A C T I V I T Y & C S R R E P O R T
R E G I S T R A T I O N D O C U M E N T
CONSOLIDATED FINANCIAL STATEMENTS 163 4.1. Consolidated balance sheet 164 4.2. Consolidated statement of income 165 4.3. Consolidated statement of comprehensive income 166 4.4. Consolidated statement of cash flows 167 4.5. Consolidated statement of changes in shareholders’ equity 168 4.6. Notes to the consolidated financial statements 171 4.7. Information on holdings 247 4.8. Statutory Auditors 248 4.9. Auditing of historical consolidated financial information 249
ADDITIONAL INFORMATION 257 5.1. Charter and bylaws 258 5.2. Description of SCOR’s share capital 264 5.3. Third-party information and statements by experts and declarations of any interest 266 5.4. Published information 266 5.5. Material contracts 266
APPENDIX F Additional information relating to the management report of the Company and the Group – correspondence table 343
APPENDIX G Correspondence table – regulation (EC) of April 29, 2004 349
SCOR GROUP 3 1.1. Selected financial information 5 1.2. Information about the SCOR Group 8 1.3. Market and financial review 25
A European Company with share capital of EUR 1,520,931,435.11 Registered Office: 5 avenue Kléber – 75116 Paris
Pursuant to Article 28 of Regulation (EC) 809/2004 of April 29, 2004 of the European Commission implementing the Directive 2003/71/EC (the “Regulation (EC) 809/2004”), the following information is included by reference in this Registration Document (the “Registration Document”): SCOR SE’s corporate and consolidated financial statements for the financial year ended December 31, 2017 and the report of the Statutory Auditors regarding said financial statements as presented in SCOR SE’s Registration Document filed with the AMF on February 23, 2018 under number D.18-0072; SCOR SE’s corporate and consolidated financial statements for the financial year ended December 31, 2016 and the report of the Statutory Auditors regarding said financial statements as presented in SCOR SE’s Registration Document filed with the AMF on March 3, 2017 under number D.17-0123.
Parts of this or these documents which are not expressly included herein are of no concern to the investor.
W H A T I S R E I N S U R A N C E Reinsurance is at the heart of risk management, it enables insurers to cover their risks by ceding part of them, in order to mutualize them worldwide. SCOR covers major Non-Life risks including large catastrophe risks (both natural and man-made catastrophes: hurricanes, floods, volcanic eruptions, explosions, fires, plane crashes, etc.), and Life biometric risks (mortality, longevity and lines, both long term and short term). The challenge for reinsurance professionals consists of identifying, selecting, assessing and pricing risks, in order to be able to absorb them.
Consolidated net income – Group share – before US tax reform(1) 390 286 603
(1) Refer to Section 1.3.3 – Significant events of the year for detailed information on the US tax reform (Tax Cuts and Jobs Act, the “TCJA”). (2) See Section 1.3.5.4 – Net investment income and investment income on invested assets.
* Excluding the impact of US tax reform * The leverage ratio is calculated by dividing the subordinated debt by the sum of shareholders’ equity and subordinated debt. The calculation excludes accrued interest and includes the impact of swaps related to subordinated debt issuances. This ratio is expressed as a percentage. It is used to determine how much lenders are financing the Group’s activities over shareholders.
** Excluding the impact of US tax reform, return on equity would have been 6.6%.
A resolution will be presented to the Annual Shareholders’ Meeting held during the first half of 2019, to approve the financial statements for the financial year 2018, proposing the distribution of a dividend of EUR 1.75 per share for the financial year 2018.
SCOR GROUP Information about the SCOR Group 01 at least 3% of the capital is controlled by employees, a minimum of 25% of the workforce in France should own shares of the Company and a minimum of 15% of the overall workforce should own shares of the Company. The Euronext 100 index comprises the 100 largest and most liquid stocks traded on Euronext. The Euronext France Next 40 EW is composed of companies ranked from 41 to 80 in the SBF 120 index in terms of free float market capitalization. The Euronext Europe Sustainable 100 EWis an equal weighted index that reflects the performance of the top 100 stocks based on their traded value, ESG performance and 1 year drawdown, out of the 500 Largest stocks in terms of free float market capitalization, admitted to listing on the main markets of Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and of the United Kingdom. The Euronext France Energy Transition Leaders 40 EW, is an equal weighted index that reflects the performance of the top 40 stocks, based on their performance in term of transition to a low-carbon economy, out of the CAC Large 60 Index. Euronext Vigeo indices are composed of the highest-ranking listed companies as evaluated by the Vigeo-Eiris agency in term of their performance in corporate responsibility. The ESI Europe indices universe is composed of companies included in the Russell Developed Europe Index that display the best performance in the field of Corporate Social Responsibility. The Ethibel family (ESI) consists of two variants: one regular and one “Multiplier” version whereby a factor between 0.5 and 1.5 is applied in order to align the sector weights of the ESI Europe index with the sector distribution of the Russell Developed Europe. Inclusion in the regular ESI Europe index means automatic inclusion in the ‘Multiplier’ version. The SBFT 50 ESG EW is an equal weighted index that contains the 50 highest-ranking companies in term of their ESG performance, as evaluated by the Vigeo-Eiris agency, out of the 80 highest ranking companies in term of free float market capitalisation that are expected to be included in the SBF120. The CAC® Large 60 Responsible Investment SW. The index consists of all the companies that are expected to be included in the CAC Large 60, whereby the weighting is based on the Responsible Investment score as provided by Mirova/ISS-oekom.
SCOR Group is regulated by the “Solvency II” European directive which applies since January 1, 2016, having been transposed into national law in all relevant European jurisdictions over the last years.
The Solvency II regulation covers, among other matters, valuation of assets and liabilities, the treatment of insurance and reinsurance groups, the definition of capital and the overall level of required capital. A key aspect of Solvency II is that assessment of the Group’s risks and capital requirements is aligned more closely with economic capital methodologies.
SCOR Group is subject to supervision by the ACPR which has extensive oversight authority as Group supervisor but also as local supervisor for each French insurance or reinsurance company.
Since January 1, 2016, the regulatory solvency position of the Group has been assessed using SCOR’s internal model, which was approved in November 2015 by the relevant supervisory authorities.
