(excluding reinsurance activity) 35 4.6 Risks and litigation: reserving methods 35 5 Information about the issuer 36 5.1 History and development of the issuer 38 5.1.1 Legal name and commercial name of issuer 38 5.1.2 Place and registration number of issuer 38 5.1.3 Date of incorporation and length of life of issuer 38 5.1.4 Domicile and legal form of issuer, legislation governing its activities, country of incorporation, address and telephone number of its registered offi ce 38 5.1.5 Important events in the development of the issuer’s business 39 5.2.1 Principal investments made over the past three fi nancial years 42 5.2.2 Principal investments in progress 43 5.2.3 Principal future investments 43 6 Business overview 44 6.1 Primary activities 48 6.1.1 The reinsurance business 48 6.1.2 Breakdown of the Group’s business 49 6.2 Principal markets 52 6.2.1 Breakdown of gross premiums by business segment 52 6.2.2 Distribution by geographic area 52 6.3 Extraordinary events infl uencing the principal business and markets 53 6.3.1 Non-Life reinsurance 53 6.3.2 Life reinsurance 53 6.4 Dependency of the issuer with respect to patents or licenses, industrial, commercial or fi nancial contracts and new manufacturing processes 53 6.5 Information on SCOR’s competitive position 54 6.5.1 Non-Life reinsurance 54 6.5.2 Life reinsurance 55 7 Organisational structure 56 7.1 Brief description of the Group and of the position of the issuer 60 7.1.1 Group operating companies 60 7.1.2 The Group’s restructuring 60 7.2 List of issuer’s signifi cant subsidiaries 62 8 Property, plant and equipment 63 8.1 Major existing or planned property, plant and equipment 65 8.2 Environmental issues that may affect the utilisation of property, plant and equipment 65 9 Operating and fi nancial review 66 9.1 Financial position 68 9.2 Operating results 69 9.2.1 Consolidated operating results 69 9.2.2 SCOR Global P&C 70 9.2.3 SCOR Global Life 71 9.2.5 Strategy or factors of governmental, economic, fi scal, monetary or political character which have had or could have a material impact on the operations of the Group 71 10 Capital resources 72 10.2 Cash fl ow 74 10.3 Borrowing conditions and fi nancing structure 74 10.4 Restrictions on the use of capital 75 10.5 Sources of fi nancing relating to the future investments by the Company and to its property, plant and equipment 75 11 Research and development, patents and licenses 76 11.1 Research and development activities 78 11.2 Information technologies 78 12 Trend information 80 12.1 Most signifi cant trends in production, sales, inventory, costs, and selling prices since the end of the last fi nancial year 82 12.1.1 Non-Life 82 12.2 Known trends, uncertainties, demands, commitments and events reasonably likely to have a material effect on the issuer’s prospects 84 13 Profi t forecasts or estimates 85 14 Administrative and management bodies 87 14.1 Information on the members of the Board of Directors and Senior Managers 89 14.1.1 Information concerning the members of the Board of Directors 89 14.1.2 Biographical information on members of the Board of Directors 101 14.1.3 Executive Committee 102 14.1.4 Biographical information on the members of the Executive Committee 104 14.1.5 Negative disclosures about members of the Board of Directors and Senior Management 105 14.2 Administrative, Management, and Supervisory Bodies and Senior Management confl icts of interest 106
15 Remuneration and benefi ts 107 15.1 Amount of remuneration paid and benefi ts in kind 109 15.1.1 Directors’ fees as of 31 December 2008 109 15.1.2 Remuneration paid to Executive Committee members in 2008 110 15.1.3 Remuneration in the form of options and share allocation 113 15.2 Total amounts set aside or accrued to provide pension, retirement, or similar benefi ts for fi nancial year 2008 114 16 Board practices 115 16.1 Date of expiration of the current term of offi ce 117 16.2 Information on Service Contracts of members of administrative and management bodies 117 16.3 Information on the Audit Committee and the Compensation and Appointment Committee 118 16.4 Corporate governance regime 118 17.1 Number of employees 121 17.2 Information on shareholdings and stock options or Company stock purchases by members of administrative and management bodies 122 17.2.1 Number of shares held by Directors and Senior Managers 122 17.2.2 Stock options held by members of the Executive Committee as at the date of the Registration Document 123 17.2.3 Free allocation of shares to COMEX members and other company offi cers as at the date of the Registration Document 125 17.3 Plans providing employee participation in Company 128 17.3.1 Share purchase and share subscription plans 128 17.3.2 Share allocation plans 129 17.3.3 Employee savings plan 131 17.4 Defi ned pension schemes 132 17.4.1 Defi ned contribution pension schemes 132 17.4.2 Defi ned benefi ts pension schemes 133 18 Principal shareholders 134 18.1 Signifi cant shareholders known to SCOR 136 18.2 Negative statement as to the absence of differences between the voting rights of various shareholders 138 18.3 Direct or indirect control by one shareholder 139 18.4 Agreement which could result in a subsequent change in control 139 19 Related party transactions 140 19.1 Related party transactions entered into in 2008 as defi ned articles L.225 – 38 et seq. of the French Commercial Code 142 19.2 Agreements approved in past years, which were continued or terminated in the 2008 fi nancial year 146 19.3 Special report of the auditors on related party agreements and commitments 149 20 Financial information concerning the issuer’s assets and liabilities, fi nancial position and profi ts and losses 155 20.1 Historical fi nancial information: consolidated fi nancial statements 157 20.1.1 Consolidated balance sheets 158 20.1.2 Consolidated statements of income 160 20.1.3 Consolidated statements of comprehensive income 161 20.1.4 Consolidated statements of cash fl ows 162 20.1.5 Consolidated statements of changes in shareholders’ equity 163 20.1.6 Notes to the consolidated fi nancial statements 164 20.2 Auditing of historical consolidated fi nancial information 236 20.3 Sources of fi nancial information not extracted from the audited fi nancial statements of the issuer and indication of such absence of audit 238 20.4 Date of most recently audited fi nancial information 238 20.5 Interim and other fi nancial information 238 20.6 Dividend distribution policy 238 20.7 Litigation and arbitration procedures 239 20.8 Material change in fi nancial or commercial situation 239 21 Additional information 240 21.1 Share capital 242 21.1.1 Amount of issued capital and additional information 242 21.1.2 Existence of non-equity shares 244 21.1.3 Number and value of directly or indirectly held treasury shares 245 21.1.4 Amount of convertible securities, exchangeable securities or securities with subscription warrants 246 21.1.5 Information about and terms of any acquisition rights and/or obligations over authorised but unissued capital or an undertaking to increase the capital 247 21.1.6 Information about any capital of any member of the Group which is under option or agreed conditionally or unconditionally to be put under option and characteristics of such options 247 21.1.7 History of the Company’s share capital for the period covered by the historic fi nancial information 248 21.2 Charter and Bylaws 249 21.2.1 Corporate purpose of the issuer (Article 3 of the bylaws) 249 21.2.2 Summary of the bylaws and internal regulations of the Company concerning the members of its administrative, management and supervisory bodies 249 21.2.3 Rights, privileges and restrictions attached to existing shares 249 21.2.4 Actions required to modify shareholders’ rights 250 21.2.5 Conditions for calling Annual Shareholders’ Meetings and Extraordinary Shareholders’ Meetings (Articles 8 and 19 of the bylaws) 250 21.2.6 Provisions that could delay, defer or prevent a change in control 251 21.2.7 Declaration thresholds 251 21.2.8 Conditions governing modifi cations to the share capital (other than legal provisions) 251 22 Material contracts 252 23 Third-party information and statements by experts and declarations of any interest 255 23.1 Expert’s report 257 23.2 Information from third parties 257 24 Documents on display 258 25 Information on holdings 260 25.1 Increase of the stake in the capital of Prevoir Vietnam Life Insurance Company 262 25.2 Increase of a stake in the share capital of GECIMED (formerly SOFCO) 263 26 Non fi nancial information 264 27 Fees paid by the Group to the auditors 266 28 Published information 268 28.1 Information published on the Autorité des Marchés Financiers (AMF) website (www.amf-france.org) 270 28.2 Information published in the Bulletin des Annonces Légales Obligatoires (BALO) [Bulletin of required legal notices publications] (www.journal-offi ciel.gouv.fr/balo/index.php) 271 28.3 Information published on the Securities and Exchange Commission (SEC) website (www.sec.gov) 271 28.3.1 For SCOR SE 271 28.3.2 For SCOR Holding (Switzerland) AG 272 28.4 Information published on SCOR company’s website (www.scor.com) 274 28.5 Information published on NYSE-Euronext’s web site (www.euronext.com) 274 28.6 Information published on the Info-Financieres web site (www.info-fi nanciere.fr/search.php.com) 274
B Appendix B : Report of the Chairman of the Board of Directors on the terms and conditions for preparing and organising the work of the Board of Directors and on internal procedures in accordance with article L.225-37 of the French Commercial Code 314
I confi rm that, to the best of my knowledge, the fi nancial statements have been drawn up in accordance with applicable accounting standards and accurately show the position of the assets and liabilities, the fi nancial position and the profi t or loss of the company and of all businesses and fi rms included within the scope of the consolidated group, and that the management report, mentioned in Sections 3, 4, 7.1, 9, 10, 11, 15.1, 17, 18, 20.1, 21.1, Appendix A and Appendix C, accurately refl ects the evolution of the business, the results and the fi nancial position of the company and of all businesses and fi rms included within the scope of the consolidated group, and describes the main risks and contingencies which they are faced with. (1)
The historical fi nancial information included in the Registration Document was certifi ed by the auditors. Their reports are reproduced in Section 20.2 and Appendix A of this document, and incorporated by reference for fi nancial years 2007 and 2006, in Sections 20.3.1.1 and 20.3.1.2 of the 2007 Registration Document and Sections 20.4.1.2 and 20.4.1.1 of the 2006 Registration Document. The audit reports on the 2008 Corporate Financial Statements and 2007 Consolidated Financial Statements include comments.
(1) By reason of a material error, this paragraph did not appear in the version of the Registration Document put on line between 5 March 2009 and 18 March 2009.
On the date of the Shareholder’s Meeting called to approve the fi nancial statements of the fi nancial year ending
Consolidated SCOR Group Gross written premiums 5,807 4,762 2,935 Net earned premiums 5,281 4,331 2,634
Investment income (gross of expenses) 467 727 498 Investment yield (net of expenses) 2.3% 4.3% 4.6% Return on equity 9.0% 14.0% 14.1% Basic earnings per share(3) (in EUR) 1.76 2.78 3.26 Book value per share (in EUR) 19.01 20.11 19.49 Share price (in EUR) 16.37 17.50 22.40
The risk appetite is translated into practical operational measures (Risk Tolerances) which are designed to ensure that the Group respects the solvency and the return on capital objectives by limiting the amount of exposure to particular lines of business and extreme scenarios.
4.1.1 THE GROUP IS EXPOSED TO DIVERSE RISK FACTORS IN THE NON-LIFE AND LIFE REINSURANCE BUSINESSES
Generally, SCOR’s ability to increase its portfolios in the Life and Non-Life reinsurance segments may be subject to external factors such as economic risks and political risks.
The Property business underwritten by SCOR Global P&C is exposed to multiple insured losses arising from a single or multiple events, which can be catastrophic, being either caused by nature (e.g. hurricane, windstorm, fl ood, hail, severe winter storm, earthquake, etc.) or by the intervention of a man-made cause (e.g. explosion, fi re at a major industrial facility, act of terrorism, etc.).
Any such catastrophic event can generate insured losses in one or several of SCOR’s lines of business.
It can be also mentioned that specifi c retrocession programs are in place for Motor reinsurance (catastophic market loss) and Decennial.
Claims are processed and monitored within each SCOR Global P&C entity. Their claims activities are supported and controlled by the central SCOR Global P&C Claims Department which is also responsible for the direct management of large, contentious, serial and/or latent claims. Audits are conducted on ceding companies’ claims management procedures.
Insurance risk exposure is mitigated by diversifi cation across a large portfolio of insurance and reinsurance contracts as well as geographical areas. The volatility of risks is also reduced by careful business selection, implementation of underwriting guidelines, the use of retrocession and other risk transfer arrangements, proactive claims handling as well as underwriting, claims and administration audits at ceding companies.
In order to mitigate its Property exposure, SCOR retrocedes a portion of the risks it underwrites. Non-Life retrocession is generally limited to catastrophes and major Property risks. In particular, SCOR has global program, which is revised annually, and which provides partial coverage for up to three major catastrophic events within one occurrence year. The retrocession program includes both traditional retrocession as well as the use of capital market solutions (e.g. catastrophe bonds).
These tools enable the Group to quantify its exposure in terms of a probable maximum loss (PML) at various levels of probability for each peril and geographic location. The overall aggregate annual PML per peril, allowing for potential multiple events, provides the information required to determine the level of retrocession and other risk transfer mechanisms (e.g. catastrophe bond) that are needed to ensure that the net aggregate exposure remains within predefi ned tolerance limits.
The probabilistic catastrophe modelling approach captures the uncertainty related to the likelihood of a given event occurring (frequency uncertainty) as well as the uncertainty associated with the amount of loss, given that a particular event has occurred (severity uncertainty). A sound understanding of the uncertainties associated with the model’s key parameters is essential for the interpretation of the model outcome and thus for decision-making. The model outcome describes a bandwidth of loss estimates and not a unique value. In order to identify and stress-test the key parameters, systematic sensitivity analyses are carried out.
Casualty - The Group’s current exposure to Casualty business can be measured using reserves for losses incurred but not yet reported and incurred but not enough reserved (“IBNR Reserves ”). The method of evaluating reserves takes into account changes in the rate that losses incurred and current trends, in particular those arising from changes in law or from the estimated impact of infl ation on losses.
Nevertheless, no guarantee that the Group is protected from unexpected changes in loss frequency or severity in Non-Life business shall be implied from the measures detailed above, including those relating to risk monitoring, mitigation and assessment.
The assessment of biometric risks is at the centre of underwriting risk in life reinsurance. These are risks which result from adverse developments in mortality, morbidity longevity and pandemic claims for direct insurers and reinsurers. These risks are evaluated by SCOR Global Life’s medical underwriters and actuaries, who analyse and use information from SCOR Global Life’s own portfolio experience, from the ceding companies as well as relevant information available in the public domain, such as mortality or disability studies and tables produced by various statistical organisations.
Longevity risk refers to the risk of a loss arising due to the insured or annuitant living longer than expected. This risk exists within reinsured annuity and long-term care or within other longevity protection products.
Anti-selection refers to the problem of asymmetry of information between the insured and the insurer. An individual applying for life or health insurance cover usually has better knowledge about his or her own state of health than the insurer. The risk to the (re) insurer is of policyholders deliberately deciding to: – take out a policy in the knowledge that either their chances of claiming is high or higher than average; – terminate a policy in the knowledge that their chances of claiming are low or lower than average; or
– choose and exercise a policy option which allows to increase the policyholder’s expected benefi t.
Such guarantees may be explicitly or implicitly covered by the reinsurer under the reinsurance contract and if so do expose the reinsurer to the risk of adverse developments which increase the value of the guarantee and thereby necessitate respective increases in benefi t reserves.
Mandates for underwriting Life reinsurance business are assigned to the market units on a mutually exclusive basis. Life reinsurance treaties are underwritten by Life reinsurance experts familiar with the specifi c features of their markets. The Life business is underwritten in line with market specifi c underwriting and pricing guidelines. In particular, these guidelines specify the type and the terms 4 | RISK FACTORS
and conditions under which business is considered as acceptable. Furthermore, they set out the retention of SCOR Global Life for various risks and types of covers. Deviations from guidelines are subject to review by SCOR Global Life’s Central Actuarial and Risk Management areas in order to ensure that the business respects risk tolerance limits and certain risk-adjusted return criteria.
Biometric risks, other than pandemic risk, are diversifi ed on a geographic and a product basis with a claims experience following the laws of larger numbers. Peak mortality, disability and critical illness risks are covered either by surplus per life retrocession programs, or, in some cases, by excess of loss per life or per event. In 2008, SCOR Global life entered into a fully collateralised Mortality Swap arrangement with JP Morgan. The Mortality Swap reduces SCOR’s exposure to major mortality shock events.
In order to ensure that SCOR Global Life is continually kept upto -date with biometric trends and scientifi c developments SCOR Global Life has created four dedicated technical research centres within the Life Central Actuarial Department to analyse and assess the key factors underlying mortality/longevity, Long-Term Care and disability risks. The SCOR Global Life Research Centres provide recommendations for the implementation of the research results into the pricing, underwriting control and determination of exposure limits.
A signifi cant part of the reinsured premium Disability Long-Term Care and Critical Illness products include premium adjustment clauses. In the case of Long-Term Care, the premium adjustments are designed to offset potentially improving longevity. In the case of Critical Illness, premium adjustments mitigate potential negative impacts on future claims patterns due to a general deterioration in health and improved medical diagnosis.
In the event of a very large natural catastrophe with many victims, the losses generated in Life and Non-Life could potentially accumulate, with losses on fi nancial assets related to the potential reaction of markets (e.g. interest rates, exchange rates and equity market prices). In the same way a major pandemic event may cause fi nancial market turmoil and/or business interruptions.
Moreover, SCOR’s ability to grow its portfolios in the Life and NonLife reinsurance segments may be subject to correlated external factors, such as economic and political risks.
Economic risks are related to slowdowns in economic growth or recessions in the major markets. This may lead households to take out less insurance, to suspend certain premium payments, or to terminate the insurance policies underlying the existing treaties earlier than anticipated as much in Life as in Non Life.
SCOR mitigates this type of risk through diversifi cation internationally and across products and markets.
The frequency and severity of such catastrophic events, particularly natural hazards, are by their nature unpredictable. The inherent unpredictability of these events makes forecasts and risk evaluations uncertain for any given year. As a result, our claims experience may vary signifi cantly from one year to the next, which can have a signifi cant impact on our profi tability, and fi nancial position. In addition, depending on the frequency and nature of losses, the speed with which claims are made and the terms of the policies affected, we may be required to make large claim payments within a short period. We may be forced to fund those obligations by liquidating investments in distressed market conditions, or by raising funds at unfavourable conditions.
During 2008 the main accumulations tracked were: Asia Pacifi c - earthquake: Australia, Japan, New Zealand, Taiwan; Asia Pacifi c typhoon: Australia, Japan, South Korea, Taiwan; Canada - earthquake; Caribbean - hurricane, earthquake; Europe, Middle and Near East - earthquake: Austria, Spain, Greece, Israel, Italy, Jordan, Portugal, Romania, Switzerland, Turkey; Europe - wind: Ireland, United Kingdom, France, Belgium, The Netherlands, Luxembourg, Germany, Denmark, Sweden, and Norway; South and Central America - earthquake: Chile, Colombia, Mexico, Peru; United States - earthquake, hurricane, tornado / hail, winter storms.
In Life Reinsurance, maximum underwriting capacities are defi ned to limit the exposure of SCOR Global Life on the various types of 4 | RISK FACTORS
treaties underwritten, proportional and non-proportional, covering individual or group policies. These capacities are revised each year, taking account of the capacities obtained by the retrocession coverage purchased by the Group. Amongst these limits are found: maximum commitment per life accumulated for all SCOR exposures, including prudential margins, maximum annual commitments for non-proportional cover per life or per event, maximum commitment per country for non-proportional exposures by event, a restrictive approach as regards terrorist or nuclear risks. Exposures by risk or by event, for the portfolio as a whole, are managed by aggregating SCOR’s retention and by the capacity obtained through retrocession programs.
As a result, future terrorist acts, whether in the U.S. or elsewhere, could cause us signifi cant claims payments and could have a signifi cant effect on our current and future revenues, net income, cash fl ow and fi nancial position.
Like other reinsurance companies, we are exposed to environmental pollution and asbestos related risks, particularly in the United States. Insurers are required under their contracts to notify us of any claims or potential claims that they are aware of. However, we often receive notices from insurers of potential claims related to environmental and asbestos risks that are not precise enough, as the primary insurer may not have fully evaluated the loss at the time it notifi es us of the claim. Due to the imprecise nature of these claims, the uncertainty surrounding the extent of coverage under insurance policies and whether or not particular claims are subject to any limit, the number of occurrences and new developments regarding the insured and insurer liabilities, we can, like other reinsurers, only give a very approximate estimate of our potential exposure to environmental and asbestos claims that may or may not have been reported.
Nonetheless, due to the changing legal environment, including changes in tort law and case-law, in the U.S. in particular, and equally with respect to scientifi c and medical progress the evaluation of the final cost of our exposure to asbestos related and environmental claims may be increasing in uncertain proportions. Diverse factors could increase our exposure to the consequences of asbestos-related risks, such as an increase in the number of claims fi led or in the number of persons likely to be exposed to these risks. Evaluation of these exposures is all the more diffi cult since claims related are of a long tail nature. SCOR therefore relies on market assessments of survival ratios for funding our reserves although data currently available for the American market relates to old underwriting years for which we do not have any substantial exposure.
