s invested assets excluding funds withheld by cedants. This percentage, return is calculated by dividing the total investment income on invested assets by the average invested assets (calculated as the quarterly averages of the total invested assets).
The return on investment is used to assess the profitability of the Group’s investments, including funds withheld by cedants and other deposits less cash deposits. This percentage return is calculated by dividing the total net investment income by the average investments (calculated as the quarterly averages of the total investments).
SCOR Global P&C refers to the Non-Life operating segment and all business transacted by entities in this segment. SCOR Global P&C SE refers to the legal entity.
A legal entity created to fulfill specific or temporary objectives (conduct defined activities or hold assets etc.). SPV’s are typically used by companies to isolate the financial risk from the firm.
The period of time that elapses between either the writing of the applicable insurance or reinsurance policy or the loss event (or the insurer’s or reinsurer’s knowledge of the loss event) and the payment in respect thereof. A “short-tail” product is one where ultimate losses are known comparatively quickly; ultimate losses under a “long-tail” product may remain unknown for several years.
For each reinsurance contract, these cover the portion of premiums written during the year relating to future periods (between the reporting date and the date at which the reinsurance contract expires).
The information of the special report relating to the 2018 stock options plans established in accordance with Article L. 225-184 of the French Commercial Code and the special report relating to the 2018 free share allocation plans established in accordance with the Article L. 225-197-4 of the French Commercial Code, appear in Section 2.2.3.4 – Plans providing employee profit sharing.
The technical result of SCOR SE as at December 31, 2018 was EUR 39,561,294 while the financial result was EUR 569,116,977.
Total Amount of concerned bills without taxes 12 - - - 1 1 78 - - - 4 4
Percentage of total expenses of the year, without taxes 5.55% 0.06% 0.00% - 0.53% 0.59%
Percentage of total gross sales of the year, without taxes 30.47% 0.03% 0.01% - 1.60% 1.63%
Pursuant to Article 223 quarter of the French General Tax Code, we remind you that the amount of the expenses and charges referred to in Article 39.4 of said Code for 2018 totals EUR 114,623 and the amount of taxation borne by the Company due to the non-deductibility of such charges should amount to a total of EUR 39,465.
(1) Subject to adjustment based on 2019 Shareholders' Meeting’s decision regarding the allocation of 2018 income.
Over the three previous financial years, the amounts distributed by SCOR SE as dividends were as follows: Fiscal year ended on: 12/31/2017 12/31/2016 12/31/2015
(2) For natural persons only: the dividend paid in 2016, 2017 and 2018 for the financial years 2015, 2016 and 2017 gave entitlement to a 40% deduction (except where the beneficiary opted for fixed-rate taxation on dividends (prélèvement libératoire forfaitaire, where applicable)).
F ADDITIONAL INFORMATION RELATING TO THE MANAGEMENT REPORT OF THE COMPANY AND THE GROUP – CORRESPONDENCE TABLE Trends in the SCOR SE share price throughout 2018 2. TRENDS IN THE SCOR SE SHARE PRICE THROUGHOUT 2018
4. CONSEQUENCES OF RESPECT OF HUMAN RIGHTS, THE FIGHT AGAINST CORRUPTION AND FISCAL EVASION
Additional information provided in the management report of the Company F
STATEMENTS DEALING WITH THE MANAGEMENT OF SCOR SE AND THE GROUP IN 2018
Amount of the intercompany loans – Loans of less than two years granted by the Company, as an ancillary to its main activity, to micro businesses and SME or companies of an intermediate size with which it maintains economical relationships None
Indication on the financial risks related to the effects of the climate change and presentation of the means taken by the Company to reduce them by implementing a low-carbon strategy at all stage of its activity Appendix D
◆ Transactions performed by the Company in its own shares in the framework of Articles L. 225-208, L. 225-209 and L. 225-209-2 of the French Commercial Code Section 2.3.1
◆ Notice of holding more than 10% of the share capital of another joint-stock company – Disposal of cross shareholdings –(1)
◆ Summary statement on the transactions on titles by the persons referred to in Article L. 621-18-2 (persons discharging managerial responsibilities as well as the persons closely associated with them) Section 2.2.4
Collective agreements concluded within the Company and the impact on the economic performance and work conditions of the employees (included in the Non financial performance declaration of the Group and SCOR SE) Appendix D
Subsidiaries’ business overview during the financial year closed Sections 1.2.3, 1.2.5, 1.3.1, 1.3.5, 1.3.6, 1.3.9 and Appendix C – 5.2.1
F ADDITIONAL INFORMATION RELATING TO THE MANAGEMENT REPORT OF THE COMPANY AND THE GROUP – CORRESPONDENCE TABLE Additional information provided in the management report of the Company
Transfer or disposal of shares undertaken to regularize cross shareholdings None
Reference to a corporate governance code in accordance with the principle "comply or explain” as well as location where such code can be consulted Section 2.1.1
List of all mandates and functions exercised in any company by each corporate officer during the financial year Section 2.1.2.1
Choice made of one of the two means for exercising the General Management Section 2.1.1.1
Agreements entered into by the Company which are modified or terminated in the case of a change of control of the Company Sections 2.3.1.5
(1) The Company did not hold any cross shareholdings in 2018.