For additional information on the impact of regulatory changes on the Group’s operations and financial position, see Section 3.2.3.
The Group is also looking into the e-privacy reform, as the European Commission has precised its position by publishing its formal proposal on January 10, 2017.
This complexity is likely to continue and could lead to increased costs of compliance incurred by financial institutions like SCOR.
SCOR became a reinsurance company in 1970, at the initiative of the French government and with the participation of insurers on the Paris market, to create a reinsurance company of international stature under the name of Société Commerciale de Réassurance. SCOR rapidly developed in various world markets, building up a substantial international portfolio.
On November 21, 2006, SCOR completed the acquisition of Revios Rückversicherung AG (Revios), enabling it to become a leading worldwide Life reinsurer. Based in Cologne (Germany), Revios was the former Life reinsurance unit of Gerling Global Re Group and had successfully developed on a stand-alone basis from 2002 onward to become one of the leading European reinsurers specializing in Life reinsurance, with operations in 17 countries. The combination of Revios and SCOR Vie created
In 2011, the Lloyd’s Market Franchise Board approved the creation of the Channel Syndicate 2015. SCOR is the sole capital provider for the Channel Syndicate. Underwriting by the Channel Syndicate began on January 5, 2011. The portfolio of the syndicate focuses on direct insurance business in markets, including property, marine, accident and health, financial institutions and professional civil liability.
On August 9, 2011, SCOR acquired the mortality portfolio of Transamerica Re, a division of AEGON N.V., for USD 919 million.
On January 3, 2018, SCOR has completed the increase of its stake in MutRé SA up to 100%. This acquisition has enabled SCOR to strengthen its Life & Health reinsurance offering to the French mutual insurance industry. On March 31, 2018, MutRé SA was merged into SCOR Global Life SE.
On May 31, 2018, in the Brexit context, SCOR SE created a new wholly owned subsidiary, SCOR Europe SE, an IARD insurance company, to ensure the continuity of shield and services provided to its clients after the Brexit effective date. Its business purpose is mainly direct insurance of major industrial risks across Europe. This subsidiary started its activities on January 1, 2019.
On March 23, 2018, the Blockchain Insurance Industry Initiative (B3i) announced the incorporation of B3i Services AG in Zurich, Switzerland. The company was formed by the founders of B3i, a consortium created in late 2016 by 15 global insurers and reinsurers to explore and test the potential of blockchain in the insurance industry. B3i Services AG’s purpose is to provide insurance solutions on a blockchain platform that substantially improves efficiency across the value chain of the re/insurance industry. SCOR SE is one of the 13 founders and shareholders of the Swiss company B3i Services AG and holds, 7.94% of its registered share capital and voting rights of the Company.
01 SCOR GROUP Information about the SCOR Group 1.2.3. ORGANIZATIONAL STRUCTURE OF SCOR
SCOR SE also makes loans to its subsidiaries and issues them guarantees so that they can underwrite under favorable conditions, particularly by benefiting from its credit ratings. SCOR SE provides actuarial, accounting, legal, administrative, IT, internal audit, investment, and human resources support to Group subsidiaries. Finally, SCOR SE acts, as needed, as retrocessionaire for its two operational subsidiaries through annually renewed proportional and non proportional treaties which constitute the Group’s internal steering instrument through which it annually allocates capital
Each Hub has local, regional(1) and Group responsibilities, with the heads of each Hub reporting to the Group Chief Operating Officer, COO. Each Hub typically includes the following functions: Legal and Compliance, Information technology support, Finance, Human Resources and General Services. This organization enables: ◆ SCOR’s operational structures and support functions to be optimized by creating service platforms in charge of managing pooled resources, including information technology, human resources, legal and others in the Group’s main locations; ◆ several Group functions to be carried out and managed in geographical locations other than Paris in order to benefit fully from the competencies within different Hubs; and
See: ◆ Section 1.2.3 – Organizational structure of SCOR; ◆ Appendix C – 5.2.1 – Investments; ◆ Section 4.6 Note 22 – Related party transactions; ◆ Section 4.6 Note 2.1 – Significant subsidiaries, investments in associates and joint ventures; ◆ Section 4.7 – Information on holdings; ◆ Section 1.2.3.1 – Brief description of the Group and of the position of the issuer (regarding the role of SCOR towards its subsidiaries); ◆ Section 4.6 Note 3 – Acquisitions and disposals; ◆ Section 2.1.2 – Board of Directors (regarding the duties carried out in the subsidiaries by the managers of the Company); ◆ Section 2.1.4 – Executive Committee (regarding the duties carried out in the subsidiaries by the managers of the Company); and
(1) EMEA Hub: European countries including Russia, Middle East and Africa; Asia-Pacific Hub: Asia and Australia; Americas Hub: North America and latin America.
01 SCOR GROUP Information about the SCOR Group 1.2.4. RATINGS INFORMATION
On December 6, 2018, Fitch Ratings affirmed SCOR’s insurer financial strength rating at “AA-“ and long-term issuer default Rating at “A+”, as in the previous year. Fitch Ratings also affirmed the ratings of SCOR’s main subsidiaries. The outlooks remain stable.
On September 23, 2016, Moody’s upgraded SCOR’s insurance financial strength rating to “Aa3” from “A1”, and its subordinated debt rating to “A2” (hyb) from “A3” (hyb). According to Moody’s, this decision reflects the “Group’s improved franchise, its diversified business profile and lower exposure than peers to the segments currently under the most pricing pressure, a continued high stability of profits and strong and stable capitalization.”
In September 2016, SCOR launched its current three-year strategic plan, “Vision in Action”. This plan covers the period from mid-2016 to mid-2019. It respects SCOR’s four strategic cornerstones, which are: ◆ a strong franchise, achieved by: — deepening its presence in the local Non-Life and Life markets in which SCOR operates by strengthening client relationships through best-in-class services and product innovation, and
— further developing the Non-Life US franchise and expanding in fast-growing Asia-Pacific Life markets through organic growth; ◆ a high degree of diversification of Non-Life and Life business and geographical presence, providing more stable results and robust capital diversification benefits; ◆ a controlled risk appetite on both sides of the balance sheet; and
With “Vision in Action”, SCOR continues to focus on its two equally weighted strategic targets, profitability and solvency: ◆ a ROE above 800 basis points above the five-year rolling average of five-year risk-free rates over the cycle; ◆ an optimal solvency ratio in the 185-220% range (percentage of SCR, according to the internal model)(2).