Taking account of the above, it is diffi cult to estimate the reserves required the losses arising from asbestos and environmental pollution and to guarantee that the estimated amount will be suffi cient.
The reserve amount for these risks in addition to the number and the amount of losses are indicated in Paragraph 20.1.6 – Notes to the consolidated fi nancial statement, Note 16 – Contract liabilities. Data related to the reserves arising from the risks related to asbestos and environmental pollution are also in Paragraph 4.1.5 – If our claims reserves prove to be inadequate, our net income, cash fl ow and fi nancial position may be adversely affected.
4.1.5 IF OUR CLAIMS RESERVES PROVE TO BE INADEQUATE, OUR NET INCOME, CASH FLOW AND FINANCIAL POSITION MAY BE ADVERSELY AFFECTED
We are required to maintain reserves to cover our estimated ultimate liability for losses and loss adjustment expenses with respect to reported and unreported claims, incurred as at the end of each accounting period, net of estimated related recoveries. Our reserves are established both on the basis of information we receive from our cedent insurance companies, particularly their own reserving levels, as well as on the basis of our knowledge of the risks, the studies we conduct and the trends we observe on a regular basis. As part of the reserving process, we review with the concerned insurers and co-insurers available historical data and try to anticipate the impact of various factors such as change in laws and regulations and judicial decisions that may tend to affect potential losses from claims, changes in social and political attitudes that may increase exposure to losses and trends in mortality and morbidity, or evolution in general economic conditions.
As is the case for all other reinsurers, the inherent uncertainties in estimating our reserves are compounded by the signifi cant periods of time that often elapse between the occurrence of an insured loss, the reporting of the loss to the primary insurer and ultimately to the reinsurer, and taking also into account the delay between the payment of a loss by the primary insurer and the indemnifi cation by the reinsurer. In addition reserving practices may differ among ceding companies.
Another factor of uncertainty resides in the fact that some of our activities are “long-tail” in nature, in particular workers compensation, general liability or those linked to environmental pollution or asbestos. For these type of claims, it has, in the past, been necessary to revise our estimated potential loss exposure and, therefore, the related loss reserves.
Internal actuaries annually review the reserves adequacy. If necessary, audits of our portfolios are performed. Centrally defi ned and tightly controlled reserving process, strong portfolio diversifi cation, prudent reserving policy, sound reserving tools and top of the class level actuarial methods used by highly skilled professionals and high level of transparency, both internally and externally, tends to minimise the risk of an inadequate reserves.
However, we are subject to all of the factors of uncertainty mentioned above and in consequence are subject to the risk that our reserves are inadequate compared to our liabilities. As a consequence, if our claims reserves prove to be inadequate, our net income, cash flow and financial position may be adversely affected.
A table showing changes in reserves for Non-Life claims is provided in Section 20.1.6 - Notes to the consolidated fi nancial statements, Note 16 - Contract liabilities.
The Group pursued in 2008 the active commutations policy of its portfolios initiated in 2003, the main goals being to reduce the volatility of claims reserves, to reduce the administrative costs particularly the oldest, and to allow the reallocation of capital. This policy will be continued in 2009, by focusing efforts on the U.S. run-off activities, business exposed to Asbestos and Pollution risks, and some treaties written by the former Converium company acquired by SCOR.
Our U.S. operations include both on-going and run-off business. The latter mainly consists of risks arising from various categories of contracts of insurance and reinsurance business underwritten between the end of the 1990’s and 2002.
As a result of U.S. capital requirements, the long term capital base of the U.S. subsidiaries had to be strengthened in the past. Furthermore, our U.S. Non-Life Subsidiaries were reorganised. Finally, we have improved our underwriting policy that is now in line with overall Group objectives and set up a pro-active expense management program.
For our Life business, we are required to maintain adequate reserves for future policy benefi ts that take into account expected investment yields and mortality, morbidity, cancellation rates and other assumptions.
Regarding more particularly the risk of failure of our retrocessionaires, we maintain a prudent selection policy in order to reduce this risk. Moreover, a portion of the accounts receivable due from our retrocessionaires is guaranteed by letters of credit or deposits.
We also seek to reduce our dependence on traditional retrocession by using alternative retrocession agreements. Accordingly, on 21 December 2006, we signed a multi-year catastrophe Property retrocession agreement with Atlas III, a dedicated vehicle (SPRV, Special Purpose Reinsurance Vehicle) organised pursuant to the laws of Ireland and fi nanced by the issuance of a Cat Bond, the purpose of which is to provide EUR 120 million in additional retrocession coverage for SCOR and its subsidiaries in the context of a second 4 | RISK FACTORS
With the acquisition of Converium, the Group inherited the Helix Cat Bond that provides coverage of USD 100 million for a second or subsequent event such as Europe Storm, Japan Earthquake, U.S. Hurricane or Earthquake.
On 3 March 2008, SCOR announced that SCOR Global Life had signed a four-year mortality risk swap with JP Morgan which is fully collateralised. This agreement allows the Group to benefi t from coverage of USD 100 million, plus EUR 36 million in the event of a signifi cant rise in mortality following a major pandemic, a signifi cant natural catastrophe or a terrorist attack, for the period 1st January 2008 to 31 December 2011.
We remain therefore exposed to the risk of losing our competitive advantage.
business in Non-Life in the U.S. and British markets. Some of our reinsurance treaties contain termination clauses triggered by ratings. (Refer to Section 4.1.9 - A signifi cant portion of our contracts contain provisions relating to fi nancial strength which could have an adverse effect on our portfolio of contracts and our fi nancial position).
As a result of the above, a downgrade in the rating could however signifi cantly impact our revenues, net income, cash fl ow and fi nancial position.
SCOR has benefi ted during 2008 from a relative improvement to its rating by Moody’s Investment Services (Moody’s), Fitch and Standard & Poor’s (S&P). Currently, the ratings granted by Standard & Poor’s (“S&P”), A.M. Best (“AM Best”), Moody’s Investor Services (“Moody’s”) and Fitch Ratings (“Fitch”) are as follows: Financial position
4.1.9 A SIGNIFICANT PORTION OF OUR CONTRACTS CONTAIN PROVISIONS RELATING TO FINANCIAL STRENGTH WHICH COULD HAVE AN ADVERSE EFFECT ON OUR PORTFOLIO OF CONTRACTS AND OUR FINANCIAL POSITION
Banks providing such facilities usually ask SCOR to post collateral whose value is at least equal to the amount of the LOC facility.
In the case of a LOC being drawn down by a cedent, the bank has the right to request a cash payment from this collateral, up to the amount drawn down by the cedent. It enforces by offsetting the collaterals posted by SCOR.
Moreover, some of our facilities contain fi nancial commitments and fi nancial requirements which, if not met, constitute a default and result in the suspension of the use of current credit facilities 4 | RISK FACTORS
Due notably to the size and complexities of recent acquisitions and despite pre-acquisition due diligence work carried out (SCOR not having always been granted a complete access to exhaustive data) and the integration work performed to date, there is a risk that all fi nancial elements may not have been fully and or correctly evaluated or unknown or unexpected fi nancial risks emerge, which may inter alia have signifi cant consequences on the initially estimated impact of the relevant acquisition on the combined Group.
We are also exposed to risks relating to the integration of the underlying data of newly acquired companies into our operating and fi nancial accounting systems.
Nevertheless, the renewal of contracts at 31 December 2007 and at 31 December 2008 seem to show that the integration of the client bases of SCOR and Converium has been accomplished without losing market share, the administrative reorganisation of the Group has positively evolved.
Recently acquired companies may be party to certain litigation matters which, if the outcome is negative, could have a material adverse effect on the Group
SCOR has inherited and assumes the burden of the litigation matters of acquired companies. The costs of these litigation matters could have an adverse effect on the Group’s future operating income and an unfavourable outcome to one or more of these litigation matters could have a material adverse effect on the Group’s revenues, net income, cash fl ow and fi nancial position. For further details, refer to Section 20.1.6 - Notes to the consolidated fi nancial statements, Note 28 - Litigation.
Reset: After a given number of years, the GMDB is adjusted to the current account balance. This means that the GMDB can be reduced but often not below the paid-up premium (adjusted for later deposits and partial withdrawals.)
There are some risks which are specifi c to the GMDB portfolio. Due to the nature of the product the remaining liability is infl uenced by developments on the fi nancial markets, in particular changes in the price of equities, bonds, interest rates as well as the implied volatility on equity options. It is also dependant on policyholder behaviour, particularly on the exercise of partial withdrawal options, but also on other aspects, such as lapse behaviour and the use of options to choose the underlying funds. Being a retrocessionaire, SCOR Global Life is exposed to uncertainties concerning data received from its retrocedents and the original ceding companies and also due to the inherent reporting lag. SCOR Global Life is also exposed to risks inherent to the model used or the assessment of the liability under its portfolio.
As part of the fi nalisation of the accounting for the Converium acquisition, SCOR strengthened SCOR Global Life’s GMDB runoff Life reserves (See Section 20.1.6 - Notes to the consolidated fi nancial statements, Note 3 - Acquisitions).
SCOR reduces this risk by implementing a policy of geographic and sector diversifi cation, and by limiting exposure per bond issuer. The Group has a conservative investment policy and puts great importance on certain selection criteria notably the rating given by the rating agencies to the issuer, or liquidity. In addition the Group invests in corporate bonds benefi ting from high ratings (AA) or very high ratings (AAA) while a large part of the Bond portfolio is invested in Government bonds, super national bonds and bonds guaranteed by a State which frequently have better fi nancial ratings and lower risk profi le than Corporate bonds.
For retrocession arrangements, the Group transfers part of its risks to the retrocessionaires. The retrocessionaires then assume, in exchange for the payment of premiums by SCOR, the losses and charges associated with claims covered by the retrocession contracts. However, the Group remains liable to the cedent for the payment of all claims covered under the reinsurance contract, including the part retroceded to the retrocessionaires and even if the retrocessionaire does not fulfi l its obligations under its contract with SCOR. We therefore carry a credit risk in the event that our retrocessionaires default.
Such risks are described in more detail in Section 4.1.6 - We may be adversely affected by the inability of our retrocessionaires and cedents or members of pools in which we participate to meet their obligations and by the availability of retrocessional reinsurance on commercially acceptable terms.
Also seeking to reduce the credit risk arising from its retrocessionaires, SCOR: requests that its retrocessionaires provide that all or a portion of the receivables from its retrocession contracts are guaranteed by collateral (cash deposits, letters of credit, pledging of securities etc.) in favour of SCOR; carries out an active commutation policy in Non-Life.
The Group’s retrocession department monitors regularly its exposure to retrocessionaires by taking into account all relevant accounting balances (estimated and actual claims, premiums, reserves and deposits, pledges and security deposits).
In addition to the use of traditional retrocession, SCOR seeks to reduce its dependence on its retrocessionaires by using alternative retrocession agreements. Alternative retrocession agreements are described in more detail in Section 4.1.6 - We may be adversely affected by the inability of our retrocessionaires and cedents or members of pools in which we participate to meet their obligations and by the availability of retrocessional reinsurance on commercially acceptable terms.
We are also exposed to a credit risk in the event of a payment default by the cedents of the premiums due under SCOR’s acceptance of a portion of their risks as well as in the event of a default on the reimbursement by the cedents of the deposits paid by SCOR to secure its commitments thereto, for any reason (including contractual payment deadline, late payment, insolvency).
Credit risk may thus notably arise from amounts deposited with ceding companies should these deposits exceed SCOR’s technical liabilities to the same ceding company, in particular when SCOR’s right to offset the deposits against its technical liabilities could be voided or when its ability to recover the amount deposited is impaired.
SCOR periodically reviews the fi nancial situation of its cedents. Thus, should their fi nancial strength deteriorate between the time their fi nancial commitment is made and the time it must be honoured (which may represent several years), an appropriate fi nancial provision is established in SCOR’s accounts corresponding to the liability for which a loss is considered probable.
Thus, the inability of our cedents to fulfi l their fi nancial obligations could affect our current and future revenues, net income, cash fl ow and fi nancial position. Such risks are described in more detail in Section 4.1.6 - We may be adversely affected by the inability of our retrocessionaires and cedents or members of pools in which we participate to meet their obligations and by the availability of retrocessional reinsurance on commercially acceptable terms.
SCOR’s Credit & Surety business does not cover either CDS (“Credit Default Swap”) or real estate loans, notably in the U.S., nor is it exposed to the various U.S. credit “monoliners” or “guarantors ”.
We are therefore exposed to a credit risk related to the insolvency of a cedent which, if it were to occur, could adversely impact our revenues, net income, cash fl ow and fi nancial position.
The retrocessionaires part in the technical reserves split by retrocessionaire fi nancial rating is included in the paragraph Section 20.1.6 - Notes to consolidated fi nancial statements, Note 16 - Contract liabilities and Note 6 - Insurance business investments for the split of bond issuers by issuers rating.
Interest rate fl uctuations have direct consequences on the market value of our fi xed-income investments and therefore on the level of unrealised capital gains or losses of the fi xed-income securities held in our portfolio. The return on the securities held also depends on changes in interest rates. Interest rates are very sensitive to a number of external factors, including monetary and budgetary policies, the national and international economic and political environment, and the risk aversion of economic agents.
During periods of declining interest rates, income from our investments is likely to fall due to investments of new premiums at rates lower than those of the existing portfolio (dilutive effect of new investments). In addition, in these periods of declining interest rates, our fi xed-maturity securities are more likely to be redeemed early, where possible, as borrowers seek to borrow at lower interest rates. Consequently, we may be required to reinvest the proceeds at lower interest rates.
In general we hold bonds until maturity. Furthermore in the current period, we are reducing the duration of the bond portfolio.
Equity investments are considered as both a traditional and strategic asset class for the Group. The goal is to develop and manage a diversifi ed portfolio of high-quality stocks that will appreciate over the medium term. We also seek stocks which offer high dividends. Stock selection is therefore predominantly based on an analysis of the underlying fundamentals.
Our exposure to the equity market results both from direct stock purchases and through certain (re)insurance products including Guaranteed Minimum Death Benefi t (GMDB) business. See Section 4.1.12 - Our run-off GMDB portfolio inherited from Converium is subject to changes in fi nancial markets and the behaviour of policyholders.
Equity prices are likely to be affected by risks which affect all of the market (uncertainty on economic conditions in general, such as changes in GDP, infl ation, interest rates etc.) and/or by risks which infl uence a single asset or a small number of assets (specifi c or idiosyncratic risk).
To measure the risk, an assumed “equity” beta of 1 is generally used. This assumes that the whole portfolio varies homogeneously and with the same magnitude as the equity market, The Group therefore uses an instantaneous change in the equity market as a measure of the change in the unrealised capital gains or losses of the equity portfolio.
The impact of a uniform drop of 10% in equity markets is included in 20.1.6 - Notes to the consolidated fi nancial statements, Note 27 - Insurance and fi nancial risk.
Some fi nancial instruments do not have a suffi cient and recurrent number of transactions to allow valuation with reference to a market price and therefore need to be valued using an appropriate 4 | RISK FACTORS
model. Two situations exist depending on whether parameters can be determined from observable market data or not. There is a risk that the price provided by the model is noticeably different from the price which would be observed in the event of rapid disposal of the fi nancial instrument, which could have an adverse effect on our fi nancial position.
The fi nancial markets are undergoing a particularly severe crisis and the unprecedented volatility of assets exposes SCOR to signifi cant fi nancial risks linked to changes in interest rates, credit spreads, equity markets, exchange rates and real estate securities but also to changes in the models used by the rating agencies. SCOR may also be faced with the deterioration of the fi nancial strength or rating of some issuers due to the current economic and fi nancial environment.
Fluctuations in exchange rates can have consequences on our net income because of the conversion of the results expressed in foreign currencies and the lack of matching between monetary assets and liabilities in foreign currencies.
SCOR’s current policy is to closely monitor the net currency positions and limit the effect of fl uctuations in foreign exchange rates either through cash arbitrages or forward hedges. Forward sales and purchases of currencies are included in Section 20.1.6 - Notes to the consolidated fi nancial statements, Note 8 – Derivatives instruments.
Events, such as catastrophes, can have an impact on the matching of assets and liabilities in a currency which can generate a temporary unmatched position which is not covered by currency contracts or hedges.
The main foreign entities of our Group are located in Switzerland, North America, Great Britain and Asia. The shareholders’ equity of these entities are notably denominated in Swiss Francs, U.S. or Canadian dollars and Pounds Sterling.
As a result, changes in the exchange rates used to convert foreign currencies into Euros, particularly the fl uctuation of the U.S. dollar against the Euro, have had and may have in the future, an adverse effect on our consolidated shareholders’ equity. The Group does not actively hedge its exposure to this risk. The impact of the fl uctuation in the exchange rates used to translate foreign currencies into Euros on the consolidated shareholders’ equity of the Group is described in Section 20.1 - Consolidated fi nancial statements.
A signifi cant portion of our assets consists of intangible assets the value of which depends on our expected future profi tability and cash fl ow. The valuation of intangible assets also assumes that we are making subjective and complex judgments concerning items that are uncertain by nature. If a change were to occur in the assumptions underlying the valuation of our intangible assets (including goodwill, VOBA and DAC ), we might be forced to reduce their value, in whole or in part, thereby reducing shareholders equity.
Additionally at each reporting date SCOR assesses if there is any indication that an intangible asset may be impaired and if such indication exists SCOR completes an estimate of the recoverable amount which may or may not result in an impairment charge.
The assessment of the existence of an indication of impairment includes numerous internal and external sources of information in accordance with IAS 36.
It can be noted that the total amount of stand-by letter of credit facilities has been increased from USD 965 million in 2007 to USD 1,215 million in 2008; in parallel, the average level of collateralisation has been reduced from 60% to 40%, allowing the Group to improve the liquidity of its assets.
Furthermore in 2008, the Group did not issue or redeem any debt.
Our next bond redemption dates are: Redemption of a BMTN of EUR 10 million by SCOR on 5 May 2009, and
Possible redemption of OCEANE bonds of EUR 200 million by SCOR on 1st January 2010. Refer to Section 20.1.6 - Notes to consolidated fi nancial statements, Note 14 - Financial debt for more details about OCEANE.
to this kind of bonds). Due to these features, these other bonds do not increase our exposure to the risk of short-term or medium-term cash payout. Our bonds are presented in Section 20.1.6 - Notes to the Consolidated Financial Statements, Note 14 - Financial debt.
Additional information on the timing of payments is included in Section 20.1.6 - Notes to the consolidated fi nancial statements, Note 27 - Insurance and fi nancial risk.
The Reinsurance sector has been exposed in the past – and may be in the future – to involvement in legal proceedings, regulatory inquiries and actions by various administrative and regulatory authorities, as well as to regulation concerning certain practices used in the insurance sector. This involvement notably concerned agreements over the payment of “contingency commissions” by insurance companies to their agents or brokers and the consequences of such payments on competition between insurance operators, as well as the accounting of various alternative risk transfer products. Insurers appear to have put a stop to various commercial contingency commissions; a development which has spread to reinsurers in terms of the business they underwrite through brokers.
In addition to this, the public authorities in the United States and the rest of the world are closely examining the potential risks presented by the reinsurance sector as a whole, as well as their consequences on commercial and fi nancial systems in general. The European Directive “Solvency II” on the solvency standards applicable to Insurers and Reinsurers, currently pending approval, stipulates in particular a “Pillar 2” which deals with risk assessment and control requirements in order to support the achievement of strategic, operational, reporting and compliance objectives of the companies in the sector. Although it is of course not possible to predict the nature of these requirements, nor their scope or scheduled implementation by the public authorities, it is very likely that risk management and control measures will be reinforced for reinsurers in the near future, which may restrict our underwriting capacity and increase our operating costs.
Adverse changes in laws or regulations or an adverse outcome of these proceedings could have adverse effects on our turnover, liquidity, fi nancial position and operating income.
We are involved in legal and arbitration proceedings in certain jurisdictions, particularly in Europe and the United States. Following the acquisition in 2007 of Converium (which became SCOR Holding (Switzerland)), SCOR assumes responsibility for Converium’s litigation matters (for more information on this issue, refer to Section 20.1.6 - Notes to the consolidated fi nancial statements, Note 28 - Litigation). An unfavourable outcome in one or more of the court or arbitration
SCOR’s legal department is systematically informed of any potential or proven risk of litigation by the two operating divisions SCOR Global P&C and SCOR Global Life and, at Group level, by the senior management, by the Group Executive Committee, or by the former Revios and Converium legal departments located respectively in Cologne and Zurich. Consequently, the Group Legal Department centralises and monitors all the litigation matters of the Group, except for claims litigations which are managed by the specialised lawyers in the Claims & Commutations Division at SCOR Global P&C and the operational entities. The procedures for reporting disputes and monitoring litigation matters are described in greater detail in Appendix B - Report of the Chairman of the Board of Directors on the conditions for the preparation and organisation of the work of the Board of Directors and the internal control procedures.