Introduction & History and development of SCOR 8 to 11 5.2 Investments 1.2.6 SCOR investments in tangible and intangible assets 21 to 24 6 Business overview 6.1 Primary activities 1.2.5 Business overview 14 to 21
7.2 List of issuer’s significant subsidiaries 1.2.3 Organizational structure of SCOR 13 8 Property, plant and equipment 8.1 Major existing or planned property, plant and equipment 1.2.6 SCOR investments in tangible and intangible assets 21 to 22 8.2 Environmental issues that may affect the utilization of property, plant and equipment 1.2.6 SCOR investments in tangible and intangible assets
Headings as listed in Appendix 1 of European Regulation n°809/2004 Paragraph Pages 9 Operating and financial review 9.1 Financial position 1.3.6 Financial position, liquidity and capital resources 40 to 41 9.2 Operating results 1.3.5 Revenues & earnings summary 28 to 39 10 Capital resources 10.1 Capital 1.3.6 Financial position, liquidity and capital resources 40 to 41 10.2 Cash flow 1.3.8 Cash flows 42 10.3 Borrowing conditions and financing structure 1.3.6 Financial position, liquidity and capital resources 40 to 41 10.4 Restrictions on the use of capital 1.3.6 Financial position, liquidity and capital resources 40 to 41 10.5 Sources of financing relating to the future investments by the Company and to its property, plant and equipment 1.3.6 Financial position, liquidity and capital resources 11 Research and development, patents and licenses 11.1 Research and development activities 1.2.6 SCOR investments in tangible and intangible assets 22 to 23 11.2 Information technologies 1.2.6 SCOR investments in tangible and intangible assets 23 to 24 12 Trend information 12.1 Most significant trends in production, sales, inventory, costs, and selling prices since the end of the last financial year
Information on SCOR’s competitive position & Revenues and earnings summary 13 Profit forecasts or estimates N/A N/A N/A
Compensation of the executive corporate officer and directors in the form of stock options and performance shares 81 to 112 15.2 Total amounts set aside or accrued to provide pension, retirement, or similar benefits for financial year 2015 2.2.1 Compensation of the executive corporate officer and directors 16 Board practices 16.1 Date of expiration of the current term of office 2.1.3 Board of Directors 16.2 Information on service contracts of members of administrative and management bodies 2.1.3 Board of Directors 16.3 Information on the Audit Committee and the Compensation and Nomination Committee 2.1.4 Board of Directors’ Committees 16.4 Corporate governance regime 2.1.1 Corporate governance principles 48
2.3.1 Capital ownership 18.2 Statement as to the absence of differences between the voting rights of various shareholders 2.3.1 Capital ownership 18.3 Direct or indirect control by a shareholder 2.3.1 Capital ownership 18.4 Agreement which could result in a subsequent change in control 2.3.1 Capital ownership 19 Related party transactions 19.1 Related party transactions 2.3.2 Related party transactions and agreements 125 19.2 Related party agreements 2.3.2 Related party transactions and agreements 125 19.3 Special report of the Auditors on related party agreements and commitments 2.3.3 Special report of the Statutory Auditors on related party agreements and commitments 126 to 128 20 Financial information concerning the issuer’s assets and liabilities, financial position and profits and losses 20.1 Historical financial information: consolidated financial statements 4 Consolidated financial statements 20.2 Pro forma financial information N/A N/A N/A
Information about share buybacks (Article L. 225-211, paragraph 2, of the French Commercial Code) 2.3.1.6 117 to 123
Statutory Auditors’ report on the financial statements Appendix C – 6 311 to 315
SCOR SE European Company With a share capital of EUR 1,520,931,435.11