It also affirms the Group’s consistent shareholder compensation policy set by SCOR’s Board of Directors. SCOR aims to remunerate shareholders through cash dividends, and if relevant, does not exclude special dividends or share buy-backs. Overall, the Board will aim to maintain a minimum dividend payout of 35% over the cycle, while pursuing low variation in the dividend per share from year to year.
(1) Sources: www.standardandpoors.com; www.ambest.com; www.moodys.com and www.fitchratings.com. (2) Ratio between the Eligible Own Funds (EOF) and the Solvency Capital Requirement (SCR).
Risk appetite defines the quantity of risk that SCOR is willing to accept to achieve a desired level of profitability. This determines where the Group wishes to position itself on the assumed riskexpected return spectrum, between extremely risk averse (low risk-low return) and extreme risk taker (high risk-high return). SCOR uses a target solvency ratio as well as a target expected profitability. These two components provide a comprehensive definition of its risk appetite. The Group actual solvency ratio and profitability profile are regularly reported to the Board of Directors via the Risk Committee.
Reinsurance has four essential functions: ◆ it offers the direct insurer greater security for its capital and solvency, as well as protection against the potentially high volatility of results when abnormally high frequency or severity of losses or events occur, by covering the direct insurer above certain contractually set amounts per event or in the aggregate; ◆ it allows insurers to increase the maximum amount they can insure for a given loss or series of losses by enabling them to underwrite a greater number of risks, or larger risks, without excessively raising their need to cover their solvency margin and, therefore, to increase their capital base; ◆ it gives insurers access to substantial available liquidity in the event of major loss events; and
Excess of loss reinsurance is often written in layers. One or a group of reinsurers accepts a tranche or layer of risk above the ceding company’s retention up to a specified amount, at which point another reinsurer or a group of reinsurers accepts the next layer of liability. The stacked layers protecting the same underlying portfolio are called a program, and after protection from the upper layer is exhausted liability reverts to the ceding company. The reinsurer taking on the risk immediately above the ceding company’s retention layer is said to write primary or working layer or low layer excess of loss reinsurance. A loss just above the ceding company’s retention will create a loss for the lower layer reinsurer, but not for the reinsurers on the higher layers. Loss activity in lower layer reinsurance tends to be more predictable than in higher layers due to greater historical frequency, and therefore, like quota share reinsurance, underwriters and actuaries have more data to price the underlying risks with greater confidence.
The Group organizes its operations around three regional management platforms, or “Hubs” named EMEA Hub, Asia-Pacific Hub and Americas Hub. Each main location of the Hubs has local,
SCOR’s cost center is referred to in this Registration Document as “Group Functions”. Group Functions is not an operating segment and does not generate revenues. The costs in Group Functions are Group-related and are not directly attributable to either the P&C or Life segment, but those costs that are indirectly attributable are allocated to the operating segments based on suitable allocation keys. Group Functions includes the cost of departments fulfilling duties for the benefit of the whole Group, such as Group Internal Audit, Group Finance departments (Tax, Accounting, Consolidation and Reporting, Financial Communication, Treasury and Capital Management, Financial Planning and Analysis), Group Chief Operating Officer departments (Legal and Compliance, Communication, Human Resources, Information Technology, Cost Controlling and Budgeting) and Group Chief Risk Officer departments (Actuarial, Risk Management, Prudential Affairs, Internal Modeling).
SCOR Global P&C and SCOR Global Life, through their respective legal entities, are leading global reinsurers, executing an underwriting policy focused on profitability, developing value-added services and adhering to a cautious financial policy. As at December 31, 2018, the Group served more than 4,000 clients throughout the world. SCOR’s strategy of offering both
SCOR’s Non-Life segment is divided into three business areas: ◆ Reinsurance; ◆ Specialties Insurance; ◆ P&C Partners.
◆ Motor: covering original risks of motor property damage and bodily injury.
◆ Casualty treaties: covering general liability, product liability and professional indemnity.
SCOR has been a global leader reinsuring Credit, Surety and Political risks for more than 40 years, providing underwriting capacity for: ◆ Domestic and Export Credit Insurance on short-term underlying trade credit periods and underlying policies.
Our clients and partners appreciate our consistent and longstanding approach to underwriting/pricing, along with our ability to share knowledge and expertise on a global basis throughout business, credit and financial cycles.
SCOR provides customized products and solutions tailored to local situations: ◆ Basic cover of construction damage caused by inherent defects in structural works;
◆ Tailored cover, including material damage caused by inherent defects in waterproofing works and/or in other specific parts of construction; ◆ Additional extensions to IDI policies such as waiver of subrogation against builders and consequential third party liability.
SCOR provides reinsurance and insurance solutions, from traditional insurance covers to bouquet multi-line structures, in all sectors of the Aviation market: airlines, aerospace, space treaty and general aviation.
With a consistent underwriting approach and substantial capacity, SCOR’s engineering team offers a broad and flexible range of reinsurance and insurance cover: Construction All Risks (CAR) and Erection All Risks (EAR) insurance, also advance loss of profits or delay in start-up following a CAR or EAR loss, contractors’ plant and machinery, electronic equipment, machinery, machinery loss of profits and combined machinery/electronic equipment and property.
To address the evolving needs of its clients and to reinforce its Tier 1 position in a rapidly changing risk ecosystem, P&C Partners, a global technical and expertise center, facilitates business development as well as synergies between underwriting teams.
Its dedicated decision-making committee provides rapid responses, promotes consistency and clear pathways for innovative ideas. It includes: ◆ Alternative Solutions focuses on the development of customized, non-traditional, and new products / solutions; ◆ Cyber Solutions helps corporate and insurance clients to develop Cyber insurance cover; ◆ Alternative Capital explores innovative retrocession tools and sourcing adequate capacity with optimal conditions; ◆ P&C Ventures and Strategic Partnership focuses on InsurTech investments, technical partnerships and expertise sharing.
SCOR GROUP Information about the SCOR Group 01 1.2.5.3. LIFE REINSURANCE
SCOR’s Global Life segment underwrites Life reinsurance business in the following product lines: ◆ Protection; ◆ Financial Solutions; ◆ Longevity.