SCOR, both at the level of the parent company and the subsidiaries, operates a fi nancial business. Therefore, it is not dependent, as industrial companies may be, on a production tool, and generates few physical risks for its immediate environment.
Civil liability risks related to the operation of the company caused by employees and real estate are insured for EUR 15.245 million. Professional liability risks are insured for EUR 50 million above a self-insurance retention of EUR 2 million. The Group has coverage against the civil liability risks of its directors and offi cers. It also has EUR 10 million in fraud coverage. All of these insurance policies are with high-quality insurers.
4.6 Risks and litigation: reserving methods Refer to Section 20.1.6 - Notes to the consolidated fi nancial statements, Note 1 - Accounting principles and methods.
SCOR SE 1, avenue du Général de Gaulle 92800 PUTEAUX France www.scor.com E-mail: scor@scor.com 5.1.4.2 Legal form and applicable legislation
On 24 May 2007, the annual General Shareholders’ Meeting approved the conversion of the Company into a European Company or Societas Europaea, pursuant to Articles 1 §1, 2 §4 and 37 of the SE Regulation, and Article L.225-245-1 of the Commercial Code, thereby becoming, on 25 June 2007, the fi rst French listed company to adopt the Societas Europaea statute.
Following approval of this conversion, SCOR is registered with the Nanterre Trade and Companies Register under the corporate name SCOR SE and has taken the form of a European company as of the date of such registration.
The conversion did not result in either the dissolution of SCOR or the creation of a new legal entity.
Specifi c provisions apply to the reinsurance activity of SCOR. Under the reinsurance Directive 2005/68/EC date 16 November 2005, implemented into French law by ordinance n. 2008-556 of 13 June 2008 and application decrees n. 2008-711 of 17 July 2008, and n. 2008-1154 of 7 November 2008, as well as regulation (arrêté) of 7 November 2008, reinsurance companies and their subsidiaries situated in a country within the European Union, are subject to state control, under the conditions defi ned by Book III of the French Insurance Code. The directive also states rules for the off- setting of underwriting reserves by assets and the rules of acceptability of assets. The main provisions are: French companies, whose exclusive business is reinsurance, can only practise after having obtained an administrative license, issued by the Committee for Insurance Companies and published in the Offi cial Journal. The licenses for SCOR, SCOR Global Life SE (“SCOR Global Life”) and SCOR Global P&C SE (“SCOR Global P&C”) were validated by virtue of the decision, dated 15 July 2008.
The ACAM is authorised to address prevention measures and to issue warnings to the monitored company or its executives.
At the beginning of the 1980s, the government’s stake in the Company ’s share capital, held through the Caisse Centrale de Réassurance, was progressively reduced in favour of insurance companies that were active on the French market.
In 2003, the Group reorganised its Life reinsurance business. The companies of the Group transferred to SCOR VIE and its subsidiaries all of the Group’s Life reinsurance business throughout the world. SCOR VIE, whose corporate name was changed in 2006 to SCOR Global Life, and which became a European Company in 2007, along with its subsidiaries, are all directly or indirectly wholly-owned by SCOR.
In June 2005, SCOR acquired the minority interests of IRP, following the termination of the quota share treaties between IRP, SCOR and some subsidiaries of the Group effective 31 December 2004. All liabilities, rights and obligations of IRP under the quota share treaties were novated in favour of SCOR in October 2005. In 2007, IRP became SCOR Global P&C Ireland Ltd and co-reinsures especially British businesses, underwritten by Non-Life entities.
On 16 May 2006, SCOR transferred all of its Non-Life reinsurance business in Europe, including Property & Casualty Treaties (including Credit & Surety business), Large Corporate Accounts and Construction reinsurance to a company of the Group, Société Putéolienne de Participations, whose corporate name was changed to SCOR Global P&C, a French subsidiary wholly-owned by SCOR, effective retroactively to 1 January 2006. In 2007, SCOR Global P&C adopted the European Company statute via a merger by absorption of SCOR Deutschland Rückversicherungs AG and SCOR Italia Riassicurazioni SpA.
On 10 January 2007, SCOR increased the level of its investment (which stood at 10.2% since 1994) to 39.7% of the share capital and 40.2% of the voting rights of ReMark.
On 22 August 2007, SCOR Global Life announced that it held 98.67% of the share capital of ReMark, now part of the Market Unit 1 of SCOR Global Life. Established in 1984, ReMark is an important player in direct global marketing of Life insurance products business. On 8 August 2007, SCOR Global Life acquired 100% of Alfi nanz Asia, another entity specialised in the direct marketing of products similar to those of ReMark.
Since 30 August 2007, SCOR has acquired control of Converium (which became SCOR Holding (Switzerland)) further to the market purchases of Converium shares, to the acquisition of blocks of Converium shares and to the Offer (for additional information on this takeover, refer to Section 5.2.1.2 - Public offer upon the Converium shares). In the context of this Offer, SCOR also listed its shares to trading in Swiss Francs on the SWX Swiss Exchange (which became the SIX Swiss Exchange) in Zurich, thereby enabling Converium shareholders, having brought their Converium shares to SCOR, to keep their assets in the same currency and on the same stock exchange.
Following this acquisition, the Group became the world’s fi fthranking global multi-line reinsurer (2), with leading positions in selected areas such as Life reinsurance, specialty lines and industrial high risk, according to the classifi cations appearing in Global Reinsurance Highlights 2008 of Standard & Poor’s, in terms of pro forma gross written premiums issued in 2007 by the Group’s entities.
On 31 July 2008, SCOR entered into an agreement with the Malakoff Médéric group, the leading group in the French social protection market, in order to acquire 100% of the share capital and voting rights of Prévoyance et Réassurance and its Life and Health reinsurance subsidiary, Prévoyance Ré. This agreement also includes the signature of a 5 year commercial agreement between SCOR and Malakoff Médéric. The transaction was signed on 24 October 2008 and gave rise to the contribution to the Malakoff Médéric group of SCOR treasury shares. In carrying out this acquisition, SCOR accentuates its leading role in the French Life and Health reinsurance market and the social protection fi eld. The acquisition of Prévoyance Ré is described in more details in Section 5.2.1.4.
On 27 October 2008, SCOR Global Life incorporated in Spain SCOR Telemed, a wholly-owned subsidiary. The corporate purpose of this company is the carrying out of medical interviews by phone in the aim of Life insurance tele-underwriting.
On 29 October 2008, the Group announced its decision to create SCOR Global Investments, its portfolio management company and third operational entity within the Group along with SCOR Global P&C and SCOR Global Life. This new structure, incorporated on 2 February 2009, will carry the asset management of the whole investment portfolio of all Group companies and implement the investment strategy as determined by the Group’s Investment Committee chaired by Denis Kessler. Its approval as a portfolio management company was fi led with the AMF on 23 December 2008 and is currently under review by the appropriate departments of the AMF which shall notify its decision prior to 29 March 2009, subject to any adjournment due to additional information required by the AMF.
Based in Cologne, Revios is the former Life reinsurance unit of the Gerling Global Re group, which had successfully developed autonomously since 2002. Revios had since become the leading European reinsurer specialising in Life reinsurance, with offi ces in 17 countries.
Under the terms of the Contribution Treaties, Patinex and Alecta committed to contribute to the Company 23,216,280 and 5,680,000 Converium shares respectively, i.e. a total of 28,896,280 Converium shares (the “Contributions”). A description of the contributions can be found in the document drawn up by SCOR, fi led with the AMF on 10 April 2007 under number E. 07-032 and in an additional document fi led with the AMF on 23 April 2007 under number E. 07-039 (the “Document E”), for the purpose of the Company’s General Shareholders’ Meeting, held on 26 April 2007, called to approve the contributions and to vote on issuance of new shares as compensation for the contributions (the “Contributed Shares”).
Within the context of the Offer, opened from 12 June 2007 to 9 July 2007, with a supplementary acceptance period opened on 5.2 Investments
The cash portion of the Counterpart of the Offer, including the increase in the counterpart declared on 10 May 2007, was fi nanced out of SCOR’s own total equity.
On 31 July 2008, SCOR entered into an agreement with the Malakoff Médéric Group, the leading group in the French social protection market, to acquire 100% of the share capital and voting rights of Prévoyance et Réassurance, i.e., 1,650,000 shares and voting rights, and its Life and Health reinsurance subsidiary, Prévoyance Ré, i.e., 850,000 shares and voting rights.
Such acquisition has been completed on 24 October 2008, by transfer of: 2,673,173 SCOR treasury shares to Médéric Prévoyance; 257,701 SCOR treasury shares to the Institution Nationale de Prévoyance des Représentants; and 528,201 SCOR treasury shares to the URRPIMMEC (Union des Régimes de Retraites et de Prestations en cas d’invalidité et de maladie des Industries Métallurgiques, Mécaniques, Electriques et Connexes).
As of the date of this Registration Document, no signifi cant investment is in progress.
As of the date of this Registration Document, no signifi cant investment is contemplated.
Dependency of the issuer with respect to patents or licenses, industrial, commercial or fi nancial contracts and new manufacturing processes
In 2004, the Company’s Board of Directors adopted a new strategic plan “SCOR Moving Forward” for the period 20052007. The “SCOR Moving Forward” plan sets forth the means and methods to achieve a profi tability goal of Return on Equity (“ROE”) of 10% through an underwriting policy focused on profi tability, by optimum allocation of capital throughout the business cycle, and by maintaining SCOR’s customer base in Europe, Asia, North America and in emerging countries.
For more information on this acquisition, see Section 5.2.1.1 – Acquisition of Revios. In 2006, SCOR’s turnover grew by 26.8% in Non-Life reinsurance and by 15.3% in Life reinsurance (1.7% excluding the portion of sales realised by Revios between the date of its acquisition by SCOR and the closing date), due in particular to regaining lost shares after the rating upgrades in August 2005 and September 2006. Renewals of 2006 Non-Life reinsurance treaties were considerably facilitated, and the Life business could recover under improved conditions.
Throughout 2007, SCOR fi nalised the implementation of the “SCOR Moving Forward” plan, which was aiming to regain market shares lost due to the lowering of its rating. Taking advantage of a still relatively buoyant market in terms of price where, despite the reorientation of reinsurance transfer policies, development opportunities and the technical quality of risks, made it possible to meet the written premium targets. Additionally, the business formerly underwritten by Converium contributed to achieve a sustained successful level of written premium.
The “SCOR Moving Forward” plan was followed by the strategic “Dynamic Lift” plan for the period 2007-2010, in which the Group set its three-year objectives, as approved on 3 April 2007 by the SCOR Board of Directors, based on balanced and profi table growth, centred around Europe and Asia.
On 10 May 2007, in the context of the amicable agreement reached by SCOR and Converium regarding the Offer, SCOR announced that the Converium and SCOR underwriting teams were preparing a common underwriting plan for the 2008 renewal campaign. SCOR took control of Converium on 30 August 2007. This acquisition allowed the creation of the “new” SCOR, one of the 5 largest multi-line reinsurance companies, on the basis of two business engines: Life and Non-Life. For more information on this acquisition, see Sections 5.2.1.2 – Public tender and exchange offer for Converium shares, and 20.1.6 – Notes to the consolited fi nancial statements, Note 3 - Acquisitions.
The second version of the strategic plan, “Dynamic Lift V2”, was presented on 4 September 2007 and is based on the results of the analyses of Converium’s portfolios made possible since 8 August 2007. The acquisition and integration of Converium aimed to deliver the following objectives over the following 3 years: to secure a ROE of 900 bps above risk free rate over the cycle; to provide an “A+”level of security to clients by 2010; to self-fi nance the current business plan of the Group over the next 3 years; to return excess capital to shareholders through various means.
In the wake of the integration of Converium’s teams, the 2008 renewals were successfully negotiated and the combination of the portfolios was performed in line with the assumptions set forth in “Dynamic Lift V2” and the corresponding estimates.
The Group, strengthened by the successive acquisitions of Revios and Converium, restored the balance in written premium in Life Reinsurance (“SCOR Global Life”) and Non-Life Reinsurance (“SCOR Global P&C”), which are the basis of its diversification strategy. Within its Non-Life business activities, the complementary character of its SCOR and Converium portfolios and the contribution by Converium of Specialty Treaties and Joint Venture and Partnerships activities, resulted in signifi cant improvement in SCOR’s offerings.
With the acquisition of Prévoyance Ré from the Malakoff Médéric Group, SCOR has further complemented its Life and Health business. The transaction was signed on 24 October 2008. Prévoyance Ré’s primary clients consist of provident institutions and other mutual insurance organisations. Prévoyance Ré will continue to provide its clients with high-level services, whilst fully benefi ting from SCOR’s recognised know-how in Life and Health.
In treaty reinsurance, the ceding company has a contractual obligation to cede and the reinsurer to accept, a specifi ed portion of a type or category of risks insured by the ceding company. Reinsurers producing the treaties, as done by the Group, do not separately evaluate each of the individual risks assumed under the treaty. As a result, after reviewing the ceding company’s underwriting practices, they depend on the coverage decisions made originally by the policy writers of the ceding company.
In facultative reinsurance, the ceding company cedes and the reinsurer assumes all or part of the risk covered by a single specifi c insurance policy. Facultative reinsurance is negotiated separately for each insurance contract that is reinsured. Facultative reinsurance normally is purchased by ceding companies for individual risks not covered by their reinsurance treaties, for amounts in excess of the monetary limits of their reinsurance treaties and for unusual risks. Underwriting expenses and, in particular, personnel costs, are higher relative to premiums written on facultative business because each risk is individually underwritten and administered.
Both treaty and facultative reinsurance can be underwritten on a proportional (or quota share) basis, or non-proportional (excess of loss) basis or on a stop-loss basis.
With respect to proportional or quota share reinsurance, the reinsurer, in return for a predetermined portion or share of the insurance premium charged by the ceding company, indemnifi es the ceding company against the same predetermined portion or share of the losses of the ceding company under the covered insurance contract or contracts. In the case of reinsurance written on a non-proportional, or excess of loss basis or stop loss, the reinsurer indemnifi es the ceding company against all or a specifi ed portion of losses, on a claim by claim basis or with respect to a specifi c event or a line of business, in excess of a specifi ed amount, known as the ceding company’s retention or reinsurer’s attachment point, and up to a negotiated reinsurance treaty limit.
Premiums payable by the ceding company to a reinsurer for excess of loss reinsurance are not directly proportional to the premiums that the ceding company receives because the reinsurer does not assume a direct proportionate risk. In contrast, premiums paid by the ceding company to the reinsurer under a quota share contract are strictly proportional to the premiums received by the ceding company, and correspond to its share of the risk coverage. In addition, in a quota share reinsurance treaty, the reinsurer generally pays the ceding company a ceding commission. The ceding commission is usually based on the ceding company’s cost of acquiring the business being reinsured (commissions, premium taxes, assessments and miscellaneous administrative expense) and also may include a profi t ratio.
Our operations are organised into the following two business segments: Non-Life reinsurance and Life reinsurance. We underwrite different types of risks for each segment. Responsibilities and reporting within the Group are established on the basis of this structure, and our consolidated fi nancial statements refl ect the activities of each segment.
These contracts cover property damage, such as dwellings, industrial and commercial goods, vehicles, ships, stored or transported merchandise or operating losses caused by fi res or other events, including accidents or natural catastrophes as well as damages caused to third parties under civil liability coverage. Accordingly, they include treaties covering automobile liability and general civil liability. Auto liability covers property damage, injuries and other risks arising from the coverage of both drivers and passengers in private vehicles and commercial fl eets.
According to French, Italian, Spanish laws as well as laws in other jurisdictions, ten-year inherent defects insurance covers major structural defects and the collapse of a building for ten years after completion. These risks are underwritten by proportional and nonproportional treaties as well as by facultative reinsurance.
Engineering insurance, which is divided into Construction All Risks and Erection All Risks insurance, includes the basic Property and Casualty coverage and may be extended to the fi nancial consequences of a delay in delivery (anticipated operating losses) caused by losses identifi able under the basic Property and Casualty coverage.
In order to address the increased risk and the coverage needs associated with agriculture, SCOR has been strengthening its agricultural risks underwriting teams since 2006 to provide reinsurance solutions in the fi eld of multiple peril crop insurance, aquaculture insurance, forestry insurance and livestock insurance.
Long-term care (LTC) insurance covers policyholders unable to perform predefi ned activities of daily living, and as a result, need the constant assistance of another person on every occasion of daily life. The loss of autonomy is permanent and irreversible. SCOR Global Life has been pioneering Long-term Care reinsurance solutions on the French market for about twenty years and has acquired sound practical experience in dealing with problems related to underwriting and managing risks. The two main private LTC insurance markets are the United States, representing over six million insured lives, and France which has established itself as the most dynamic market with over two million lives. On the French market SCOR Global Life enjoys a far leading position, while in the US, it recently launched an enhanced care rider. At the forefront of industry development, SCOR Global Life is now expanding its geographical scope in LTC by introducing it to several markets. It already enjoys strong positions in Korea and Israel.
Critical Illness (CI) insurance pays a lump sum benefi t, to be used at discretion, if the insured person suffers a serious condition and survives a defi ned period. The use and effectiveness of CI covers varies considerably between countries. SCOR Global Life is a market leader in Critical Illness in the UK. It leverages experience and expertise from the UK to cross-sell into selected markets, such as Taiwan, Korea and Sweden.
SCOR Global Life is present on the fi xed annuity market in the US, as a reinsurer of IIC, a member of the Group (IMSA certifi cate). The products provide either the performance of an index (often the S&P 500) with a zero percent fl oor or a fi xed interest rate which are credited to the policyholder’s account value.
(*) Published turnover, i.e., including Converium, prorated beginning on 8 August 2007. (**) According to the new organisation of the SCOR Global P&C division.
The following table shows the breakdown by gross volume of Life and Non-Life premiums written by geographic area based on the country in which the ceding company operates: In EUR millions Total Life Non-Life
(*) Adjusted for the completion of the initial acquisition accounting of the Converium and ReMark acquisitions.
A signifi cant portion of our contracts contains provisions relating to fi nancial strength which could have an adverse effect on our portfolio of contracts and our fi nancial position, 4.3 – Liquidity risks, 4.5 – Insurance and risk coverage (excluding reinsurance activity).
6.4 Dependency of the issuer with respect to patents or licenses, industrial, commercial or fi nancial contracts and new manufacturing processes 6 | BUSINESS OVERVIEW
6.5 Information on SCOR’s competitive position Among the major reinsurance groups, SCOR pertains to the “traditional ” or “continental” reinsurers as opposed to the so-called “Bermudan” model. The latter are characterised by the fact that they give priority to the underwriting of a type of risk and/or a geographic region – generally highly volatile natural catastrophe risks and to the American region. Conversely, SCOR is characterised by its strategic positioning aimed at underwriting risks so as to diversify exposure. To this end, the Group seeks to preserve: (i) The diversifi cation of its business by maintaining a balanced business segment split between Life and Non-Life reinsurance. The portfolio business volume split at the end of 2008 was approximately 47% for Life reinsurance and 53% for Non-Life reinsurance.
With regard to the Non-Life business segment, the 2007 balance sheet fi gures published by APREF place SCOR Global P&C, SCOR’s Non-Life business entity, in 5th place among the top twenty NonLife reinsurers for 2007.
Until the acquisition of Converium, completed in August 2007, the Non-Life underwriting and accounts year was in line with the plan, renewals in April and at mid-year confi rming tendencies noted on 1 January 2007.
With the acquisition of Converium, the Group reached a new scale of operations. Beyond this new positioning, the Group appears to be one of the most diversifi ed in its peer group, combining balance between its Life and Non-Life activities with the inherent balance of its Non-Life activities and the overall geographic distribution of risks.
On 13 February 2008, SCOR confirmed that it reached its objective of successfully consolidating two strong independent reinsurance groups into one leading franchise. The January 2008 treaty renewals for SCOR Global P&C (SCOR’s Non-Life division), at which 78% of the total Non-Life treaty premiums were up for renewal, confirmed SCOR’s strong market position around the globe, enabling the Group to renew business with minimum attrition and to fulfil its targets as set out in its strategic three-year plan “Dynamic Lift V2” in terms of volume and expected profitability. The favourable outcome of the early 2008 renewals confirmed the compatibility of underwriting policies and methods and the complementary of SCOR’s and Converium’s portfolios in line with expectations.
As published on 13 February 2008, the renewals resulted in a combination of portfolios and of portions with a minimum attrition level, in line with the forecasts of the “Dynamic Lift V2” plan. The resulting portfolio preserved an overall identical profi le, the transformation having been virtually seamless.
The highlights of the renewals were as follows: Effi cient integration of SCOR and Converium portfolios.
EUR 1.742 billion of Non-Life treaty business renewed against EUR 1.755 billion up for renewal at constant exchange rates.
Terms and conditions of renewed and new business in line with the net technical ratio objective for 2008 as set forth in “Dynamic Lift V2”.
In a post-acquisition environment, the main underlying reasons for such outstanding renewals were: Two very strong complementary reinsurers combining forces.
Strict underwriting discipline and tight controls applied throughout the renewals; 12% of the Non-Life treaty business up for renewal cancelled and successfully replaced by new business.
Solid April 2008 P&C renewals in the Asia-Pacifi c region further demonstrated the successful integration of the ex-Converium lines whilst maintaining strict underwriting discipline and optimising the risk profi le of the Group.
In the Eastern European countries, SCOR further supported clients’ developments throughout 2008, with a local presence in Russia and by introducing new products such as Disability and Long-Term Care covers.
In the Americas, SCOR Global Life has reached critical size in the U.S. mortality business with approximately USD 700 million of annual premium, and also has a seasoned portfolio of Fixed and Indexed-linked Annuities. SCOR Global Life has been expanding in Canada, at an average 10% growth over the last few years. In South America, SCOR Global Life is continuously building on its long-lasting local presence in key markets such as Chile, Peru or Mexico. With the opening of the Brazilian reinsurance market early in 2008, SCOR Global Life has established a local team in Sao Paulo as an authorised reinsurer offering its expertise and services to this growing market. Furthermore, SCOR Global Life is expanding its distribution platforms to gain share in the middle-sized markets across the Americas, ReMark playing a full part in the implementation of this strategy.
In Asia, SCOR Global Life showed notable developments and reinforced its market positions. The Group established a partnership with China Life Re, and sizeably grew its reinsurance revenue in this market. SCOR Global Life is building on its strong and longstanding presence in Asia with a network of seven offi ces. Robust growth has been achieved, through product innovation for the region, e.g. Long-Term Care, non selective whole life, preferred individual life, and by the close cooperation with ReMark.
Brief description of the Group and of the position of the issuer
7 ORGANISATIONAL STRUCTURE The main operational entities of the Group are presented in the chart below: EU R
SCOR Global Life Reinsurance Company of Texas 100% United States (Texas)
Branches of SCOR Global P&C SE: Germany, Spain, Italy, UK (in the process of being created), Switzerland (Winterthur)
7.1 Brief description of the Group and of the position of the issuer
Appendix A – Notes to the Financial Statements – Note 4: Transactions with subsidiaries and affi liates.
The Group launched and completed several major restructuring projects in 2005, 2006, 2007 and 2008. The purpose and result of this reorganisation was to simplify the legal structure of the Group and clearly differentiate between the operations of subsidiaries that are dedicated respectively to Life reinsurance and Non-Life reinsurance, with a view towards optimal annual allocation of capital between the operations.
In connection with the implementation of the New SCOR project, which was announced in June 2005, SCOR transferred, by way of spin-off, all of its Non-Life reinsurance business in Europe, including Property & Casualty Treaties (Specialty Treaties, Business Solutions (facultative)) and Major Corporate Accounts to Société Putéolienne de Participations (the corporate name of which was changed to SCOR Global P&C), a French subsidiary wholly-owned by SCOR. This contribution was approved on 16 May 2006, by the Combined Shareholders’ Meeting of the Company, effective retroactively on 1 January 2006.
SCOR Global Life is organised around four operating units with geographic responsibilities, based in France (Paris), Germany (Cologne ), the United States (Dallas) and the UK (London). Each of these operating structures exercises its authority within a territory that may exceed its local market. Accordingly, the French unit controls underwriting in the Benelux countries, Southern Europe and Asia. The cross functions cover (i) actuarial technical functions, research and development and risk selection, (ii) risk management, and (iii) fi nancial and accounting functions.
In connection with the second phase of the New SCOR project, SCOR announced on 4 July 2006, the conversion of SCOR into a Societas Europaea and the formation of a Societas Europaea at the level of SCOR Global P&C, through the merger by absorption of SCOR Deutschland Rückversicherung AG and SCOR Italia Riassicurazioni SpA by SCOR Global P&C. At the same time, SCOR Vie became SCOR Global Life SE through the merger with SCOR Global Life Rückversicherung AG (formerly Revios Rückversicherung AG) by SCOR VIE. SCOR so became the fi rst publicly traded French company to adopt the Societas Europaea form. Since the completion of the merger, SCOR Global P&C conducts its operations in Italy, Spain, Switzerland and Germany through its branches, as SCOR Global Life does. SCOR Global P&C and SCOR Global Life are thus the fi rst subsidiaries of a company publicly traded in France to adopt the Societas Europaea statute through merger by absorption. SCOR Global P&C has been the fi rst company in Europe to complete a tripartite merger involving three different jurisdictions in the formation of a Societas Europaea.
The Societas Europaea statute enables SCOR to strengthen its European and transnational identity, facilitate acquisitions in Europe, improve fl exibility in fi nancial matters and capital allocation, simplify regulatory controls by using the possibilities offered by the European Directive on the control of reinsurance companies, and reduce its local structures, by giving preference to the use of branches, rather than local subsidiaries. The Group is thereby demonstrating its ambition to be a company with European roots and global reach. This legal fl exibility is today demonstrated by the speed of the integration process for the European entities of Converium, which became SCOR Holding (Switzerland), in SCOR’s European companies. SCOR Global Investments has also been incorporated as a Societas Europaea.
The Group’s decision to opt for a “Hub” company structure follows the successful consolidation of Revios and Converium.
The acquisition of Converium in August 2007 led the Group’s companies to launch a signifi cant restructuring effort, the effects of which continued in 2008, including: the creation of a single structure for all the common support functions to the branches of the two operating companies SCOR Global Life and SCOR Global P&C in Cologne, Germany, in the form of a SCOR services branch; 7 | ORGANISATIONAL STRUCTURE
the creation of a SCOR services branch in London, in May 2008, which combines the personnel of SCOR Global Life and SCOR Global P&C based in London, branches of the Life and Non-Life reinsurance and direct insurance companies, the latter being subsidiaries of SCOR Global P&C. The reinsurance entities will become branches of SCOR Global P&C and of SCOR Global Life in the framework of the corporate form of Societas Europaea.
Environmental issues that may affect the utilisation of property, plant and equipment
8.1 Major existing or planned property, plant and equipment KanAm’s sale in 2006 to Mines de la Lucette, which has since become Compagnie la Lucette, of more than 30,000 m2 of offi ce space, where SCOR’s head offi ce is located at 1, avenue Général de Gaulle, 92074 Paris La Défense (district of Puteaux – 92800), did not result in any change in the terms of the lease that had been signed by SCOR and KanAm when the property was sold to KanAm in 2003. This lease was signed for a nine-year term and for an annual rent in 2009 equal to EUR 13.45 million based on the ICC index. Under this lease and in addition to the usual guarantees, KanAm requested fi nancial guarantees based on the fi nancial rating of SCOR and the term of the lease, the benefi t of which was transferred to Compagnie la Lucette. For more information on these guarantees, refer to Appendix A – Notes to the Corporate Financial Statements, Note 15 - Analysis of commitments given and received.
SCOR benefi ted from upgrades to its fi nancial ratings in 2008. Refer to Section 4.1.8 – Financial ratings play an important role in our business, for a summary of the current fi nancial strength ratings of the SCOR Group.
The overall increase in gross written premium of EUR 1,827 million from 2006 to 2007 is to due to the acquisition by SCOR of Converium on 8 August 2007 and the acquisition of Revios on 21 November 2006.
The overall increase in net earned premium of EUR 1,902 million from 2006 to 2007 is due primarily to the acquisitions of Converium (consolidated from 8 August 2007) and Revios (consolidated from 21 November 2006).
Operating income for the year ended 31 December 2008 amounted to EUR 348 million as compared to EUR 576 million and EUR 408 million for the years ended 31 December 2007 and 2006, respectively. The decrease in operating income from 2007 to 2008 refl ects the decrease in net investment income which is mainly driven by impairments of equity and fi xed income securities.
Investment income for the year ended 31 December 2008 amounted to EUR 467 million as compared to EUR 727 million and EUR 498 million for the years ended 31 December 2007 and 2006, respectively.
The fi nancial market turmoil affected the performance of SCOR’s investment portfolio. The Group had average investments of EUR 18.8 billion in 2008 as compared to EUR 15.9 billion in 2007. The investment yield in 2008 on average assets was 2.3% compared to 4.3% in 2007. The return on net invested assets excluding funds withheld by ceding companies was 1.8% and 5.0% in 2008 and 2007, respectively. Of this ratio, net capital gains and losses on investments, net of write-downs was (1.6)% in 2008 (1.0% in 2007). The adverse developments in the fi nancial markets in 2008 led to equity impairments of EUR 217 million and bond impairments of EUR 43 million as well as a charge of EUR 38 million in fair value through income. SCOR did not change its accounting policy to take advantage of the IASB revisions to IAS 39 in the fi nal quarter of 2008.
Return on equity was 9.0%, 14.0%, and 16.9% for the years ended 31 December 2008, 2007 and 2006 respectively. Basic earnings per share was EUR 1.76, EUR 2.79 and EUR 3.26 for the same three periods, respectively.
SCOR Global P&C is a leading P&C reinsurer with a focus on European markets and a strong position in Latin America, the Asian markets and the Middle East.
SCOR Global P&C achieved successful 2008 renewals, paving the way for meeting the objectives of the Dynamic Lift plan. Overall, business profi tability and growth are in line with objectives and were successfully achieved throughout the year and across all targeted segments.
The 2008 combined ratio of 98.6% compared to 97.3% for 2007. This deterioration was primarily due to a (4.1)% deterioration in the catastrophe ratio of 6.6% (2007: 2.5%) which was negatively impacted by a larger than usual number of catastrophes during 2008 and also due to the fact that the two catastrophes which impacted 2007 occurred before August 8th 2007, the acquisition date of Converium. The comparative catastrophe ratio for 2007 includes Converium only from 8 August 2007.
Number of catastrophes occurred during the fi nancial year (1) 10 (3) 2 (2) In EUR millions Losses and claim management expenses due to catastrophes, gross 214 53 Losses due to catastrophes, net of retrocession (5) 189 53 Group net loss ratio (4) 70.5% 68.0% 67% Group ratio of losses excluding catastrophes 63.9% 65.5% 67% (1) SCOR defi nes a catastrophe as an event involving several risks and causing pre-tax losses, net of retrocession, totalling EUR 3 million or more. (2) Storms Kyrill, and Gonu. (3) Storm Emma, China Snowstorm, Australian Floods, China Earthquake, Maiunwetter Storm Germany, Indiana and Iowa Floods, Hurricanes Ike and Gustav, and Hail Storm Spain. (4) Loss ratios are calculated on the basis of Non-Life claims, expressed as a percentage of Non-Life premiums earned. (5). Net of recoveries and reinstatement premiums (assumed and retrocession) and immaterial development on prior year.
In 2008, SCOR was affected by the following which resulted in estimated losses greater than EUR 10 million as at 31 December 2008: Hurricane Ike hit the South East United States in September 2008. The original estimated loss net of retrocession and reinstatement premiums was USD 95 million (EUR 62.2 million). As at 31 December 2008 the revised estimated impact is USD 119 million (EUR 81.7 million).
Heavy snowstorms affected China during February 2008 and as at 31 December 2008 the estimated loss is EUR 26.2 million.
Australian fl oods occurred in January and February 2008. As at 31 December 2008 the estimated loss is USD 40 million (EUR 26.1 million).
An earthquake occurred in China’s Sichuan province on 12 May 2008. As at 31 December 2008 the estimated loss is EUR 10 million.
The Maiunwetter Storm occurred in Germany in May 2008. As at 31 December 2008 the estimated loss is EUR 12.5 million.
In 2007, SCOR was affected by the following catastrophes which resulted in estimated losses greater than EUR 10 million. The respective losses at 31 December 2007 and 2008 for Kyrill and Gonu exclude losses incurred by Converium prior to 8 August 2007, the date of acquisition.
In June 2007, Cyclone Gonu hit the Persian Gulf. The SCOR Group estimated a loss of EUR 17 million at 31 December 2008.
In 2006, SCOR suffered no major losses because of natural catastrophes. The largest loss was caused by a fi re in a refi nery located in Lithuania, costing an estimated amount of EUR 19.2 million and EUR 17.3 million as at 31 December 2007 and 2006, respectively.
In a very competitive reinsurance market SCOR Global Life kept on growing profi tably in 2008. It successfully further strengthened its long-term business relationships with existing clients and has gained many new business partners. Operations in our core markets have again been overall successful. In Europe SGL has maintained its strong market position. In Asia, the US and the Middle East, SGL
has continued its outstanding performance. These non-European markets accounted for a large proportion of the growth during 2008.
The gross written premium development is driven by the longterm nature of in-force life reinsurance business and new business acquired in the reporting year. In 2008, SCOR Global Life’s gross written premiums increased 11.1% to EUR 2,701 million, compared to EUR 2,432 million in 2007 (EUR 1,181 million in 2006). This increase was primarily achieved by new business acquired in non-European markets and by the acquisition of Converium.
Life operating margin during 2008 was 6.0% compared to 7.4% in 2007. In 2008, technical components of the operating margin, driven by high share of European mortality business, remained strong, but these positive effects were partially offset by the unfavourable development of investment income.
In 2008 the Group successfully renewed its retrocession program post acquisition of Converium in alignment with the strategy determined in 2007. The increased needs and potentially volatile retrocession market lead to continued diversifi cation strategy as evidenced by the Atlas III and IV structures and the mortality swap. The 2008 retrocession coverage was implemented at cost which was below initial budgeted amounts.
9.2.5 STRATEGY OR FACTORS OF GOVERNMENTAL, ECONOMIC, FISCAL, MONETARY OR POLITICAL CHARACTER WHICH HAVE HAD OR COULD HAVE A MATERIAL IMPACT ON THE OPERATIONS OF THE GROUP
Refer to Section 4.4.1 – We are exposed to risks related to legislative and regulatory changes and political, legislative, regulatory or professional initiatives concerning the insurance and reinsurance sector, which could have adverse consequences for our business and our sector.
Also refer to section 5.1.4.2 - Legal form and applicable legislation.
Refer to Section 19 – Related party transactions and Section 22 – Material contracts for information on the major stand-by letter of credit facilities of the Group.
As at 31 December 2008, the Group’s fi nancial leverage was 19% as compared to 18% at 31 December 2007. This ratio is calculated as the percentage of debt securities issued and subordinated debt to total shareholders’ equity. This ratio was 32% as at 31 December 2006. The improvement in 2007 is due primarily to the increase in capital of EUR 1,239 million and to the improvement in net income, net of dividends paid and other movements directly recorded in shareholders’ equity.
Refer to Section 20.1.6 – Notes to the consolidated fi nancial Statements, Note 14 - Financial debts for a description of the subordinated loans and bonds issued by SCOR.
The total liquidity of the Group of EUR 3.7 billion (comprised of cash and cash equivalents and short term investments) and the low fi nancial leverage ratio refl ects the Group’s treasury and fi nancing strategy to remain highly liquid.
10.4 Restrictions on the use of capital For information on regulatory restrictions on the use of capital, refer to Section 5.1.4.2.
In addition, the Group companies are subject to certain minimum net worth requirements and maximum debt levels under the terms of certain unsecured stand-by letter of credit agreements.
11.1 Research and development activities Due to the increase in life expectancy, longevity, mortality and long-term care cover can be subject to very uncertain trends. SCOR Research centres anticipate the evolution of these risks in many markets. They include: CERDALM (SCOR Global Life’s R&D Centre for Longevity and Mortality Insurance): providing support in pricing assumptions for new products and specifi c mortality and longevity studies on life portfolios.
CIRDAD (SCOR Global Life’s International R&D Centre for LongTerm Care Insurance): providing support on the development of LTC products (defi nitions, pricing, guidelines) and the monitoring of LTC portfolios.
The Central back-office system is a custom software package known as Omega. Omega was designed to allow the tracking of clients and policyholders within the Group, grant online authorisations throughout the world, track claims, analyse the technical profi tability of contracts, and perform quarterly closings based on the latest estimated results.
Information-sharing remains a priority. The portal, collaborative sites, and the use of the external information collected by SCORWatch, the Group’s Competitive Intelligence solution, have been extended to the entire Group.
Finally, the study of SCOR’s IT strategy for 2012, aligned with the Group’s growth objectives, has been completed, to prepare for a medium-term transition to a new information system.
Additionally SCOR uses its expertise to develop expert IT solutions for its clients (including in the fi eld of medical selection). Different solutions (sar@, GEM, scout) are already in place and widely used by ceding companies. Other initiatives are engaged in this fi eld in order to reinforce the alignment of our services with market expectations. A tele-underwriting system is included in the 2009 development plan.
Most signifi cant trends in production, sales, inventory, costs, and selling prices since the end of the last fi nancial year
The total volume of Treaty premiums renewed in January 2009 reached EUR 1,708 million (P&C Treaties and Specialty Treaties), up 3% against 2008. For 2009, around EUR 392 million of additional premiums are expected from joint ventures and partnerships. Moreover, SCOR lost no clients during these renewals one year after the acquisition of Converium: the book is now fully integrated and consolidated.
A – Property and Casualty Treaties: This year, 75% of P&C Treaty premiums were up for renewal at 1 January 2009. The total volume of premiums renewed at 1 January 2009 was virtually fl at at EUR 1,261 million, compared to EUR 1,257 million of premiums up for renewal. 19% (EUR 235 million) of P&C treaty premiums up for renewal were cancelled, demonstrating the high level of portfolio management. SCOR compensated this loss with new business acquired from existing clients (EUR 90 million) and from new clients (EUR 51 million). Higher prices led to an increase in premium volume of EUR 54 million and increased shares on existing programmes to a gain of EUR 44 million.
B – Treaties underwritten by the Specialty Business Unit: In Specialty Treaties, where a premium volume of EUR 396 million was to be renegotiated (i.e. 68% of the annual volume) SCOR’s franchise was once again fully affi rmed. This segment grew signifi cantly, with premiums up by 13% to EUR 447 million, although 11% or EUR 45 million of business was cancelled. SCOR’s teams managed to underwrite EUR 21 million of additional business with existing clients and EUR 17 million with new clients. New shares on existing programmes increased premium volume by EUR 19 million. Improved prices and market conditions led to an increase in premium income of EUR 39 million.
12.1.1.3 Geographic rebalancing towards the Americas and Asia-Pacifi c in P&C Treaties
SCOR recorded a stable business volume in the EMEA zone (Europe, Middle East and Africa), with written premiums of EUR 1,025 million versus EUR 1,068 million last year. There were, however, some signifi cant differences between the various countries and regions. In France, business declined by 22% to EUR 142 million. The main reasons for this shift stem from a decrease in reinsurance premiums generated by the market. In Northern Europe, on the other hand, business volume increased by 38% to EUR 132 million, with a signifi cant increase in the number of lead underwriting positions.
Signifi cant increases were also recorded in the United States, the Caribbean and Asia Pacifi c, albeit on more limited volumes as these markets renew later in the year. The natural catastrophe events
of 2008 have created interesting opportunities in the Caribbean and the United States, which has led to a 30% increase in total premium volume across the whole of the Americas. Business volume increased from EUR 46 million to EUR 72 million in the U.S. market alone, with an increased contribution from regional business. 41% of Treaty business was up for renewal in the USA. In Asia, and more particularly in China, where prices were also up on the back of a year marked by heavy losses stemming from natural catastrophes, premium volume increased from EUR 52 million to EUR 60 million. However, in this region only around 27% of Global P&C Treaties were up for renewal at 1 January 2009, as Japan, Korea and India will renew their programmes on 1 April 2009.
SCOR exercised a very active cycle management with regard to Specialty Treaties, taking advantage of the diversifi cation benefi ts offered by this business segment. Credit & Surety business grew strongly from EUR 93 million to EUR 116 million, representing an increase of 25%. This segment has seen double digit pricing increases, which have largely offset the impact of the economic slowdown on insurance premiums, and has benefi ted from much reduced acquisition costs. With premiums amounting to EUR 93 million written in 2009, Engineering recorded an increase of 21%. Conversely, Inherent Defects reinsurance dropped by 20% to EUR 61 million. Transport & Marine and Agriculture recorded stable premium volumes. Aviation & Space (excluding GAUM) benefi ted from signifi cantly better pricing and increased by 107% to EUR 29 million. The Business Solutions unit increased its business from EUR 68 million to EUR 78 million, focusing its new underwriting and share increases on the industry sectors where the hardening has really started and is already material.