Personal Accident insurance pays a lump sum benefit, if the insured person dies or is seriously injured as a result of an accident.
Financial Solutions combine traditional Life reinsurance with financial components providing liquidity, balance sheet, solvency and/or income improvements to the client. This type of reinsurance treaty is typically used by cedents to fund growth, stabilize earnings or optimize their solvency position (capital relief).
The proportion of brokered and direct business written by the Group’s subsidiaries varies according to market and cedent practices. For the year ended December 31, 2018, Non-Life wrote approximately 62% of gross written premiums through brokers and 38% through direct business, while Life wrote approximately 6% through brokers and approximately 94% through direct business.
The Group’s asset management mandate, assigned to SCOR Global Investments, consists of: ◆ proposing the macro-positioning of the invested assets portfolio in line with the approved risk appetite and risk limits, respecting a strict ALM process, economic and market expectations, accounting rules and a strict foreign exchange congruency matching between assets and liabilities; ◆ implementing the investment strategy; ◆ optimizing the absolute return on invested assets and focusing on the recurrence of yields while controlling their volatility. This objective is achieved through active and dynamic management of the portfolio, the identification of cycles and market opportunities and strict qualitative and quantitative risk management.
SCOR Investment Partners centralizes the management of all the assets of the Group entities, however in some jurisdictions, such management is delegated to external asset managers.
SCOR owns offices in Paris (France), Cologne (Germany), London (UK), Singapore and Madrid (Spain), where its local subsidiaries and branches have their corporate offices. Any surplus space is leased to third parties as part of SCOR’s investment management business. The Group leases office space for its other business locations. The Group believes that the Group’s offices in each country in which it operates are adequate for its current needs.
SCOR owns a 5,100 m2 office and retail leasehold building at 10 Lime Street in London. As at December 31, 2018, the building was occupied at 79% by SCOR for its London Hub office. The remaining space was rented to third parties. SCOR owns a second building in London at 32 Lime Street with a surface area of 1,800 m2 and fully occupied for its London Hub office.
SCOR Reinsurance Asia-Pacific PTE LTD owns several floors in a leasehold building in Singapore. The SCOR Singapore team occupy this office space.
For more information on the Group’s real estate, see Section 4.6 – Notes to the consolidated financial statements, Note 9.2 – Tangible assets and related commitments and Note 7.4 – Real estate investments.
◆ R&D Center for Medical Expenses: carrying out studies on portfolios, enhancing risk modeling for pricing, and providing support in setting assumptions for new business, in particular new products.
Supporting research and teaching is a core feature of the Group’s corporate responsibility policy. SCOR has for many years developed relationships with different kinds of institutions (foundations, associations, schools and universities, research centers), in various forms (corporate sponsorship, scientific research partnerships) and in a number of fields linked to risk, uncertainty, and reinsurance, both in France and abroad.
◆ SCOR Foundation for Science also supports research in key areas of risk analysis: climate risks and their insurability, coastal flood forecasting, natural risks to crops, modeling risks in general, Alzheimer’s disease, pandemics, emerging infectious diseases, genetic treatment of tuberculosis, modeling of life expectancy and mortality at extreme ages, the risks of meteorites, car insurance, pension funds, best practices in risk management, predictability of earthquakes, mathematics of extreme events, building of economic and financial expectations, international financial imbalances. The Foundation also participates in the development of actuarial practice in Tunisia and within the CIMA (Conférence Interafricaine des Marchés d’Assurance) zone.
SCOR and the SCOR Foundation for Science also organize Actuarial Awards in Europe (Germany, France, Italy, Spain and Portugal, Sweden, Switzerland and the United Kingdom), and in Asia (Singapore). The Group places great importance on the development of actuarial science and each year awards prizes for the best academic papers in the field of actuarial science. These prizes are designed to promote actuarial science, develop and encourage research in this field and contribute to the improvement of risk knowledge and management. The SCOR Actuarial Awards are recognized as a mark of excellence in the insurance and reinsurance industries. The winning papers are selected on the basis of criteria including an excellent command of actuarial concepts, the use of high-quality analysis instruments, and subjects that could have a practical application in the world of risk management.
In all areas, the modeling and analysis methods are getting gradually richer in Machine Learning & Artificial intelligence innovative technologies that actuaries can test through a test platform “Sandbox” which is made available to them to assess their new algorithms.
See Section 1.2.2 – History and development of SCOR, and Section 4.6 Note 3 – Acquisitions and disposals.
SCOR GROUP Market and financial review 01 1.3. MARKET AND FINANCIAL REVIEW
Non-Life reinsurance is a cyclical market estimated by various analysts at USD 160 to 170 billion of premium globally, covering property, casualty, financial, and specialty lines. The sector is exposed to volatility in the form of development of past reserves and large natural and man-made losses. Losses from natural disasters were above historical averages in both 2017 and 2018, which particularly affected property reinsurance. Demand for reinsurance has risen as a result of recent disasters and other factors, while the supply of reinsurance capital has risen slower than demand because reinsurers paid losses from their capital and some providers exited lines of business or reduced their risk appetite. Thus, on average, reinsurance pricing has risen for contracts incepting in 2018 and 2019. Generally benign macroeconomic conditions over the past year have helped the sector.
Linked to these movements, the credit markets suffered from a general widening of spreads, with the global investment grade index spreads against government securities rising from 0.97% to 1.58%, while global high-yield index spreads against government securities rose from 3.49% to 5.40%.
01 SCOR GROUP Market and financial review 1.3.3. SIGNIFICANT EVENTS OF THE YEAR
On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was enacted, reducing the statutory rate of US federal corporate income tax to 21% effective January 1, 2018. This reduction resulted in the remeasurement of US deferred taxes at 21% recognized in 2017.
In 2018, SCOR has assessed the TCJA implications, in particular with respect to certain complex provisions including the Base Erosion and Anti-Abuse Tax («BEAT»). SCOR has implemented an alternate business structure to adapt to the new environment by establishing a new Irish entity, SCOR Life Ireland, which is treated as a US taxpayer.