SCOR expects a continued trend reduction of the insurers capacities to retain risks, which should spur demand for reinsurance. As a leading player on the worldwide reinsurance market, SCOR will maintain its active approach to cycle management, concentrating on highly profi table reinsurance business and niche insurance business while further developing its long term and stable relationship with clients. The Group will also focus on diversifi cation, in order to minimise the correlation between the various risks that it carries. This very strict focus on profi tability should lead to an expected net combined ratio of less than 98%.
The Group expects its Non-Life total 2009 premium volume to increase by 4% to approximately EUR 3.2 billion. With an expected premium income of EUR 2.9 billion in the Life sector, SCOR anticipates a total 2009 premium volume of EUR 6.1 billion, representing an increase of 5% compared to 2008.
Unlike the Non-Life reinsurance market, the Life reinsurance market is not characterised as an industry with annual renewals except in a few markets such as Spain, or in businesses such as Health or Group business. Upward or downward movements are gradual and volatility is low.
12.2 Known trends, uncertainties, demands, commitments and events reasonably likely to have a material effect on the issuer’s prospects Not applicable.
The Board of Directors of the Company had the following 14 members as of the date of this Registration Document: Chairman: Denis Kessler
Offi ces and positions held in the Group Chairman and Chief Executive Offi cer: - SCOR SE (France)*
Chairman of the Board: - SCOR Global P & C SE (France) - SCOR Global Life SE (France) - SCOR Global Life U.S. Re Insurance Company (U.S.) - SCOR Reinsurance Company (U.S.) - SCOR U.S. Corporation (U.S.) - SCOR Holding (Switzerland) AG (Switzerland) - SCOR Global Life Re Insurance company of Texas (US)
Director: - SCOR Global Life SE (France) - SCOR Canada Reinsurance Company (Canada)
Member of the Supervisory Board: CETELEM SAS (France) COGEDIM SAS (France) SCOR Deutschland (Germany) SCOR Global Life Rückversicherung AG (Germany)
Birth Date: Professional address: MACIF 2-4, rue de Pied de Fond 79000 Niort
Permanent Representative of MACIF: - on the Board of Directors of Atlantis Seguros (Spain) - on the Board of Directors of Atlantis Vida (Spain) - on the Board of Directors of Foncière de Lutèce - on the Board of Directors of Euresa Holding - on the Board of Directors of Domicours Holding - on the Board of Directors of Compagnie Foncière de la MACIF - on the Board of Directors of MACIF Participations - on the Supervisory Board of Capa Conseil SAS - on the Supervisory Board of MUTAVIE - on the Board of GPIM - on the Board of OFI RES
Director: - SEREN - Etablissements Maurel & Prom* - MACIFILIA - Macif-Mutualité
Birth Date: Professional address: 2nd Floor 167 Fleet Street London EC4A 2EA United Kingdom
Director: - Jérónimo Martins (Portugal)* - Caixa Seguros (Brazil) - Heidrick & Struggles (U.S.)*
Abroad Chairman: - American Friends of the Claude Pompidou Foundation (U.S.)
Peter ECKERT Its appointment as Director will be proposed to the Ordinary annual meeting of the Shareholders of 15 April 2009
Other positions: Director: - Deliciel AG (Switzerland) - Zurich Companhia de Seguros SA (Portugal) - Zurich Vida, Companhia de Seguros SA (Portugal)
Principal position: Chairman – Chief Executive Offi cer of MATMUT (Mutuelle Assurance des Travailleurs Mutualistes)
Mutual Insurance Code Chairman of the Board of Directors: - SMAC (Mutuelle Accidents Corporels)
Vice-Chairman: - FNMF Fédération Nationale de la Mutualité Française - PREVADIES
Vice-Chairman of the Board of Directors: - MATMUT VIE - OFI INSTIT - ADI - AMF Assurances
Chairman of the Board of Directors: - Matmut Protection Juridique - MATMUT ENTREPRISES
Director: - OFIVALMO - SCOR Vie - PHARCOMUT and non-voting director - AMF Assurances
Chairman of the Supervisory Board: - OFIVM - MUTRE and Vice-Chairman - OFI ASSET MANAGEMENT - ADI
(3) Member of the Accounting and Audit Committee. (4) Member of the Compensation and Nominating Committee. * Companies which shares are listed on a regulated or organised market.
Birth Date: Professional address: Institut Français des Administrateurs 27, avenue de Friedland 75382 Paris Cedex 08
Chairman: - Institut du Développement Durable et des Relations Internationales (IDDRI) (association) - Transparence-International France - Observatoire de la Responsabilité Sociétale de l’Entreprise (ORSE)
Professional address: SCOR SE 1, avenue du Général de Gaulle 92800 Puteaux
Chairman of the Supervisory Board: - Austria Hotels Liegenschaftsbesitz AG (Austria) - UNIQA Previdenza S.p.A. (Italy) - UNIQA Assicurazioni S.p.A. (Italy) - UNIQA Protezione S.p.A.,(Italy)
Chairman of the Supervisory Board: - UNIQA International Versicherungs Holding GmbH (Austria) - DIE ERSTE österreichische Sparkasse Privatstiftung, Wien (Austria) - UNIQA Assurances S.A. (Switzerland))
Vice-Chairman of the Supervisory Board: - Bauholding STRABAG SE (Austria) - Bank Gutmann AG (Austria) - UNIQA Versicherungen AG (Austria)*
Deputy Director: - MAAF Assurances (SAM) - MMA Coopérations (SA) - MMA IARD (SA) - MMA IARD Assurances Mutuelles (SAM) - MMA VIE (SA) - MMA Vie Assurances Mutuelles (SAM)
France Chairman and Chief Executive Officer: - MAAF Assurances - MAAF S.A. - MMA IARD - MMA VIE - Covea
* Companies which shares are listed on a regulated or organised market. ** In connection with the Crédit Lyonnais/Executive Life case, Jean-Claude Seys entered into a transaction with the California State Prosecutor under the terms of which he is subject to fi ve years probation, during which he may not go to the United States without special authorisation.
Chairman of the Management Board (association): - Ile-de-France Regional Development Agency (ARD)
Abroad Director: - Covéa Lux (Luxemburg) - Eurapco (Switzerland) - IMA Iberica Seguros (Spain)
Professional address: GENERALI FRANCE Chairman and Chief Executive Offi cer 7/9, boulevard Haussmann 75009 Paris
Birth Date: Professional address: SCOR SE 1, avenue du Général de Gaulle 92800 Puteaux
Other positions: France Chairman and Chief Executive Officer: - FERGASCOR - SCOR AUBER
Director: - SCOR Global Life SE (formerly SCOR VIE) - SCOR Global P&C SE - Prévoyance Ré - SCOR SE*
Director: - SCOR Reinsurance Company (U.S.) - SCOR U.S. Corporation (U.S.) - General Security National Insurance Company (U.S.) - ASEFA (Spain) - SCOR UK Company Limited (U.K.) - SCOR UK Group Limited (U.K.) - SCOR Reinsurance Asia-Pacifi c (Singapore)
Vice-Chairman of the Board - SCOR Global Life Re Insurance Company of Texas (U.S.) (formerly Revios Reinsurance U.S. Inc) - SCOR Global Life US RE Insurance Co. (U.S.)
France Chairman and Chief Executive Officer of Technip* until 27 April 2007 (retirement)
Abroad Chairman: - Technip Italy (Italy) (until 27 April 2007) - Technip Far East (Malaysia) (until 27 April 2007)
Abroad Chairman: - BNP Paribas Suisse S.A.(Switzerland) - BNP Paribas UK Holdings Limited (U.K.)
André Lévy-Lang, a French citizen, has served as Chairman of the Management Board of Paribas from 1990 to 1999 and is now a Director of various companies and Professor Emeritus at the University of Paris-Dauphine.
Claude Tendil, a French citizen, began his career at UAP in 1972. He joined the Drouot group in 1980 as Chief Operating Offi cer; he was promoted in 1987 to Chief Executive Offi cer, and then was appointed Chairman and Chief Executive Offi cer of Présence assurances, a subsidiary of the Axa group. In 1989, he was appointed Director and Chief Executive Offi cer of Axa-Midi assurances, Chief Executive Offi cer of Axa from 1991 to 2000, then Vice-chairman of the management board of the Axa group until November 2001. During this same period, he is also Chairman and Chief Executive Offi cer of the Axa group’s French insurance and assistance companies. Claude Tendil was appointed Chairman and Chief Executive Offi cer of the Generali group in France in April 2002 and Chairman of the Europ Assistance group in March 2003.
A former student at the Ecole Nationale d’Administration and Chief Advisor to the French Accounting Offi ce (Cour des Comptes ), Daniel Valot, a French citizen, was also notably Chief Executive Offi cer of Total Exploration Production, then Chairman and Chief Executive Officer of Technip from September 1999 until 27 April 2007.
(1) The renewal of the duties as Director of Patrick Thourot will not be proposed to the Ordinary Annual General Meeting of the shareholders of 15 April 2009.
The following table presents the Company’s executive offi cers who comprised the Executive Committee as at the date of the Registration Document and their positions with SCOR, as well as the fi rst appointment dates as executive offi cers of SCOR.
Paolo De Martin 39 Group Chief Financial Offi cer 2007 (2) Chairman of the Board of Directors: SCOR Switzerland AG (Switzerland) Director: SCOR Global Life SE (France) SCOR Global P&C SE (France) SCOR Switzerland AG (Switzerland)
2006 Chairman of the Board of Directors: SOLAREH S.A. (France) Vice President of the Supervisory Board: SCOR Global Investments SE Permanent Representative: of SCOR Global Life SE at MUTRE’s Board (France) of SCOR SE with the French Federation of Insurance Companies Statutory Director: ReMark International BV (The Netherlands) Director: SCOR Holding (Switzerland) AG (Switzerland) SCOR Reinsurance Asia-Pacifi c PTE Ltd (Singapore) SCOR Global Life Re Insurance Company of Texas (US) SCOR Global Life US Re Insurance Company (US) Managing Director: Sweden Reinsurance Co. Ltd (Sweden)
Denis Kessler, 56, Chairman of the Board of Directors and Chief Executive Offi cer of SCOR SE
Benjamin Gentsch, 48, Deputy Chief Executive Offi cer of SCOR Global P&C SE and Chief Executive Offi cer of SCOR Switzerland
Benjamin Gentsch, a Swiss citizen, graduated with a degree in management from the University of St. Gallen, where he specialised in insurance and risk management. From 1986 to 1998, he held several positions at Union Reinsurance Company, where from 1990 to 1998 he directed treaty underwriting in Asia and Australia. In 1998, he joined Zürich Re as head of international underwriting responsible for strengthening the company’s position in Asia, Australia, Africa and Latin America. He also served as head of the “Global Aviation” reinsurance department and developed the “Global Marine” department. In September 2002, Benjamin Gentsch was appointed Chief Executive Offi cer of Converium Zürich, then Executive Vice President in charge of Specialty Treaties. In September 2007, he was appointed
Paolo De Martin, an Italian national, graduated from Ca’ Foscari University, Italy, with a degree in Business Economics. He subsequently spent two years in the optical business as founder and managing partner of an eyewear manufacturer. He joined the General Electric Company (GE) in 1995 as a fi nance trainee in London. In 1997, he joined GE’s internal auditing & consulting group, charged with assignments in multiple GE businesses in the Americas, Europe and Asia-Pacifi c. In 2001, Paolo De Martin was promoted to Executive Manager for GE Capital Europe, before joining GE Insurance Solutions as Financial Planning and Analysis Manager for Global Property and Casualty Reinsurance.. As of 2003, he was appointed Chief Financial Offi cer of GE Frankona Group before becoming Chief Financial Offi cer of Converium in July 2006. In September 2007, Paolo De Martin was appointed Group Chief Financial Offi cer of SCOR.
Gilles Meyer holds dual French and Swiss nationality and a degree from a French business school and an MBA from GSBA in Zürich. Gilles Meyer started his career as an underwriter at Swiss Re before managing the facultative department of La Baloise in Basel. After 23 years of experience in facultative and treaty reinsurance, Gilles Meyer was Chief Executive Offi cer of Alea Europe from 1999 to 2006, where he was in charge of property-casualty reinsurance and Life reinsurance, and from 2005 to 2006, he was Manager of group underwriting at Alea. He joined the Group in January 2006 and to date has managed the German-speaking markets of SCOR Global P&C based in Hanover, Basel, and Winterthur. He was named head of Business Unit 1 of SCOR Global Life and a member of the Group Executive Committee in November 2006, then Deputy Chief Executive Offi cer of SCOR Global Life SE in September 2007. In January 2008, he was appointed Chief Executive Offi cer of SCOR Global Life SE.
Victor Peignet, a Marine Engineer and graduate of the Ecole Nationale Supérieure des Techniques Avancées (ENSTA), joined the Facultative Department of SCOR in 1984 from the offshore oil sector.
From 1984 to 2001, he held various positions in underwriting Energy and Marine Transport risks at SCOR, fi rst as an underwriter and then as Branch Director. He has led the Group’s Business Solutions (facultative) division since it was created in 2000, as both Deputy Chief Executive Offi cer and then as Chief Executive Offi cer since April 2004. On 5 July 2005, Victor Peignet was appointed manager of all Property Reinsurance operations at SCOR Global P&C. He is currently Chief Executive Offi cer of SCOR Global P&C SE.
François de Varenne, 42, Chief Executive Offi cer of SCOR Global Investments SE
There is no arrangement or agreement concluded with shareholders, clients, suppliers or others pursuant to which any member of the Board of Directors or any member of the senior management of the Company have been appointed.
Total amounts set aside or accrued to provide pension, retirement, or similar benefi ts for fi nancial year 2008
Gross fees paid to directors for 2008 and 2007 are broken down as follows: In EUR 2008 2007 Mr. Denis Kessler (1) 47,200 65,700 Mr. Carlo Acutis 37,000 35,250 Mr. Gérard Andreck (2) 23,500 NA Mr. Antonio Borgès 50,600 44,175 Mr. Allan Chapin 47,200 48,000 Mr. Georges Chodron de Courcel 38,700 60,600 Mr. Daniel Havis 35,300 52,100 Mr. Helman le Pas de Sécheval (3) NA 16,800 Mr. Daniel Lebègue 55,700 62,300 Mr. André Lévy Lang 55,700 70,800 Mr. Luc Rougé (4) 31,900 21,800 Mr. Herbert Schimetschek 38,700 32,700 Mr. Jean-Claude Seys 45,500 52,100 Mr. Jean Simonnet (5) 8,400 43,600 Mr. Claude Tendil 43,800 48,700 Mr. Patrick Thourot (6) 38,700 33,500 Mr. Daniel Valot 59,100 55,500
Moreover, certain SCOR directors participate, or have participated, on the Boards of Directors of the Group’s subsidiaries and received directors’ fees in 2008 and 2007 as follows: SCOR Reinsurance Company M. Allan Chapin USD 27,000 USD 27,000 M. Daniel Lebègue - USD 18,900 SCOR Holding (Switzerland) Georges Chodron de Courcel CHF 50,000 Jean -Claude Seys CHF 50,000 15.
After having examined AFEP (Association of French Private-sector Companies) and MEDEF (French Business Confederation) recommendations of 6 October 2008 on the compensation of Corporate Executive Offi cers of listed companies at its meeting of 12 December 2008, the Board of Directors of SCOR considers that these recommendations are in line with the corporate governance principles of SCOR and has decided to apply them to the compensation of the Executive Corporate Offi cer.
The following table presents a summary of the gross compensation and stock options and shares granted to the Executive and Corporate Offi cer for fi scal years 2008, 2007 and 2006: Summary table of the gross compensation and stock options and shares granted to the Executive and Corporate Offi cer
The following table presents the summary of cash compensation paid to the Executive and Corporate Offi cer during fi scal years 2008, 2007 and 2006: Summary table of cash compensation paid to the Executive and Corporate Offi cer
Subscription and share purchase options exercised by the Executive and Corporate Offi cer
Options exercised by the Executive and Corporate Offi cer (nominative list)
Performance share granted during the period to the Executive and Corporate Offi cer by the issuer or by another company of the Group
Date of the plan Number of shares granted during the period
Denis Kessler 7 May 2008 25,000 342,500 7 May 2010 7 May 2012
Offi cer by the issuer or by another company of the Group (nominative list)
(*) This amount includes an expatriation premium related to fi scal year 2008. (**) This amount includes an expatriation premium related to fi scal year 2007 and paid in 2008. (***) Compensation based on most recent payroll information. (****) The amount has been estimated and become defi nitive after the shareholder meeting of 15 April 2009 and paid out in May 2009.
The benefi ts in kind and insurance services granted to the Chairman and Chief Executive Offi cer and to the Chief Operating Offi cer are presented in Appendix B – Report of the Chairman of the Board of Directors on the terms and conditions for preparing and organizing the work of the Board of Directors and on internal control procedures in compliance with Article L.225-37 of the French Commercial Code.
For details on stock options and free shares granted to members of the Executive Committee, refer to Sections 17.2.2 – Stock options held by members of the Executive Committee as at the date of the Registration Document and 17.2.3 – Free allocation of shares to COMEX members and other company offi cers as at the date of the Registration Document.
The members of the Executive Committee do not receive directors’ fees for their directorships in companies in which SCOR holds more than 20% of the share capital. They are reimbursed for justifi ed business expenses.
The total amount set aside by the Group for defi ned benefi t retirement plans for members of the COMEX members in France, Germany and Switzerland, in fi nancial year 2008 was EUR 11.5 million, the total commitment of the Group being for pension plans EUR 166 million.
Name Term in Offi ce Date of expiration First appointment date
Carlo Acutis Director 2009* 15 May 2003 Yes Gérard Andreck Director 2011* 18 March 2008 (1) NA Antonio Borgès Director 2011* 15 May 2003 NA
Allan Chapin Director 2011* 12 May 1997 NA Daniel Havis Director 2011* 18 November 1996 (2) NA
16.2 Information on service contracts of members of administrative and management bodies To our knowledge, there are no service agreements involving the members of the administrative or senior management bodies and the Company or one of its subsidiaries providing for benefi ts upon termination of such agreement.
16.3 Information on the Audit Committee and the Compensation and Appointment Committee The information on these two committees can be found in the report from the Chairman of the Board of Directors in Appendix B (part I of the Report from the Chairman of the Board of Directors on the conditions for preparation and organisation of the work of the Board of Directors).
The Board considered that these recommendations are in line with the corporate governance principles of SCOR and has decided to apply them to the compensation of the Executive Corporate Offi cer and decided that in application of 3 July 2008 Act implementing the European Union Directive 2006/46/CE of 14 June 2006, SCOR shall thus refer to the AFEP-MEDEF governance code relating to listed companies in preparing the report to be issued in accordance with article L.225-37 of the French commercial Code.
The AFEP-MEDEF governance code can be referred to on the Company’s Internet site (www.scor.com) or on the MEDEF’s Internet site (www.medef.fr).
Additional information on the system of corporate governance can be found in the report from the Chairman of the Board of Directors in Appendix B.
17.1 Number of employees The total number of employees decreased from 1,840 as at 31 December 2007 to 1,770 as at 31 December 2008. The distribution of personnel is uniform over the various geographical areas to meet strategic principles of the Group.
(1) The headcount is calculated based on the number of employees as at 31 December 2008. (2) SCOR Global Life SE controls 98.67% of the capital of ReMark. Due to its specifi c activity, ReMark is managed independently of the group in terms of human resources. (3) Employees of Revios are integrated in the Group in 2007. (4) Employees of Converium are integrated in the Group in 2008.
The following table presents the stock option plans and stock purchase plans which benefi t members of COMEX and company executives as at the Document de Référence date.
Paolo de Martin None 50,000 13/09/2007 17.58 879,000 13/09/2011 to 12/09/2017
François de Varenne None 7,308 16/09/2005 15.90 116,197 16/09/2009 to 15/09/2015
No options were exercised in 2005, 2006, and 2007. In 2008, 109,445 subscription rights of options were exercised. It concerns the stock option plan of 25 August 2004 and which expired on 26 August 2008.
Stock options granted to the top ten non-offi cer employees and exercised by them during fi nancial year 2005
Number of stock options underlying shares granted during the fi nancial year by the issuer and by any company included in the option distribution scope to ten employees of the issuer and of any company included in such scope, whose number of options thus purchased or subscribed is the highest (aggregate information )
Number of stock options underlying shares held on the issuer and on the companies referred to previously and exercised during the fi nancial year by the ten employees of the issuer or these companies, whose number of options thus purchased or subscribed is the highest (aggregate information)
For more information on the stock option plans or stock purchase plans, refer to Appendix A – Notes to the Corporate Financial Statements, Note 12 – Stock Options.
(1) In the event that termination or change in the structure of the share capital of the Company markedly affects their responsibilities and makes pursuit of their activities and the normal exercise of their powers diffi cult, and in the event that their professional contracts are interrupted at their request, the Chairman and Chief Executive Offi cer will receive, in connection with the shares that would have been granted to them for free but from which they could not benefi t, an indemnity including the loss of the right to the shares equal to the number of shares affected by the average price of SCOR shares on their respective departure dates.
(1) Period of time during which the holder of a free share award may not transfer said right. This period is determined by the Extraordinary General Shareholders’ Meeting. (2) Period of time during which a person who has converted purchase rights into free shares is required to hold said shares.This period is determined by the Extraordinary General Shareholders’ Meeting. There is no holding period for shareholders residing outside of France.
For more information on the provisions of the share allocation plans, refer to Section 17.3.2 below.
Refer to Section 20.1.6 – Notes to the Consolidated Financial Statements, Note 17 – Provisions for employee-related benefi ts and Appendix A – Corporate fi nancial statements, Note 13 – Employee shares ownership plans.
The option plans for 1997 and 2003 to 2008 are share subscription option plans. The plans for 1998 to 2001 are share purchase option plans.
The General Shareholders’ meeting of 7 May 2008, in its nineteenth resolution, authorizes the Board of Directors under the provisions of Articles L.225-177 to L.225-185 of the Commercial Code, to make on the proposal of the Compensation and Nominations Committee, all at once or for the benefi t of members of staff and the corporate offi cers, or some, of the Company and companies or groups linked to it in terms of Article L.225-180 of the Commercial Code, options entitling to the subscription of new ordinary shares of the Company in issue as to increase its capital, as well as options entitling to purchase shares of the Company from acquisitions made by it as provided by law.
The options can be exercised on one or more occasions from 22 May 2012 to 21 May 2018, inclusive. After the latter date, the purchase rights shall expire.
Conditions for exercising the options include a condition based on presence.
Conditions for the exercise of options included, in addition to the condition of presence, performance conditions outlined below are met: The S&P fi nancial strength rating must be “A” on 8 May 2010; SCOR Global P&C’s “net combined ratio” for the two fi nancial years ending 31 December 2008 and 31 December 2009 must be less than or equal to 102%; The growth of SCOR Global Life’s “Embedded Value” must be higher than or equal to 5% per annum for the fi nancial years ending 31 December 2008 and 31 December 2009; The Group’s average ROE for the fi nancial years ending 31 December 2008 and 31 December 2009 must stand at 500 points above the risk-free rate.
The performance conditions will be deemed satisfi ed if at least three out of the four conditions listed above are met. The Compensation and Nominations Committee will observe whether or not the performance conditions have been met.
In addition, the Board of Directors on 26 August 2008 decided to make an award of stock options governed by the provisions of the Commercial Code (Article L.225-177 sec) and intended primarily to certain category of employees, offering a total of 1,199,000 options granting the right to purchase an option. The Board of
The options may be exercised in one or more occasion as of 10 September 2012 until 9 September 2018 inclusive. As of this date, the rights shall expire.
A table showing features of the SCOR stock option plans is found in Section 20.1.6 – Notes to the consolidated fi nancial statements, Note 18 – Stock options and share awards.
Refer also to Section 20.1.6 – Notes to the Consolidated Financial Statements, Note 17 – Provisions for employee-related benefi ts.
The Board of Directors of 3 March 2009 decided to submit to the vote of the Ordinary Annual and Extraordinary general meeting of the Shareholders a twenty-second resolution aiming at authorising the Board of Directors to grant options to subscribe to and/ or purchase shares in favor of salaried employees and corporate representatives.
On 7 May 2008, in its twentieth resolution, the Shareholders’ Meeting authorised the Company’s Board of Directors to make, on one or more occasions, to the employees and directors and offi cers defi ned by law, or to some of them, of the Company and of companies or groups affi liated with it pursuant to Article L.225197 -2 of the French Commercial Code, free allotments of existing or yet-to-be-issued shares of the Company and resolved that the Board of Directors of the Company would determine the identity of the benefi ciaries of the allotment and the conditions and criteria for the allotment of the shares.
The Shareholders’ Meeting also decided that (i) the total number of free shares granted under this authorisation may not exceed 3,000,000 Shares of which 1,000,000 shares granted subject implementation of performance conditions set by the Board of directors on the proposal of the Compensation and Nominations Committee, (ii) the allocation of shares to their benefi ciaries will be defi nitive only after a vesting period of a minimum set at two years for tax residents of France and a minimum of 4 years for benefi ciaries not tax residents of France, (iii) the benefi ciaries will be subject, where appropriate, an obligation to retain shares in a period of two years from the end of the vesting period for tax residents of France and that the retention period for benefi ciaries not tax residents of France, and (iv) the Board of Directors of the Company will have the authority to increase the lengths of the acquisition period and the holding obligation period.
This authorisation was given for a period of eighteen months as of the date of the Shareholders’ Meeting on 7 May 2008, and it canceled and replaced the authorisation given by the Shareholders’ Meeting on 24 May 2007.
On 7 May 2008, the Board of Directors of the Company, under the delegation of powers conferred by the General Meeting of shareholders on the proposal of the Compensation and Nominations Committee, adopted a plan of allocation of free shares to certain offi cers and certain employees of SCOR and its subsidiaries in France and abroad, under the statutory scheme provided for in Articles L.225-197-1 and following of the Code of Commerce. This plan consists of the allocation of shares of the Company and consequently does not entail any capital increase.
a- For benefi ciaries French tax residents, two thirds of the shares will be transferred in full ownership to the benefi ciaries at the end of a vesting period of two years to run from the date of grant, the 8 May 2010, subject to compliance with the requirement of the presence of the benefi ciary in the Group on 30 April 2010.
The remaining shares will be transferred in full ownership to the benefi ciaries at the end of a vesting period of two years to run from the date of grant, on 8 May 2010, under the condition (i) the benefi ciary remains an employee in the Group on 30 April 2010 and (ii) the performance conditions mentioned below are met.
The S&P fi nancial strength rating must be “A” on 8 May 2010; SCOR Global P&C’s “net combined ratio” for the two fi nancial years ending 31 December 2008 and 31 December 2009 must be less than or equal to 102%; The growth of SCOR Global Life’s “Embedded Value” must be higher than or equal to 5% per annum for the fi nancial years ending 31 December 2008 and 31 December 2009; The Group’s average ROE for the fi nancial years ending 31 December 2008 and 31 December 2009 must stand at 500 points above the risk-free rate.
The period of non-securities is set at two years, until 7 May 2012.
b- For benefi ciaries not French tax residents, the presence and performance conditions are identical to the applicable conditions subject to French tax residents. However, the transfer of ownership of securities is made only after a period of 4 years, on 27 August 2012. Non French tax resident benefi ciaries are not subject to a period of unavailability.
The following table shows the free stock award plans currently in force within the Group: Shareholders meeting and Board of Directors
Requirement of presence at the Company as of 30 April 2010 Performance conditions
Country Entity Name of the plan Number of plans Benefi ts related description
Individual Funds accumulate from contributions and investment returns. At retirement it is possible to take a part of the fund as a tax free cash lump and the balance must be used to provide a pension.
Country Entity Scheme Identifi cation Number of schemes Benefi t related description
All entities "Indemnités de fi n de carrière", "Indemnités Retraite", "Congés
Pension defi ned according to conditions of seniority in the Company
All entities "Retraite chapeau" Additional pension guarantying 20% to 50% of the last salary, based on seniority in the Group
SCOR Global Life Pension 3 Payment of the pension benefi ts is based on the duration of affi liation to the Pension Scheme.
The amount of annual benefi t is paid at Normal Retirement Date in monthly instalments for life is 46% of Average Monthly Compensation, multiplied by a fraction, not exceed 1 and based on seniority upon retirement
COMEX members benefi t from the collective pension schemes in place in their entity except and do not have any specifi c plan except for M. Paolo de Martin and M. Benjamin Gentsch who have been awarded a similar advantage than the one granted to the other COMEX members.
Share capital structure and voting rights in the Company to the knowledge of SCOR on the basis of a study of identifi able share bearers conducted by the Company as at 31 December 2007: 31/12/2007 Number of shares % of capital % voting rights (1)
(1) The percentage of voting rights is determined on the basis of the number of shares at closure, excluding shares deprived of voting rights. (2) Source: TPI and Capital Bridge.
To the Company’s knowledge, there was no other shareholder than those indicated in the table above holding more than 2.5% of the share capital or voting rights of the Company as at 31 December 2007.
To the Company’s knowledge, there is no shareholders’ agreement or action in concert. No transactions have taken place among senior managers, directors, or offi cers, and shareholders holding more than 2.5% of the share capital (or of the company controlling them) and the Company, on terms other than arm’s length terms.
As at 31 December 2006, GROUPAMA was SCOR’s leading shareholder, at which date GROUPAMA held 16.02% of the Company’s share capital.
On 27 April 2007, Patinex AG declared that on 26 April 2007 it had exceeded, following a contribution of Converium shares to SCOR by Patinex AG and the subsequent SCOR capital increase reserved for Patinex AG, the thresholds of 5% and 10% of the capital and voting rights in SCOR and that, on 26 April 2007, it had fallen (ii), following the sale of 1,388,017 SCOR shares, below the thresholds of 10% of the capital and voting rights in SCOR, and that it held 12,943,020 shares representing 129,430,200 voting rights, or 9.50% of the capital and voting rights in SCOR.
On 26 July 2007, Morgan Stanley & Co. International Plc, which is controlled by Morgan Stanley, declared that it had, on 24 July 2007, (i) dropped below the thresholds of 5% of the capital and voting rights in SCOR and that it held 6,717,111 shares representing 67,171,110 voting rights, or 4.93% of the capital and voting rights in SCOR and that (ii) on 25 July 2007, it had exceeded the thresholds of 5% of the capital and voting rights in SCOR and that it held 6,817,675 shares representing 68,176,750 voting rights or 5.0041% of the capital and voting rights in SCOR.
On 3 August 2007, Morgan Stanley & Co. International Plc, which is controlled by Morgan Stanley, declared that: (i) on 26 July 2007, it had fallen below the thresholds of 5% of the capital and voting rights in SCOR and that it held 6,773,444 shares representing 67,734,440 voting rights, or 4.97% of the capital and voting rights in SCOR and that (ii) on 27 July 2007, it had exceeded the thresholds of 5% of the capital and voting rights in SCOR and that it held 7,663,469 shares representing 76,634,690 voting rights, or 5.62% of the capital and voting rights in SCOR.
The Company regularly conducts TPI searches to fi nd out the number and identity of its bearer shareholders. The results of those analyses are presented in the following table: TPI Date January 2006 February 2007 December 2007 December 2008 18 | PRINCIPAL SHAREHOLDERS
On 10 December 2008, Edmond de Rothschild Asset Management declared it had fallen below the registered thresholds of 2.5% of the capital and voting rights in SCOR and that it holds 4,398,813 shares representing 43,988,130 voting rights, or 2.39% of the capital and 2.45% of voting rights in SCOR.
As at 31 December 2008: SCOR held 4,904,551 treasury shares ; the total number of voting rights amounted to 1,842,464,370 (including the voting rights attached to treasury shares).
18.2 Negative statement as to the absence of differences between the voting rights of various shareholders Until 3 January 2009, pursuant to Article 8 (“Rights attached to each share”) of the bylaws, for two years after the Company’s reverse stock split, as decided by the Company’s Combined Shareholders ’ Meeting on 16 May 2006 in its seventeenth resolution, each share with a par value of EUR 0.78769723 entitled the holder to one vote and each share with a par value of EUR 7.8769723 entitled the holder to ten votes, so that the number of votes attached to the shares remains proportional to the percentage of share capital they represent.
Since 3 January 2009 and the completion of the Company’s reverse stock split, no further shares with a par value of EUR
Therefore, there is no difference among the voting rights of SCOR’s various shareholders.
Agreements approved in past years, which were continued or terminated in the 2008 fi nancial year
19.1 Related party transactions entered into in 2008 as defi ned articles L.225 – 38 et seq. of the French Commercial Code
The Board of Directors’ meeting held on the 18 March 2008 and the 26 August 2008 authorised the signature by its Chief Executive Offi cer, pursuant to Article L.225-38 of the French Commercial Code, with the power of delegation, the conclusion of legal documentation relating to the notional cash-pooling agreement and in particular, the Intragroup Cash Management Agreement contract signed on 20 October 2008, by which participating companies give the power to SCOR SE for the management of cash-pooling.
The Directors concerned by this agreement are Denis Kessler, Patrick Thourot, Allan Chapin, Daniel Lebègue and Jean-Claude Seys.
The concerned subsidiaries are as follows: In Europe: SCOR Global Life SE; SCOR Global P&C SE; Irish Reinsurance Partners Ltd; SCOR Channel; SCOR Financial Services Ltd; SCOR U.K. Company Ltd; In the United States and Canada: SCOR Reinsurance Company Ltd (US); General Security Indemnity Company of Arizona; General Security National Insurance Company; Investors Insurance Corporation; SCOR Global Life U.S. Re Insurance Company; SCOR Canada Reinsurance Company; Commercial Risk Re-Insurance Company.
Authorisation of the agreement concerning the payment of parental guarantee compensation of SCOR Global P&C SE and SCOR Global Life SE
At its meeting of 18 March 2008, the Company’s Board of Directors authorised, pursuant to Article L.225-38 of the French Commercial Code, the payment of existing upstream parent company guarantees (granted by SCOR Global P&C SE and SCOR Global Life SE) or those which could be drawn up in accordance with the authorisation granted by the Board of Directors of 28 August 2007, at a rate of 1 for one thousand, based on the amount of the Company’s shareholder’s equity, of which the agreements are guaranteed from the 1 January 2008.
The wage taken into account, in order to calculate the rights, is the average wage of the last fi ve professionally active years, adjusted on the date of departure, according to the development of INSEE’s annual average index of the consumer price.
At its meeting of 18 March 2008, the Company’s Board of Directors approved the implementation of services by the company Compass Partners. These provisions ended on 31 July 2008.
This guarantee’s grant of no limited amount is the subject of the same remuneration for SCOR SE, as those of other guarantees, previously granted by the Company.
This Facility Agreement did not give rise to any payment by SCOR SE to BNP Paribas in 2008.
At its meeting of 13 November 2008, the Company’s Board of Directors authorised, pursuant to Article L.225-38 of the French Commercial Code, the signature by SCOR SE, with regard to a contemplated acquisition (the “Operation”) of the engagement letter with the Corporate Finance Department of BNP Paribas (the “Financial Advisor”).
At its meeting of 13 November 2008, the Company’s Board of Directors authorised, pursuant to Article L.225-38 of the French Commercial Code, the signature by SCOR SE, with regard to the issuance of catastrophy bonds by Atlas V, a special purpose vehicle incorporated in Ireland, the purpose of which is to provide USD 200 million in additional retrocession coverage for SCOR SE and its subsidiaries (the “Operation”) of the engagement letter as joint-book runner and joint lead manager with the London branch of BNP Paribas (the “Financial Advisor”).
At its meeting of 13 November 2008, the Company’s Board of Directors authorised, pursuant to Article L.225-38 of the French Commercial Code, the signature of a parent company guarantee by SCOR SE for the reinsurance commitments of Prévoyance Ré.
Only Prévoyance Ré’s commitments, pursuant to the insurance and/ or reinsurance contracts, are covered by this parent guarantee.
The granting of this unlimited guarantee is subject of the same remuneration for SCOR as that given for the other parental guarantees previously granted by the Company. This parent company guarantee did not give rise to any remuneration in 2008.
The Directors concerned are Mr Denis Kessler and Mr Patrick Thourot.
In order to guarantee its obligations under the terms of the Credit Agreement, SCOR SE granted a senior pledge on a fi nancial instruments account to BNP Paribas under the terms of a pledge agreement entered into with BNP Paribas (and the related pledge declaration) and pledged (i) on the date of the signature of the pledge agreement, a number of OATs for a minimum amount equal to EUR 5,000; (ii) on 30 December 2005, an additional number of OATs for an amount equivalent to the value in euros of 105% of the SBLCs (corresponding to the letters of credit issued under the old credit agreement and assumed and extended by BNP Paribas); and (iii) to pledge before each new utilisation a number of OATs for an amount equivalent to the value in euros of 105% of the amount of the new utilisation.
As at 9 May 2007, the total amount of the SBLCs issued by BNP Paribas under the Credit Agreement was USD 79,336,800.89 so that the maximum borrowing amount of the credit facility has almost been reached.
To guarantee its obligations under the Credit Agreement described above, SCOR SE signed the Pledge Agreement with BNP Paribas, under the terms of which the Company agreed to grant a senior pledge of a fi nancial instruments account in favour of the Bank and to pledge the following: on the date of signature of the Pledge Agreement, a number of OATs for a minimum amount equal to EUR 5,000 (Five Thousand euros), no later than 30 December 2005, an additional number of OATs for an amount equal to the equivalent value in euros of 105% of the initial SBLCs (corresponding to the letters of credit issued under the old credit facility agreement and assumed and extended by the Bank); and 19.2 Agreements approved in past years, which were continued or terminated in the 2008 fi nancial year
before each new utilisation, a number of OATs for an amount equal to the equivalent value in euros of 105% of the amount of the new utilisation.
The Bank agreed to increase the maximum amount of the Credit Agreement, primarily for the issuance of a counter-guarantee intended to cover the Company’s reinsurance commitments under the Property and Casualty insurance policy described above, provided that it obtained from the Company an additional OAT pledge and the modifi cation of the documentation governing the OAT pledge already made.
At the time of the signature of amendment No. 1 to the Pledge Agreement, SCOR SE issued to BNP Paribas an additional amended and restated declaration of pledge of a fi nancial instruments account attached to said amendment.
In 2006, despite SCOR’s spin-off of its Non-Life reinsurance operations to SCOR Global P&C, SCOR remained a reinsurance company because of the retrocessions established between SCOR Global Life and SCOR Global P&C as the retroceding companies, and SCOR as the retrocessionaire. These retrocessions back the Group’s debt carried by SCOR for maintaining the aggregate Group’s solvency and confi rming its rating.
The signature of the retrocession framework agreement between SCOR and SCOR Global Life (then named SCOR Vie) was authorised by the Board on 16 May 2006, pursuant to the provisions of Article
Due to the completion of this merger on 25 July 2007, (but retroactive to 1 January 2007, under the terms of the merger agreement ), the contracts underwritten by its German branch fall under the scope of the retrocession agreement (which was not the case when the contracts were underwritten by the subsidiary). As a result, there is a signifi cant increase in the volume of retrocessions to SCOR SE.
This retrocession allows the requirements of the rating agencies with regard to the Group’s rating to be addressed. In effect, the retrocession rate is adjusted based on capital needs with regard to activity cycles. The rating agencies confi rmed that they are maintaining their rating with regard to this new organisation of the Group.
Due to the completion of this merger on 3 August 2007, (but retroactive to January 1 pursuant to the terms of the merger agreement ), the contracts underwritten by its German subsidiary fall under the scope of the retrocession agreement which resulted in a signifi cant increase in the volume of retrocessions from SCOR Global P&C SE to SCOR SE.
At its meeting of 2 November 2005, the Board of Directors of the Company authorised, pursuant to Article L.225-38 of the French
Commercial Code, the issuance of a parent company letter of guarantee intended to cover the fi nancial obligations of SCOR Global Life (formerly SCOR VIE) under the terms of an agreement to issue letters of credit that would be signed by SCOR Global Life, SCOR Financial Services Limited (“SFS”) and CALYON (“SFSCALYON Letter of Credit Facility Agreement”) dated 13 December 2005 (for the purposes of this Section, the “Agreement”).
The transaction was submitted to the Department of Insurance of the State of Texas (United States of America) insofar as it requires a certain number of amendments to the retrocession treaty (Automatic Coinsurance Retrocession Treaty) executed on 31 December 2003, between SGLR and SFS. In a letter dated 30 September 2005, the competent authorities of the State of Texas indicated they had no comments on the amendments which would be made to such agreement. The Irish administrative authorities (IFSRA) were also informed of the transaction and indicated they had no objection.
At its meeting of 7 November 2006, the Board of Directors authorised, pursuant to Article L.225-38 of the French Commercial Code, the extension (i) of the term of the parent company guarantee dated 19 December 2005, issued by SCOR to ten years; and (ii) the amount of the SCOR’s guarantee to USD 400 million, in line with the new term of coverage by the letter of credit and the new amount of the CALYON global commitment under the terms of the Agreement.
19.3 Special report of the auditors on related party agreements and commitments Ladies and Gentlemen,
In our capacity as the auditor of your company, we are submitting to you our report on related-party agreements and commitments.