On August 24, 2018, Covéa sent a letter to SCOR proposing to initiate discussions relating to an unsolicited project of Covéa to acquire a majority stake in SCOR’s share capital and voting rights, by way of a tender offer. The conditions for the implementation of this project set forth in Covéa’s letter included notably the favorable recommendation by the Board of Directors of SCOR and the execution of a business combination agreement with SCOR. On August 30, 2018, SCOR’s Board of Directors reviewed the terms and conditions of this unsolicited proposal in detail and determined that it reflected neither the intrinsic value nor the strategic value of SCOR and it would be put into question SCOR’s independence which is a key factor in SCOR’s status as a Tier 1 reinsurer with its clients and the financial strength and flexibility which has been acknowledged by its AA ratings. SCOR’s Board of Directors also noted that this project was met with unanimous opposition from SCOR’s Executive Committee. Consequently, the Board of Directors of SCOR unanimously decided not to initiate discussions with Covéa and reaffirmed its complete trust in SCOR’s management to continue to create value.
On November 13, 2018, Thierry Derez resigned from SCOR’s Board of Directors following multiple reminders by SCOR of the situation of conflicts of interests that affected him and the opinion rendered on October 30, 2018 by the Haut Comité de Gouvernement d’Entreprise, which confirmed SCOR’s position in all respects.
On January 29, 2019, SCOR announced that it had decided to initiate legal actions against in particular Thierry Derez and Covéa in relation to the misconduct committed to the detriment of SCOR, in the context of the preparation and submission by Covéa of its unsolicited proposed combination with SCOR. These legal proceedings are described in Section 4.6 – Notes to the consolidated financial statements, Note 26 – Subsequent events.
SCOR Europe SE benefits from the SCOR Group’s financial strength, which is recognized by the rating agencies. S&P in particular has assigned SCOR Europe SE an AA- rating.
On June 1, 2018, as part of its policy of diversifying its capital protection tools, SCOR sponsored a new catastrophe bond (“catbond”), Atlas Capital UK 2018 PLC, which provides the Group with multi-year risk transfer capacity of USD 300 million to protect itself against named storms in the US, earthquakes in the US and Canada, and windstorms in Europe. The risk period for Atlas Capital UK 2018 will run from June 1, 2018, to May 31, 2022.
The coupon for this new USD placement has been set at 5.25%, until the first call date of March 13, 2029, and resets every 5 years thereafter at the prevailing 5-year US Treasury yield plus 2.37% (no step-up). The notes were swapped into EUR for an 11-year period providing an effective yield cost to SCOR of 2.95%, corresponding to a 177-basis point spread over the 11-year EUR mid-swap rate.
In June 2018, SCOR redeemed the CHF 315 million undated subordinated notes, using the proceeds of the newly issued deeply subordinated Tier 1 Notes.
The acquisition of MutRé S.A., which will have an accretive impact on SCOR’s return on equity and earnings per share, is in line with the strategic plan “Vision in Action” and its profitability and solvency targets. This acquisition fully respects SCOR’s close historical relationships with its mutual insurance partners. The acquisition of MutRé S.A. will enable SCOR to strengthen its Life & Health reinsurance offering to the French mutual insurance industry.
SCOR SE and its consolidated subsidiaries formed the world’s fifth largest reinsurer(1) serving more than 4,000 clients.
The Group’s financial data are presented in Section 1.1 – Selected financial information and in Section 4 – Consolidated financial statements. The commentary below is based on the financial data presented in the aforementioned sections.
SCOR is characterized by its strategic positioning aimed at diversifying its exposures. To this end, the Group seeks to preserve: ◆ the diversification of its business by maintaining a broadly balanced split between its Life and Non-Life reinsurance activities. The business volume split for the year ended December 31, 2018 was approximately 60% for Life reinsurance and 40% for Non-Life reinsurance based on gross written premiums; ◆ the geographic diversification of the Group’s business by: — operating in a large number of countries, both mature and emerging,
◆ the diversification of underwritten risks by product lines in Life reinsurance (Protection, Financial Solutions, Longevity) and in Non-Life reinsurance (Specialties Insurance, Reinsurance and P&C Partners).
See Section 4.6 – Notes to the consolidated financial statements, Note 4 – Segment information, for further details on the results of the reportable segments.
The impact of alternative retrocession coverage, Atlas IX 2015 and 2016 catastrophe bonds (SCOR Global P&C) and Atlas IX mortality risk transfer contract (SCOR Global Life) (see Section 3.3.5 – Retrocession and other risk mitigation techniques) are not included in the net cost of retrocession as the products are accounted for as derivatives.
Other “operating income“ includes a recovery of EUR 23 million on Atlas IX 2015-1 related to 2017 HIM’s events (hurricanes Harvey, Irma and Maria).
The Group cost ratio calculated as the total of all management expenses less certain non-controllable expenses (e.g. bad debts), legal settlements, acquisition expenses and amortization, divided by gross written premiums, was 5.0% for the year ended December 31, 2018, unchanged from 5.0% in 2017 and 2016. Management expenses for the years ended December 31, 2018, 2017 and 2016 were EUR 893 million, EUR 858 million, and EUR 815 million respectively, on a comparative basis.
Operating result before impact of acquisitions for the year ended December 31, 2018 amounted to EUR 632 million as compared to EUR 491 million in 2017 and EUR 951 million in 2016. The increase between 2017 and 2018 is notably due to the lower severity of natural catastrophes. For the year ended December 31, 2018, the operating segment SCOR Global Life contributed EUR 371 million (EUR 342 million and EUR 396 million in 2017 and 2016, respectively) and SCOR Global P&C EUR 393 million (EUR 265 million and EUR 680 million in 2017 and 2016, respectively) to the operating result. In 2018, 2017 and 2016, EUR (132) million, EUR (116) million and EUR (125) million respectively, related to Group functions. A gain from bargain purchase of EUR 26 million related to the acquisition of MutRé was recognized in 2018.
2016 operating income benefited from the strong technical performance of SCOR Global Life and the robust profitability of SCOR Global P&C.
The consolidated net income was also impacted by a tax expense of USD 81 million (EUR 68 million) resulting from the the Tax Cuts and Jobs Act (the “TCJA”). Excluding the impact of the US tax reform, SCOR’s group net income for 2018 would have amounted to EUR 390 million. See Section 1.3.3 – Significant events of the year.