The following entities of the Group are participating in the cashpooling scheme: SCOR SE, SCOR Global P&C SE, SCOR Global Life SE, SCOR Auber, GIE Informatique, SCOR Global Life Deutschland (branch), SCOR Global P&C Deutschland (branch), SCOR Rückversicherung AG, SCOR Global Life Rappresentanza Generale per l’Italia (branch), SCOR Global P&C Rappresentanza Generale per l’Italia (branch), SCOR Global Life Iberica Sucursal (branch), SCOR Global P&C Iberica Succursal (branch), SCOR Global Life Reinsurance UK Ltd, SCOR Global Life Reinsurance Services UK Ltd, SCOR Global Life Reinsurance Ireland Ltd, SCOR Financial Services, Sweden Reinsurance Co Ltd, SCOR Holding Switzerland AG, SCOR Switzerland AG.
The parent company guarantee granted by SCOR SE to the benefi t of the reinsurance subsidiaries, pursuant to the insurance and reinsurance contracts fi nalised by the latter.
These parent company guarantees, drawn up by SCOR Global P&C SE and SCOR Global Life SE, regard SCOR SE’s engagements, pursuant to the insurance contracts, reinsurance contracts and fi nancial contracts.
The participant who leaves the Company, in order to enter into retirement, will have the right to a supplemental pension if he/she fulfi ls some criteria on the date of his/her departure.
Only SCOR Switzerland AG’s commitments, pursuant to the insurance and/or reinsurance contracts, are covered by this parent guarantee.
Authorisation to fi nalise an engagement letter between BNP Paribas and SCOR SE with regard to the acquisition of the company Prévoyance Ré
At its meeting of 26 August 2008, the Company’s Board of Directors authorised, pursuant to Article L.225-38 of the French Commercial Code, the signature of the agreement, fi nalised with BNP Paribas, for the issue of stand-by letters of credit, with regard to the Group’s insurance and reinsurance activity for a maximum amount up to USD 400,000,000.
The companies parties to this agreement are SCOR SE, SCOR Global P&C SE and SCOR Global Life SE. The other companies within the Group could equally benefi t from this agreement.
This agreement has been signed on 23 December 2008 and did not give rise to any payment by SCOR SE to BNP Paribas in 2008.
At its meeting of 13 November 2008, the Company’s Board of Directors authorised, pursuant to Article L.225-38 of the French Commercial Code, the signature by SCOR SE, with regard to a contemplated acquisition, of the engagement letter with the Corporate Finance Department of BNP Paribas.
Parent company guarantee from SCOR SE to the benefi t of Prévoyance Ré for reinsurance commitments
The parent company guarantee did not give rise to any remuneration in 2008.
Parent company guarantee from SCOR SE to the benefi t of SCOR Africa Ltd for reinsurance commitments
At its meeting of 13 November 2008, the Company’s Board of Directors authorised, pursuant to Article L.225-38 of the French Commercial Code, the parent company guarantee’s signature by SCOR SE for the reinsurance engagements of SCOR Africa Ltd.
Only SCOR Africa Ltd’s engagements, pursuant to the insurance and/or reinsurance contracts, are covered by this parent guarantee.
This guarantee’s grant of no limited amount is the subject of the same remuneration for SCOR SE, as those of other guarantees, previously granted by SCOR SE.
At its meeting of 13 November 2008, the Company’s Board of Directors authorised, pursuant to Article L.225-38 of the French Commercial Code, the parent company guarantee’s signature by SCOR SE for the reinsurance engagements of SCOR Perestrakhovaniye.
Acquisition of 100% of the shares of SCOR P&C Ireland Holding Limited by SCOR Global P&C SE from SCOR SE
This transaction has been completed on 23 December 2008 for a price of USD 113,477.
The Director concerned by this agreement are Denis Kessler and Patrick Thourot.
Approval of the proposed amendment No. 1 to the standby letter of Credit Facility Agreement, dated 25 November 2005
The Board of Directors, at its meeting of 9 May 2007, authorised and approved, pursuant Article L.225-38 of the French Commercial Code, the signing of the amendment No.1 to the stand-by letter of Credit Facility Agreement entered into on 25 November 2005, between SCOR and BNP Paribas.
The signing of this amendment to the Credit agreement increases the maximum amount of the Credit Agreement to USD 235,000,000 and allows the use of the available amount
The Board of Directors, at its meeting of 9 May 2007, authorised and approved, pursuant to Article L.225-38 of the French Commercial Code, the signature of the amendment No. 1 to the Senior Pledge Agreement of a financial instruments account signed on 25 November 2005, between SCOR SE and BNP Paribas.
The signature of the retrocession framework agreement between SCOR SE and SCOR Global Life SE (then named SCOR Vie) was authorised by the Board on 16 May 2006, pursuant to the provisions of Article L.225-38 of the French Commercial Code. The contract was signed on 4 July 2007.
At its meeting of 13 November 2007, the Board of Directors of the Company authorised and approved, pursuant to Article L.225-38 of the French Commercial Code, the signature of the amendments to the retrocession contracts signed by SCOR and its subsidiaries SCOR Global Life SE and Global P&C SE on 4 July 2006.
Retrocession agreement signed by SCOR and SCOR Global P&C on 4 July 2006
The signature of the retrocession framework agreement between SCOR SE and SCOR Global P&C SE was approved by the Board on 16 May 2006, pursuant to the provisions of Article L.225-38 of the French Commercial Code. The contract was signed on 4 July 2007, as part of the reorganisation of the Group through the creation via spin-off of the subsidiary SCOR Global P&C SE.
At its meeting of 2 November 2005, the Board of Directors of the Company authorised, pursuant to Article L.225-38 of the French 19 | RELATED PARTY TRANSACTIONS
This Agreement and this parent company guarantee were part of a transaction intended to provide SCOR Global Life U.S. Re with additional fi nancial resources so that it could meet the fi nancial coverage requirements stipulated by the Amercian “Triple X” prudential regulations.
At its meeting of 7 November 2006, the Board of Directors authorised, pursuant to Article L.225-38 of the French Commercial Code, the extension (i) of the term of the parent company guarantee dated 19 December 2005 issued by SCOR to ten years; and (ii) the amount of the SCOR guarantee to USD 400 million, in line with the new term of coverage by the letter of credit and the new amount of the CALYON global commitments under the terms of the Agreement.
20.1 Historical fi nancial information: consolidated fi nancial statements In application of article 28 of the EC Commission Regulation No. 809/2004, the following information is incorporated by reference in this Registration Document: (i) The consolidated fi nancial statements as at 31 December 2007 are included from pages 185 to 289 and the auditors’ report on these consolidated fi nancial statements as at 31 December 2007 is included from pages 292 to 295 of the Registration Document fi led with the Autorité des Marchés Financiers on 28 March 2008 under Number D. 08-0154; (ii) The consolidated fi nancial statements as at 31 December 2006 are included from pages 171 to 240 and the auditors’ report on these consolidated fi nancial statements as at 31 December 2006 is included from pages 242 to 245 of the Registration Document fi led with the Autorité des Marchés Financiers on 10 April 2007 under Number D. 07-0294.
Insurance business investments 16,982 16,971 Real estate investments Note 5 285 290 Available-for-sale investments Note 6 7,220 9,099 Investments at fair value through income Note 6 153 175 Loans and receivables Note 7 9,309 7,380 Derivative instruments Note 8 15 27
Share of retrocessionaires in insurance and investment contract liabilities Note 16 1,251 1,293
Financial debt Note 14 936 904 Subordinated debt 583 579 Debt instruments issued 201 206 Other fi nancial debt 152 119
FOR THE YEAR ENDED 31 DECEMBER In EUR million 2008 2007 adjusted (1)
Gross written premiums Note 2 5,807 4,762 Change in unearned premiums (48) (23) Gross earned premiums 5,759 4,739 Other operating revenues 11 19 Investment income Note 20 467 727 Total operating income 6,237 5,485 Gross benefi ts and claims paid Note 16 (4,101) (3,360) Gross commission expense (1,293) (1,059) Net results of retrocession Note 21 (140) (169) Investment management expenses (36) (38) Acquisition and administrative expenses Note 22 (192) (183) Other current operating expenses Note 22 (124) (99) Other current operating income - - Total current operating income (expense), net (5,886) (4,908)
Financing expenses Note 14 (61) (74) Share in results of associates 9 22 Negative goodwill 6 Corporate income tax Note 12 44 (114) Restructuring costs, net of tax Note 23 (28) -
(Acquisitions)/ disposals or reimbursements of other insurance business investments (689) 1,271
Cash fl ows from(acquisitions)/ disposals of tangible and intangible fi xed assets (15) (18)
Shadow accounting, gross of tax - - - 45 - - - - 45 - 45
Effect of change in foreign exchange rates - - - - - (185) - - (185) - (185)
Net revenue recognised in shareholders’ equity - - - (7) (26) (185) 25 (8) (201) 31 (170)
Effect of change in foreign exchange rates - - - - - (105) - - (105) - (105)
Taxes recorded directly in/ transferred to equity - - (9) 90 - (24) - - 57 - 57
Consolidated net income for the year - - 315 - - - - - 315 3 318
SCOR SE (“SCOR” or “the Company”) is a European Company (Societas Europaea) domiciled in France and governed by the provisions of French law relating to European Companies as well as by the French corporate law provisions applicable to société anonyme where not contrary to the specifi c provisions applicable to European Companies. SCOR’s shares are publicly traded on the Eurolist by Euronext Paris stock market and on the SIX Swiss Exchange (formerly known as the SWX Swiss Exchange). The Company and its subsidiaries (“the Group”) are engaged in Life and Non-Life reinsurance.
SCOR’s consolidated fi nancial statements are prepared in accordance with International Financial Reporting Standards and interpretations as adopted by the European Union (“EU”) and effective at 31 December 2008.
Certain reclassifi cations have been made to prior year fi nancial information to conform to the current year presentation. Additionally, in accordance with IFRS 3, where the initial accounting for an acquisition has been determined provisionally the prior period has been presented as if the initial accounting had been completed from the acquisition date.
Share of retrocessionaires in insurance and fi nancial liabilities 1,251 134 1,117 Assumed insurance and reinsurance accounts receivable 3,217 486 2,731
SCOR adopted IFRS as from 1st January 2005. In compliance with IFRS 1 “First-time adoption” certain standards may not have been retroactively applied.
All companies, in which SCOR owns directly or indirectly more than 50% of outstanding voting rights or has otherwise power of control are fully consolidated. Control is the authority to direct fi nancial and operational policies in order to obtain benefi ts from their operations.
(D) IFRS STANDARDS ADOPTED EARLY AND ACCOUNTING STANDARDS AND INTERPRETATIONS PUBLISHED BUT NOT YET EFFECTIVE
The 2008 consolidated fi nancial statements do not include any impacts from standards and interpretations which were adopted during the period for which application is not mandatory as at 31 December 2008.
The following accounting Standards, Amendments and Interpretations have been published but are not effective at 31 December 2008: IFRS 8 “Operating Segments”, published in November 2006 and applicable as from 1 January 2009, replaces IAS 14 “Segment Reporting ”. The new Standard requires that the identifi cation of the operating segments used in published fi nancial information be based on the segments used in internal reports that are regularly reviewed by the Chief Operating Offi cers in order to allocate resources to the segments and assess their performance. The Standard requires disclosures concerning the methods used to identify segments. Segment balances must also be reconciled to the amounts disclosed in the consolidated balance sheet and income statement. The application of this Standard is not expected to result in any material impacts on the Group’sconsolidated fi nancial
Amendment to IAS 23 “Borrowing Costs”, published on 29 March 2007 and applicable as from 1 January 2009, stipulates that borrowing costs must be capitalised and prohibits immediate expensing of borrowing costs. Financial assets measured at fair value are excluded from the scope of this Amendment. The application of this Amendment is not expected to result in any impacts on the Group’s consolidated fi nancial statements.
Amendment to IFRS 2 “Share-Based Payment”, published on 17 January 2008 and applicable as from 1 January 2009, makes vesting contingent on service conditions and performance conditions only. Other features of a share-based payment are not vesting conditions. The Amendment also stipulates that all cancellations, whether by the entity or by other parties, should receive the same accounting treatment. The application of this
Amendment is not expected to result in any material impacts on the Group’s consolidated fi nancial statements.
Amendments to IAS 32 “Financial Instruments: Presentation” and to IAS 1 “Presentation of Financial Statements – Puttable Shares and Obligations Arising Only on Liquidation”, published on 14 February 2008 and applicable as from 1 January 2009, include the following respective requirements i) certain puttable shares and obligations arising only on liquidation will be classifi ed as equity in certain circumstances; and ii) additional disclosures concerning said instruments must be provided. The application of these Amendments is not expected to result in any material impacts on the Group’s consolidated fi nancial statements.
Where the functional currency of an entity is not the same as the reporting currency used to present the Group’s consolidated fi nancial statements, assets and liabilities of the entity are translated using the exchange rate at the balance sheet date and the income statement is translated using the average exchange rate for the period. Translation differences are recognised directly in shareholders’ equity as “translation adjustments”. Transactions denominated in foreign currencies (currencies other than the functional currency) are translated into the functional currency at the rate of exchange at the date of the transaction (for practical purposes, an average rate is used).
The Group maintains reserves to cover its estimated ultimate liability for claims related to known events or events incurred but not yet reported (IBNR). The reserves are reviewed by management during the year, using new information as soon as it is available and the reserves 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 analyse the Group’s experience; most recent legal interpretations concerning coverage and commitments; economic conditions; biometric developments such as mortality and morbidity and; socio-economic factors such as policyholder behaviour.
However, it is diffi cult 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 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 benefi ts may deviate, perhaps signifi cantly, from estimates of reserves refl ected in the Group’s consolidated fi nancial statements.
Reserves for investment contract liabilities are recognised for reinsurance contracts, either life or non-life, that do not meet the risk transfer criteria described in IFRS 4 (refer to paragraph (N) Accounting principles and methods specifi c to reinsurance activities).
Deferred tax assets are recognised to the extent that it is probable that future taxable profi t will be available to utilise net operating losses carried forward. Management makes assumptions and estimates related to income projections to determine the availability of suffi cient future taxable income. To the extent that net operating losses carried forward cannot be utilised or expire, there may be deferred income tax expenses recorded in the future.
Business combinations are accounted for using the purchase method of accounting which requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values.
The useful lives of intangible assets are assessed to be either fi nite or indefi nite.
Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash generating unit level. Such intangibles are not amortised. The useful life of an intangible asset with an indefi nite life is reviewed annually to determine whether the indefi nite life assumption continues to be appropriate. If not, the change in the useful life assessment from indefi nite to fi nite is made on a prospective basis.
VOBA also includes the intangible asset related to the ReMark acquisition to refl ect the substance of the guaranteed future income stream and to ensure mirror accounting for the contracts SCOR has sourced from ReMark as well as consistency with amounts used in embedded value calculations.
Real estate currently held by the Group is classifi ed as investment property. Some buildings may be partially occupied by entities of the Group.
Borrowing costs, repairs and maintenance costs are charged to the income statement during the fi nancial period in which they are incurred. All costs directly associated with purchases or constructions of properties are capitalised. All subsequent value enhancing capital expenditures are capitalised when it is probable that future economic benefi ts related to the item will fl ow to the Group.
Annually each building is subject to an in-depth analysis of its market value or “fair value” by an independent appraiser. The fair value is calculated using a discounted cash fl ow model and considering rental status, completeness of construction and renovation work, as well as recent developments within the local real estate market. If the fair value is below the carrying amount, the related impairment losses are recognised in the income statement. If the market value of a building appears lower than its net book value, an impairment provision is recorded equal to the difference between its utility value and the net book value. With regard to investment properties, their utility value is considered a long-term investment based primarily on the sum of estimated future cash fl ows that are discounted on the basis of current market assumptions. SCOR has not retained any residual value.
Investment properties acquired through financial lease agreements are recorded on the balance sheet as assets based on the present value of future rental payments and the purchase option. Subsequent to the initial recognition they are accounted for like investment properties at cost, net of accumulated depreciation and impairment losses.
Available-for-sale financial assets are recorded at their fair value. Unrealised gains and losses and the respective foreign exchange resulting from variations in the fair value of a fi nancial available-for-sale monetary asset are recorded directly in shareholders’ equity.
When an asset is sold, the accumulated gains and losses included in equity are transferred to realised gains and losses from the sale of investments on the income statement, net of any amounts previously recorded through income.
Interest on debt instruments is calculated in accordance with the effective interest method, which includes the amortisation of premiums /discounts and is recorded in the income statement.
This category includes funds held by ceding companies as collateral for underwriting commitments included at the amount deposited.
These items comprise the various subordinated or unsubordinated bonds issued by the Group. These loans are classifi ed as fi nancing debts, in accordance with paragraph 25 of IAS 32.
This caption includes primarily debt relating to the acquisition of real estate and fi nancial lease agreements. Debt under fi nancial lease contracts is recorded at fair value less directly attributable transaction costs. After initial recognition, they are measured at amortised cost using the effective interest rate method where this method has a signifi cant impact compared to the nominal contractual rate method.
All derivatives are carried as assets when the fair values are positive and as liabilities when the fair values are negative.
When the Group has not designated the derivative as a hedging instrument, gains and losses resulting from the change in the fair value of the instrument are recorded in the income statement in the period in which they occur. The Group uses the following derivative instruments to reduce its exposure to various risks: swaps based on interest rates, mortality indices and real estate indices, foreign currency forward purchase and sale contracts, caps and fl oors, puts and calls.
An embedded derivative is a component of a hybrid instrument which includes a non-derivative host contract, which causes part of the hybrid instrument’s cash fl ow to vary in the same way as that of a freestanding derivative.
The hedged item may be an asset, a liability, a fi rm commitment, a highly probable scheduled transaction or a net investment in a foreign operation exposing the Group to fl uctuations in fair value or future cash fl ows, and which is designated as being hedged.
Hedge effectiveness is monitored periodically by comparing changes in the fair value or cash fl ows of the hedged item to the changes in the fair value or cash fl ows of the hedge instrument in order to determine the degree of compensation.
The Group currently has no fi nancial instruments which are recorded using hedge accounting.
The fair value of fl oating rate and overnight deposits with credit institutions is their carrying value.
If the fair value cannot be measured reliably, the fi nancial instruments are measured at cost, which is the consideration paid for the acquisition of the investment, including transaction costs.
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 fall in fair value as compared to the initial purchase price of more than 30%, or a consistent unrealised loss over a period of more than twelve months. The different factors considered in this analysis include the existence or not of signifi cant 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 Company 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 twelve months; or a magnitude of decline of more than 50%; or a duration of decline of more than twenty-four months.
For fi nancial instruments where the fair value cannot be measured reliably and they are measured at cost a regular analysis is completed to determine if this remains appropriate given the nature of the investment and factors such as amounts realised and the appearance or re-appearance of a market or reliable value. Impairment assessments are completed dependant on the underlying nature of the investment and the expected future cash fl ow.
Provisions are recognised when the group has a present legal, contractual or constructive obligation as the result of past events, it is probable that an outfl ow of resources will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.
Ordinary shares are classifi ed in shareholders equity when there is no contractual obligation to transfer cash or other fi nancial assets to the holders.
Basic earnings per share is calculated by dividing net income available to ordinary shareholders by the weighted average number of ordinary shares in issue during the year, excluding the average number of ordinary shares purchased by the group and held as treasury shares.
Subsequent events relate to events that occur between the balance sheet date and the date when the fi nancial statements are approved for issue: Such events lead to an adjustment of the consolidated fi nancial statements if they provide evidence of conditions that existed at the balance sheet date.
Such events result in additional disclosure if indicative of conditions that arose after the balance sheet date, and if relevant and material.
Income from these transactions is equal to SCOR’s net fee or spread and is recorded under “other operating income” on the income statement.
In Non-Life reinsurance, SCOR is required to maintain its reserves at a suffi cient level to cover the estimated amount of its direct commitments and adjustment expenses for reported and unreported claims, at the end of each fi scal year (net of estimates of recovery and subrogation). These reserves, which pertain to all incurred claims, whether reported or not yet reported, are calculated on the basis of their ultimate cost, undiscounted, except for workers’ compensation claims which are discounted in the U.S. and in Bermuda. Ultimate claims expense is estimated using statistical experience for similar policies. Claim reserves including estimated claims paid are calculated based on expected earnings and supplement the information communicated by ceding companies.
In Life reinsurance, estimates based on experience and information supplied by the underwriters and based on the actuarial analysis are added to mathematical reserves reported by the ceding companies.
The liability adequacy test conducted at year end 2008 did not detect any defi ciencies for either the Non Life or Life segment for the year ended 31 December 2008.
The amount of recoverable is reduced in the form of a bad debt provision when there is an event arising that provides objective evidence that the group may not receive all amounts due under the contract and the event has a reliably measurable impact on the expected amount that will be recovered from the reinsurer.