SCOR Global P&C has had a strong growth in 2018, supported by renewals in line with the Group’s strategic plan “Vision In Action”, benefiting from improved pricing for its reinsurance programs as well as improvements in the insurance market environment through its Reinsurance and Specialties Insurance activities. Despite a year marked by natural catastrophes, SCOR Global P&C confirms its position as a leading reinsurer, in particular thanks to an efficient portfolio management policy.
2017 has been marked by an exceptional series of large natural catastrophes that occurred during the 2nd half of the year. The in-force retrocession programs have responded as expected, bearing witness to the SCOR Global P&C efficient capital shield policy. Despite these events and an increasing competition in the market since last year, the “Vision in Action” objectives are confirmed thanks notably to January 2017 renewals and strengthening of initiatives undertaken in 2016.
The January 2016 renewals were characterized by a market environment that shows some signs of levelling out for certain types of contracts and exposures, but where competition regained some momentum since the very end of 2015. SCOR Global P&C continued to find pockets of profitable new business, counterbalancing the premium reductions caused by increased selectivity and heightened portfolio management, thereby maintaining overall expected profitability. This has been made possible by a combination of several factors, such as the successful deployment of the client-focused initiative in the US, and having developed the right culture and the right tools to manage global client relationships and steer business in real time.
In 2018, gross written premiums increased by 2.5% compared to 2017 from EUR 6,025 million to EUR 6,175 million. At constant exchange rates the growth is 6.7% and is consistent with the trend indicated after January 2018 renewals.
In 2017, gross written premiums increased by 6.9% compared to 2016 from EUR 5,639 million to EUR 6,025 million. At constant exchange rates the growth was 8.8% and was consistent with the trend indicated after January 2017 renewals, driven by Property and Casualties treaties.
SCOR Global P&C achieved a net combined ratio(1) of 99.4% in 2018 against 103.7% in 2017 and 93.1% in 2016.
In 2016, the net combined ratio reflected very strong technical results, with a decreasing net attritional loss ratio (54.1% compared to 56.9% in 2015) despite higher natural catastrophes compared to 2015. Natural catastrophes had a 5.5% impact on the Group net combined ratio for year-end 2016 compared to a 2.2% impact in 2015 and a 4.2% impact in 2014.
Number of catastrophes occurred during the financial year 24(3) 17(5) 18(7)
Losses and loss adjustment expenses due to catastrophes, gross 901 1,363 355
Losses and loss adjustment expenses due to catastrophes, gross 4(4) 12(6) (32)(8)
Number of catastrophes occured during current and previous financial years 31(4) 19(6) 32(8)
(1) The net loss ratio is calculated by dividing Non-Life claims (including claims arising from natural catastrophes) by Non-Life premiums earned. This ratio is net of retrocession (See Section 1.3.9.5 – Net combined ratio). The natural catastrophe ratio is determined by dividing the losses due to catastrophes (net of retrocession) by the net earned premiums (see Section 1.3.9.5 – Net combined ratio); i.e. for 2018: EUR 656 million divided by EUR 5,216 million, equaling a ratio of 12.6%.
California Fire, Friederike storm, Papua New Guinea Earthquake, Ituango heavy rains, Italian Storms, Kilauea vulcanic eruption in Hawai, floods in Japand and Kerala, Cyclone Mekunu, Northern Osaka Earthquake, US storms in May and July, Carr Wildfire in California and Swedish wildfires, Ontatio windstorm and Sydney hailstorms.
(8) Including developments on UK Flooding, Chennai Floods (India), US Northeast Winterstorms, Storm Niklas, US South and Midwest Weather, Chile Earthquake 2015, Typhoon Rainbow/Mujigae, Italy Snow & Windstorm, South Carolina Floods, Chilean Storm and Mudslides and Texas and Oklahoma Heavy Rain.
(1) These figures do not take into account the late information received on typhon Jebi and that do not have any impact on the Group financial statements as mentioned in Section 4.6 – Notes to the consolidated financial statements, Note 15.1 – Net contract liabilities, SCOR Global P&C.
In 2017, SCOR was affected by the following catastrophes which resulted in total net estimated losses of EUR 768 million as at December 31, 2017: In EUR millions Cat losses Date of loss
Adjusted Estimated loss net of retrocession as at December 31, 2018
In 2016, SCOR was affected by the following catastrophes which resulted in total net estimated losses of EUR 307 million as at December 31, 2016: In EUR millions Cat losses Date of loss
Other natural catastrophes (less than EUR 10 million) 36 41 44 1.3.5.3. SCOR GLOBAL LIFE
In 2018, SCOR Global Life continued to grow profitably in a competitive Life reinsurance market. The solid operating profitability of SCOR Global Life was maintained thanks to a robust flow of new business and expansion of franchise in various key regions and product lines, including the acquisition of MutRé SA. The US in-force book contributed with a robust performance given the strong reserve position set up at the time of the Transamerica Re and Generali US acquisitions and the successful repricing of individual reinsurance treaties, despite underlying US mortality claim experience being higher than expected. Both claim expenses and in-force management actions may vary over time.
SCOR Global Life ranks among the top four life reinsurers worldwide(1) and has grown by 3.6% in gross written premiums from EUR 8,764 million in 2017 to EUR 9,083 million in 2018 (a 7.3% increase at constant exchange rates(2)). SCOR Global Life has increased its new business premiums from new clients and with existing clients in all three regions and across all three product lines. Growth was recognized in the Protection product line in Americas, in the Financial Solutions product line in Asia-Pacific and in the Longevity product line in Europe.
Asia-Pacific remains a region with significant growth opportunities both in terms of premiums and profitability. Premiums development in Asia-Pacific was driven by higher business volumes for Protection and Financial Solutions mainly in China, Australia, South Korea and India.
◆ Mortality protection: 55% of SCOR Global Life’s portfolio is traditional mortality reinsurance business, based on 2018 gross written premiums. SCOR Global Life developed a strong position in Mortality in the US, as well as in the major European markets.
◆ Long-Term Care: SCOR Global Life has been pioneering LTC reinsurance solutions in the French market for twenty years, and has acquired a sound practical experience in the underwriting and the management of LTC risks.