For the measurement of deferred acquisition costs, value of business acquired and technical reserves recognised for different insurance portfolios, SCOR applies the shadow accounting principles stipulated in IFRS 4. As the amortisation of DAC (for Life) and VOBA is calculated using expectations for estimated revenues from investments and the measurement of reserves is based on the discount rate refl ecting directly the performance of assets, relevant parts of the recognised unrealised gains and losses from investments available for sale are considered as shadow DAC, shadow VOBA and shadow reserves and offset directly in equity.
IFRS 4 provides for the separation of embedded derivatives in insurance contracts, particularly when these hybrid contracts are not assessed at fair value through income and when the features of the embedded derivatives are not closely linked with the features and risks of the host contract, and when the embedded derivative meets the defi nition of a derivative instrument. Embedded derivatives which meet the defi nition of an insurance contract are not separated. SCOR has identifi ed no embedded derivatives in its contracts.
defi ned benefi t obligation at the balance sheet date, less the market value of any plan assets, where appropriate, both adjusted for actuarial gains and losses and unrecognised past service cost.
In some countries, the Group rewards employees for length of service by granting them a lump sum after certain periods of service. The primary country providing this benefi t is France. For France, the present value of the obligation is calculated annually by an independent actuary using the projected unit credit method and is recognised on the balance sheet.
The Group also grants shares to its employees. These grants are recorded in expenses over the vesting period with the offset recorded as an increase in shareholder’s equity.
Deferred tax assets are recognised to the extent that it is probable that future taxable profi t will be available against which the temporary differences can be utilised.
Deferred tax assets and liabilities are assessed at the tax rate applicable in the fi scal year in which the asset will be realised or the liability settled, based on the tax rates (and tax regulations) that have been enacted or substantially enacted at the balance sheet date.
The Group’s business is divided into two distinct segments: SCOR Global P&C which refers to the activities included in and under the responsibility of the management of the SCOR Global P&C Division (also referred to as “Non-Life”) and SCOR Global Life which refers to all operations included in and under the responsibility of the management of the SCOR Global Life Division (also referred to as “Life”).
The following tables set forth the operating income for each of the Group’s business segments as well as certain assets and liabilities for the fi nancial years ended 31 December 2008 and 2007.
Investment income 324 377 - 701 310 290 - 601 Realised gains/(losses) on investments 6 81 - 87 12 106 - 117
Foreign exchange gains/(losses) (4) 11 - 7 - 7 - 7 Net investment income 259 208 - 467 330 397 - 727 Total income from ordinary activities 2,953 3,304 (20) 6,237 2,780 2,716 (11) 5,485 Gross benefi ts and claims paid (1,992) (2,109) - (4,101) (1,865) (1,495) - (3,360)
Change in ceded unearned premiums 4 4 - 8 1 (4) - (2)
The distribution by geographic region, based on subsidiary location, is as follows: For the year ended 31 December
Asia Pacifi c / Rest of world 36 17 250 191
Asia Pacifi c / Rest of world 292 157 639 468
Share of retrocessionaires in insurance and investment contract liabilities 745 506 1,251 656 637 1,293
The cash fl ows, by segment, are presented as follows: For the year ended 31 December
At 31 December 2008 and 2007, SCOR held 100% and 98.06%, respectively, of the capital and voting rights of Converium.
The business combination is recorded as from 8 August 2007. For simplifi cation purposes and given its immaterial impact, the additional 1.74% ownership interests acquired between 8 August 2007 and 31 December 2007 are also consolidated as from this date. The acquisition of Converium by SCOR has not been recorded as a “step acquisition” as this would not materially change the fair value calculations of the assets and liabilities acquired or the resulting goodwill.
SCOR acquired the 98.06% interest in Converium for EUR 1,888 million (EUR 1,876 million, excluding expenses) as follows: In EUR million Total
The initial fair value of assets and liabilities acquired at 8 August 2007 are as follows: In EUR million
Share of retrocessionaires in insurance and investment contract liabilities 276 276
Liabilities Financial debt 150 150 Contract liabilities 5,802 5,870 Other liabilities 505 553 Total liabilities 6,457 6,573
(1) As initially reported in the consolidated fi nancial statements as at 31 December 2007. (2) Includes the IFRS net assets acquired (EUR 1,536 million) and the Converium earnings from 1st July to 8 August 2007 (EUR 14 million).
Minority interests in net assets acquired (36) 5 (31) 4 (27)
Fair value of net assets acquired on 8 August 2007 1,484 30 1,514 (197) 1,317
(1) As published in the SCOR consolidated fi nancial statements for the year ended 31 December 2007.
The squeeze-out of minority interests has been recorded using the parent entity-extension method whereby the difference between the cost of the additional interest in the subsidiary and the minority interests’ share of the assets and liabilities refl ected in the consolidated balance sheet at the date of acquisition of the minority interest is recorded as goodwill.
The fair value of the SCOR shares issued in payment of the acquisition was determined based on the market price of SCOR shares from 15 April 2008 to 21 April 2008 of EUR 14.972 less EUR 0.80 for the 2007 dividend.
The table below details the key fi gures for Converium included for the period from 8 August 2007 to 31 December 2007 in the Group results for the year ended 31 December 2007: In EUR million Converium income statement for the period from 8 August to 31 December 2007 (1)
Gross written premiums 533 Of which Life 82 Of which Non-Life 451 Operating results 145 Financing expenses (7) Corporate income tax (28) Consolidated net income 110 Minority interests (2) Group net income 108
Furthermore, for the period between 26 April and 8 August 2007 (the acquisition date for consolidation purposes), 32.94% of Converium results were accounted for according to the equity method in the SCOR consolidated fi nancial statements for the year ended 31 December 2007. Earnings of EUR 10 million, before EUR 5 million elimination of dividends distributed by Converium, has consequently been recorded as income from associated companies during 2007. The results of the former Converium Group are fully consolidated for the year ended 31 December 2008.
The acquisition of ReMark Group BV (“ReMark”) for consideration of EUR 65 million was recorded on 30 June 2007 in the balance sheet of SCOR Global Life SE following a series of stock acquisitions from existing shareholders during the fi rst half of 2007.
At 30 June 2007, SCOR Global Life SE held 98.67% of ReMark shares and 100% of the total voting rights. This acquisition gives SCOR the ability to develop its activities in reinsurance in partnership with a company specialised primarily in direct individual accident insurance.
As from the acquisition date of 30 June 2007, ReMark Group BV was fully consolidated by SCOR.
In accordance with IFRS 3, the accounting of a business combination can be reviewed within twelve months from the acquisition date. On 30 June 2008, the fi nal purchase price allocation was completed and led to the recognition of an intangible asset for the value of business acquired of EUR 62 million and related deferred tax liabilities of EUR 20 million.
SCOR has classifi ed the intangible asset related to the ReMark acquisition as value of business acquired (“VOBA”) to refl ect the substance of the guaranteed future income stream and to ensure mirror accounting of the contracts that SCOR has sourced from ReMark as well as consistency with amounts used in embedded value calculations.
The fi nalisation of the initial accounting of ReMark Group BV, completed on 30 June 2008, was recorded as follows: In EUR million
As a result of the fi nalisation of the purchase accounting at 30 June 2008 there is no goodwill arising from the acquisition of ReMark.
The initial accounting of the business combination, included in the consolidated fi nancial statements of the Group at 31 December 2008 has been determined on a provisional basis. This is due to the fact that for certain items, the information necessary in order to make a fi nal determination of fair value was still provisional.
Net book value at 31 December 2007 (1) 777 705 93 1,575 Effect of foreign exchange rate movements 0 (11) (13) (24)
Change in scope of consolidation 3 21 0 24 Amortisation for the year - (131) (7) (138) Impairment for the year - - - 0
By Segment as at 31 December 2008 SCOR Global P&C 742 - 67 809
Goodwill, which represents the excess of the cost of each business combination over SCOR’s interest in the net fair value of the identifi able assets, liabilities and contingent liabilities acquired, was EUR 787 million as at 31 December 2008 and EUR 777 million as at 31 December 2007. During 2008 the Group fi nalised the initial accounting in respect of the 2007 acquisition of Converium which resulted in goodwill of EUR 579 million, including EUR 5 million regarding the squeeze-out of minority interests.
For the purposes of impairment testing, goodwill acquired in a business combination is allocated by SCOR to the groups of cash generating units (CGUs) that are expected to benefi t from the syn-
The level at which the goodwill impairment test has been conducted in 2008 has changed from 2007 representing the change in organisational and management structure of the Group. If the same approach had been used in 2007, there would not have been a material impact on the conclusions reached.
In addition for Life, goodwill this is tested for impairment by analysis using inputs and the methodology that SCOR applies in calculating the Life Embedded Value. This approach utilizes discount rates of between 6.4% and 8.8% depending on currency and duration and including an average risk margin of 3.1%.
As part of the impairment testing, SCOR assesses whether the current fair value of operating units is at least equal to the fair value used in the determination of goodwill. If it is determined that an impairment exists, the carrying value of goodwill is adjusted to its fair value. Any impairment charge is recorded in income in the period in which it is determined.
The annual goodwill impairment tests conducted for both the Global P&C segment and the Global Life segment show a fair value in excess of the carrying value. In light of the rapidly changing economic environment SCOR updated and reviewed the validity of its impairment test fi ndings at 31 December 2008.
The result of the goodwill impairment tests is that no goodwill impairment charges were recognised for the years ended 31 December 2007 or 31 December 2008.
VOBA at 31 December 2008 and 2007 relates to the following: In EUR million For the year ended 31 December
Intangible assets with an indefi nite life are tested for impairment annually. The price of the Lloyds syndicate participations from the Lloyds auction process are key inputs to the impairment tests conducted which demonstrated that there are no indicators of impairment. Accordingly no impairment charges were recognised for the year ended 31 December 2008 or the year ended 31 December 2007.
Depreciation for the period (1) (2) (3) Impairment for the period 2 2 Other (3) 3 -
Depreciation for the period (3) (3) (6) Impairment for the period - - -
Carrying value as at 31 December 2006 197 89 286 Carrying value as at 31 December 2007 215 75 290 Fair value as at 31 December 2007 338 106 444 Carrying value as at 31 December 2008 215 70 285 Fair value as at 31 December 2008 329 99 428
The minimum expected rental income on investment properties and fi nance leases are presented in Note 26 - Commitments given and received.
The insurance business investments of the Group can be analysed as follows: Analysis by fi nancial investment category
Investments at fair value through income– designated upon initial recognition 153 175
Loans and receivables Note 7 9,309 7,380 Derivative instruments Note 8 15 27
(1) Net book value is equal to fair value except for real estate investments for which the fair value is included in Note 5 and certain loans and receivable as detailed in Note 7. (2) Adjusted for the completion of the initial acquisition accounting of the Converium and ReMark acquisitions. See Notes 1 and 3 to the consolidated fi nancial statements.
At 31 December 2008, Prévoyance Ré contributed EUR 160 million to insurance business investments comprised of EUR 122 million availablefor -sale fi xed income securities, EUR 30 million available-for-sale equities and EUR 8 million loans and receivables.
FV determined using valuation technique not (or partially) based on market data
The Group has certain investments which are valued based on models prepared by external third parties using market inputs. These primarily comprise structured products, other than agencies for which the market which is considered active, as well as hybrid, tier 1 and tier 2 corporate debt and hedge funds. Similarly, the Group values certain derivative investments, namely the mortality and real estate swaps and S&P options, using internal valuation techniques based on observable market data.
During 2008, there were no material gains and realised losses realised on the disposal of available for sale investments which were previously carried at cost.
Net unrealised losses (net of tax) 1 January (13) (6) Transferred to consolidated net income during the period 42 Change in unrealised gains and losses (including investments purchased during the period) (277) (5) Impact of foreign exchange - 4 Change in scope and other (3) (6) Net unrealised losses (net of tax) 31 December (251) (13)
At 31 December 2008, the unrealised gains and losses on available-for-sale investments can be analysed as follows: In EUR million Unrealised gains Unrealised losses Net unrealised gains (losses)
Total impairment losses recorded in 2008 amounted to EUR 260 million of which EUR 218 million relating to the equity portfolio and EUR 42 million on fi xed-income securities (EUR 21 million and EUR 1 million, respectively in 2007).
Total unrealised losses on available-for-sale equity securities analysed on a line-by-line basis (109) (92) (21) (222)
Unrealised loses < 30% (22) Hedge funds (21) Unrealised gains and other (1) 13 Net unrealised loss (252)
SCOR considers payment default events as the primary indicator that an investment in a fi xed income security may be impaired rather than the duration and magnitude of the unrealised loss.
The following table summarises the fi xed income securities and unrealised losses by class of fi xed income security : In EUR million Book value Net of unrealised gains/(losses)of
Corporate bonds 2,423 (163) Government bonds 2,805 67 Structured products 981 (130) Total fi xed income securities 6,209 (226)
An analysis of the credit ratings of fi xed income securities is as follows: In EUR million AAA AA A BBB < BBB Not rated Total
Total fi xed income securities as at 31 December 2008 4,191 481 1,083 257 25 172 6,209
Loans and receivables include primarily receivables from cash deposits made at the request of ceding companies as collateral for commitments (insurance contract liabilities), short term investments and related accrued interest. Short term investments includes government bonds, certifi cates of deposit (CDs) and treasury bills (T-bills) maturing between 3 and 12 months from the date of purchase. CDs and T-maturing in more than 12 months from date of purchase are included in “other loans maturing in more than one year”.
Derivative fi nancial instruments include the following items: In EUR million Derivative assets Derivative liabilities Fair value through income
Effective 1st January 2008, SCOR Global Life SE concluded a fouryear mortality swap with JP Morgan, under the terms of which it will receive up to USD 100 million and EUR 36 million in the event of a signifi cant rise in mortality. The agreement which runs from 1 January 2008 to 31 December 2011 will compensate SCOR notably for a rise in mortality rates due to major pandemics, natural catastrophes or terrorist attacks.
The mortality swap asset is measured as the difference between the present value of expected cash fl ow based on the contractual spread (205 bps) and the current estimated spread.
The objective of this transaction is to: Hedge SCOR’s direct economic exposure to the Paris commercial real estate market; Diversify SCOR’s real estate direct allocation to other real estate sectors, especially residential, with geographical diversifi cation through other country exposures.
SCOR enters into interest rates swaps to cover its exposure to fi nancial debt with variable interest rates. The fair value of these swaps is obtained from the banking counterparty. The total notional amount relating to these swaps is EUR 111 millions at 31 December 2008. Net interest paid under these swaps amounted to EUR 4 million in 2008 (2007: nil).
SCOR enters into forward currency purchase and sales contracts to reduce its overall exposure to balances held in currencies other than the functional currencies of its subsidiaries. The contracts are recorded at their net fair value. The outstanding contracts at 31 December 2008 and 2007, converted into EUR at the closing rates, were as follows: In EUR million Forward sales Forward purchases
SCOR Gestion fi nancière 100% France 5 - - - 5
20.1.6.10 NOTE 10 - ACCOUNTS RECEIVABLES AND DEBTS WITH CEDENTS AND RETROCESSIONAIRES
Gross value at 1st January 722 230 952 555 108 663 Accumulated amortisation and impairment losses (296) - (296) (200) - (200) Net value at 1st January 426 230 656 355 108 463 Capitalisation of new contracts for the period 91 257 348 152 102 254
Accumulated amortisation and impairment losses (388) - (388) (296) - (296) Net value at 31 December 524 227 751 426 230 656 20.1.6.12 NOTE 12 - CASH AND CASH EQUIVALENTS AND CASH FLOWS
Consolidated net income 315 407 Realised gains and losses on investment disposals (89) (109) Change in accumulated amortisation and other provisions 331 101 Changes in deferred acquisition costs (27) (80) Net increase in contract liabilities 721 550 Change in fair value of fi nancial instruments recognised at fair value through income 46 (13) Other non-cash items included in operating results (2) (877) 61 Net cash fl ow provided by (used in) operations, excluding changes in working capital 420 917 Change in loans and accounts receivable (2) 346 (293) Cash fl ows from other assets and liabilities (14) Net taxes paid 13 1 Net cash fl ow provided by (used in) operations 779 611
The authorised share capital of the Company at 31 December 2008 was 184,246,437 shares with a nominal value of EUR 7.8769723 each compared with authorised share capital of 182,726,994 shares of the same nominal value at the end of 2007.
The number of ordinary shares which were issued and fully paid in circulation as at 31 December 2008 and 2007 were as follows: Share capital 2008 2007
As at 1st January 182,726,994 118,405,108 Share capital increase – 26 April 2007 17,837,210 Share capital increase – 8 August 2007 46,484,676 Share capital increase – 5 June 2008 1,420,408 Share capital increase – 31 December 2008 (exercise of stock options) 99,035 As at 31 December 184,246,437 182,726,994 Average nominal price per share in EUR 7.8769723 7.8769723 Share capital in EUR 1,451,304,081 1,439,335,470
The increases in 2007 and 2008 were due to the purchase of Converium and the squeeze-out of the minority shareholders as described in Note 3 – Acquisitions. The shares issued in 2008 were issued at a nominal price of EUR 7.8769723 per share.
The number of shares held as treasury shares by the Company or its subsidiaries at 31 December 2008 amounted to 4,904,551 compared to 2,975,633 shares at the end of 2007.
At 31 December 2008 the Group has outstanding debt (OCEANE) of EUR 200 million maturing in 2010 which is convertible to shares at the rate of 1.047 shares per EUR 20 par value bond. The terms of this loan are described more fully in Note 14 – Financial debt. Under the terms of conversion the number of shares issued would be 10,470,000 and 10,470,000 at 31 December 2008 and 2007, respectively.
The Group seeks to optimise the structure and sources of capital to ensure that it consistently maximises returns to the shareholders.
The primary source of capital used by the Group is equity shareholders ’ funds and borrowings.
The objective of the capital management policy is sustained and ensured through regular updates of forecasts and an annual strategic and fi nancial planning process. The capital management process is ultimately subject to approval by the board.
At 31 December 2008 At 31 December 2007 Book value Fair value Book value Fair value
The operations of the Group are subject to regulatory requirements within the jurisdictions where it operates. Such regulations not only prescribe approval and monitoring of activities, but also impose certain restrictive provisions (e.g. capital adequacy) to minimise the risk of default and insolvency on the part of the reinsurance companies and insurance companies to meet unforeseen liabilities as they arise.
The Company actively monitors the regulatory capital requirements of each of its operating subsidiaries within this capital management framework. The Group is subject to applicable government regulation in each of the jurisdictions in which we conduct business, particularly in France, Switzerland, the United States, the United Kingdom, Ireland and Germany. Regulatory agencies have broad supervisory and administrative powers over many aspects of the insurance and reinsurance industries. Government regulators are concerned primarily with the protection of policyholders rather than shareholders or creditors. Failure of an operating company to meet the local regulatory capital requirements of the jurisdiction in which it operates could therefore lead to regulatory supervision or administration of the affairs of the operating company.
The Group aims to achieve full compliance in respect of all regulatory and solvency requirements in the jurisdictions in which it operates.
The asset revaluation reserves are used to account for the changes in fair value of the available-for-sale fi nancial assets adjusted to refl ect the effects of “shadow accounting”, if any.
The translation adjustment caption records the differences in exchange rates resulting from the conversion of the fi nancial statements of foreign subsidiaries.
A breakdown of the movements in the various reserves is provided in Section 20.1.4 – Statement of changes in shareholders’ equity.
In accordance with the terms of its stand by letter of credit facilities, the Company must meet certain minimum requirements relating to net worth. The Company currently meets all such requirements.
Maturity Net book value Fair value Net book value Fair value
Debt instruments issued EUR 200 million Oceane 01/01/2010 191 204 196 237
Total debt instruments issued 201 214 206 247 Other fi nancial debt Financial leases 67 67 71 71
Total other fi nancial debt 152 152 119 119 Total fi nancial debt 936 782 904 905
A 30-year subordinated note totalling USD 100 million was issued on 7 June 1999. This note is redeemable by SCOR quarterly as from the tenth year. These fl oating-rate bonds bear interest indexed on the 3-month Libor rate plus (i) 0.80% for the fi rst ten years and (ii) 1.80% thereafter.
EUR 50 million Perpetual Step-Up subordinated notes were issued on 23 March 1999. These notes are redeemable after 15 years, and at a 5-year interval, beyond the 15 years. The fl oating-rate notes bear interest indexed on the 6-month Euribor plus (i) 0.75% for the fi rst fi fteen years of the issue, and (ii) 1.75% beyond the 15 years.
Beyond the control of the issuer, this loan allows for anticipated reimbursement in the following circumstances: A change in legislation or tax law which would deprive the bondholders of all or part of the interest payments stipulated in the initial “operating note”.
The debt includes a clause for mandatory settlement in cash if regulatory authorities or applicable legislation modify their ability to cover the solvency margin or equivalent. If this clause becomes applicable, the issuer must pay interest in cash even if no dividend has been paid, or proceed with the reimbursement of the notes in cash. Accordingly, the entire issue is considered as a fi nancial debt.