◆ Critical Illness: SCOR Global Life is a market leader in the UK. It also leverages its experience and expertise from the UK to expand into selected Asian markets and South Africa.
◆ Personal Accident also represents a small proportion of SCOR Global Life’s portfolio. A main source of Personal Accident business for SCOR Global Life is obtained through its distribution services company, ReMark, which provides direct marketing of life insurance products to insurers, financial institutions and affinity partners.
The return on invested assets in 2018 was 2.8% as compared to 3.5% in 2017 and 2.9% in 2016. The evolution of investment income in 2018 is essentially driven by higher investment revenues and by the active portfolio management strategy implemented by SCOR Global Investments, which translated into substantial realized capital gains of EUR 123 million, mostly achieved on the equity portfolio and to a lesser extent on the real estate portfolio, which had in 2017 benefited from a higher realized gain on sale.
The following table presents a reconciliation of these figures with the IFRS figures as presented in Section 4.6 – Notes to the consolidated financial statements, Note 18 – Investment income.
Return on invested assets (ROIA as a %) 2.8% 3.5% 2.9%
(1) Investment revenues on invested assets are presented net of EUR 2 million real estate revenues attributable to 3rd parties and net of EUR 2m revenues related to investments not held for investment purposes.
(3) Net of EUR (2) million impairments on certain types of equities not held for investment management purposes. (4) Impairment/depreciation of real estate is presented net of EUR (5) million impairment/depreciation attributable to 3rd parties. (5) Fair value through income on invested assets includes EUR (12) million investment income from other consolidated entities. (6) Real estate financing expenses relate to real estate investments (buildings owned for investment purposes) only, net of financing expenses attributable to 3rd parties.
(8) Income/(expenses) on technical items include (1), (2), (3) and (4) amongst other technical items.
During 2018, invested assets increased to EUR 19,153 million from EUR 18,580 at December 31, 2017, mainly as a result from positive FX impacts and positive income generated by the invested assets portfolio in 2018, partially offset by negative mark-to-market development net of realized gains. The negative mark-to-market development primarily results from the increase in interest rates that impacted the valuation of the fixed-income portfolio.
SCOR announced its current investment strategy in September 2016, as part of its “Vision in Action” strategic plan. During the three-year period covered by the strategic plan SCOR intends to achieve higher investment returns through a normalization of its asset management policy, consisting in (i) reducing liquidity to 5%, (ii) closing the duration gap by the end of the strategic plan by increasing invested assets’ duration and (iii) providing additional degrees of freedom in the Strategic Asset Allocation.
Consistent with “Vision in Action”, SCOR Global Investments has finalized the repositioning of the investment portfolio in 2018, according to objectives defined for the strategic plan. Liquidity, defined as SCOR’s share of cash and cash equivalents and short-term government bonds (with maturities above three months and below twelve months) and bank overdrafts, was kept at the target level of 5% of invested assets as at December 31, 2018, stable compared to 5% as at December 31, 2017.
Meanwhile, SCOR further rebalanced its invested assets portfolio towards its target asset allocation, and increased its exposure to corporate bonds, representing 49% of invested assets at the end of 2018 compared to 46% at the end of 2017. Over the same period, government bonds and assimilated were kept at 24% of invested assets and covered bonds and Agency MBS decreased from 10% to 8%. The fixed income portfolio continues to represent a significant portion of SCOR’s invested assets with 82% invested within this asset class (as at year end 2017: 81%), and an average rating at “A+” at the end of 2018. The duration of the fixed income portfolio stood at 4.3 years at the end of 2018 compared to 4.6 years at the end of 2017.
SCOR’s exposure to loans increased to EUR 878 million as at December 31, 2018 and stands at 5% of invested assets (as at December 31, 2017: EUR 724 million, representing 4% of invested assets).
SCOR’s exposure to equity securities decreased to EUR 355 million as at December 31, 2018, representing 2% of invested assets (as at December 31, 2017: EUR 645 million, representing 3% of invested assets). This exposure is essentially composed of convertible bonds and listed equities.
Other investments, comprising mainly Insurance-Linked Securities (ILS), private equity and infrastructure funds and non-listed equities slightly decreased to EUR 486 million as at December 31, 2018 and represent 3% of invested assets (as at December 31, 2017: EUR 494 million, 3% of invested assets).
The following table presents a reconciliation of these figures with the IFRS amounts as presented in Section 4 – Consolidated financial statements: As at December 31, 2018
(1) Including Atlas CAT bonds and foreign exchange derivatives. (2) Loans and receivables excluded from invested assets are certificates of deposit (CDs) maturing in more than three months and less than twelve months. (3) Assets invested by third parties in mutual funds and non-controlling real estate investments fully consolidated by SCOR. (4) Certain consolidated entities held for investment purposes have been included in the scope of Invested Assets in Q3 2017. (5) Fair value less carrying amount of real estate investments excluding EUR 5 million attributable to third-party investors. (6) Real estate financing related to real estate investments (buildings owned for investment purposes) excluding EUR 30 million attributable to third-party investors.
Available-for-sale financial assets - 15,199 1,088 430 125 129 16,971 - 16,971 118 - 17,089
Direct real estate unrealized gains and losses(4) - - - - 152 - 152 - 152 - - -
(1) Including Atlas CAT bonds, mortality swap and FX derivatives. (2) Other loans and receivables excluded from invested assets are certificates of deposit (CDs) maturing in more than three months and less than twelve months included in short-term investments as well as infrastructure loans and real estate loans.
01 SCOR GROUP Market and financial review 1.3.6. FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES
Book value per share(1) stood at EUR 31.53 at December 31, 2018 compared to EUR 33.01 and EUR 35.94 at December 31, 2017 and 2016, respectively.
Some of the letters of credit granted by SCOR to cedents require 100% collateral coverage in case of non-compliance with financial covenants or in case of a decrease in the Group’s financial strength rating. For example, the Group and its companies are subject to minimum net worth requirements and maximum debt levels under the terms of certain stand-by letter of credit agreements. Non-respect of these covenants could lead to an increase in the percentage of required collateralization.
The Group is regulated by the “Solvency II” European Directive which applies since January 1, 2016. For more details on solvency regulations, see Section 1.2.1 – Introduction.
SCOR’s internal model is used extensively to help to prepare management decisions which involve risk management or solvency considerations. The solvency position of the Group is monitored on SCOR’s dynamic solvency scale which defines SCOR’s solvency target – the “optimal range” being between 185% and 220% – as well as the various management actions to be taken depending on the solvency position, as shown below. The Solvency scale is well established and has been confirmed by the strategic plan Vision in Action.
For further information on risk management mechanisms, see Section 3 – Risk factors and risk management mechanism and Appendix A – Internal control and risk management procedures.
Positive operating cash flows amounted to EUR 891 million in 2018 (2017: EUR 1,144 million and 2016: EUR 1,354 million, respectively). In 2018, SCOR Global P&C provided strong operating cash flows globally in line with 2017. The decrease of technical operating cash flows in 2018 compared to 2017 for SCOR Global Life is mainly due to positive one-off impacts in 2017. In 2017, SCOR Global P&C provided strong cash flow in line with expectations, despite of having commenced payments on Q3 2017 cat events. SCOR Global Life showed elevated technical business cash flow in the last quarter of 2017 due to two large transactions. In 2016, strong recurring cash flows were generated and one exceptional item occurred: SCOR Global P&C received a non-recurring funds withheld settlement of approximately EUR 301 million.
Net investing cash flow amounted to EUR (101) million in 2018, (EUR (1,280) million in 2017 and EUR (368) millon in 2016). In 2018 cash flows used in investing activites were mainly composed of acquisitions of tangible and intangible assets, while in 2017 they were mainly composed of acquisitions and disposals of other business investments.
See Section 4.4 – Consolidated statement of cash flows and Section 4.6 – Notes to the consolidated financial statements, Note 4 – Segment information for an analysis of the main cash flow statement items and Note 11 – Cash and cash equivalents, for a reconciliation between consolidated net income and operating cash flows, and between cash and cash equivalents and Group’s total liquidity.
(1) Average investments are the quarterly averages of the total investments as per the “Invested assets” reconciliation table included in Section 1.3.5.4 – Net investment income and investment income on invested assets, adjusted for ceded funds withheld.
Return on equity (ROE) is based on the Group’s share of net income divided by average shareholders’ equity (calculated as time weighted average shareholders’ equity).
Consolidated net income – Group share – before US tax reform impact(1) 390 286 603
The commission ratio is calculated by dividing Non-Life reinsurance commissions by Non-Life premiums earned. This ratio is net of retrocession.
(1) In 2017, the net combined ratio calculation has been refined to exclude some immaterial non-technical items that were previously included. Considering their potential growth, these items have been excluded to ensure they do not distort the net combined ratio in the future. The impact on the previously reported ratio is +0,26%pt as at December 31, 2016.
Throughout the period of validity of the Registration Document, the bylaws and any other document required by law may be consulted and are freely available upon request from the registered office of the Company at 5 avenue Kléber, 75116 Paris, France.
02 REPORT ON CORPORATE GOVERNANCE Corporate governance principles, Shareholders’ Meetings, corporate officers, executives, employees, information required by article L. 225-37-5 of the French Commercial Code 2.1. CORPORATE GOVERNANCE PRINCIPLES, SHAREHOLDERS’ MEETINGS, CORPORATE OFFICERS, EXECUTIVES, EMPLOYEES, INFORMATION REQUIRED BY ARTICLE L. 225-37-5 OF THE FRENCH COMMERCIAL CODE
SCOR SE’s shares are listed on the Eurolist from Euronext Paris SA and on the Six Swiss Exchange (previously SWX Swiss Exchange) in Zürich since August 8, 2007.
In accordance with European law governing European Companies and applicable French law, the principal responsibility of the Board of Directors is to define the strategic orientations of the Company, to ensure their implementation and to monitor management’s performance. The Chairman and Chief Executive Officer (Président et Directeur Général) of SCOR SE has authority to manage the business of the Company, subject to the prior authorization of the Board of Directors or the Shareholders’ Meeting for certain decisions as required by law and by the Company’s bylaws (statuts) and subject to the Code des assurances which prescribes that at least two persons shall effectively run the Company.
Date of first appointment: November 4, 2002 Expiration of term: 2021
◆ Member of the Supervisory Board of Yam Invest N.V. (Netherlands)
Member of the Strategic Committee and Corporate Social and Societal Responsibility and Environmental Sustainability Committee
◆ Chairman of the Board of Directors of Établissement public du domaine national de Chambord (France)
◆ Member of the Board of Directors of Airport Council International (ACI) Europe (Belgium)
◆ Director and Vice-Chairman of the Board of Directors of TAV Tepe Akfen Insaat Ve Isletme A.S. (TAV Construction) (Turkey)
French – Age: 41 – BNP Paribas, 20, avenue Georges-Pompidou, 92300 Levallois-Perret, France
◆ Member of the Management Board in charge of the Group finance, strategy, legal affairs and Group company secretary of BPCE Group (France)
◆ Permanent representative of BPCE, director of Crédit Foncier de France (France)
◆ Permanent representative of CE Holding Promotion, director of Nexity (France)*
◆ Permanent representative of BPCE, Chairman of the SAS and Chairman of the Board of Directors of BPCE Domaines (France)
◆ Permanent representative of GCE Participations, director of Demain SA (France)
Marguerite Bérard, a French citizen, is a graduate of the Institut d’Études Politiques de Paris, of Princeton University (Woodrow Wilson School of International and Public Affairs), and a former student at the École Nationale d’Administration (ENA). She began her career in 2004 as an auditor at the French Treasury in the Inspection Générale des Finances. From 2007 to 2010, she was an advisor to the President of the French Republic on employment and social affairs. From November 2010 to May 2012, she was the Chief of Staff of the French Minister for social affairs. Then, she joined BPCE Group and was appointed Deputy Chief Executive Officer, member of the General Management Committee in charge of Strategy, Legal Affairs, the Group Company Secretary’s Office and Compliance. In May 2016, she was appointed member of the Management Board of BPCE, in charge of the Finance, Strategy, Legal Affairs and Group Company Secretary of BPCE Group. Marguerite Bérard joined the management team of BNP Paribas in January 2018. After an interim period, she is now in charge of the French retail banking and is a member of the Group Executive Committee. She is member of the Steering Committee of Institut Montaigne.
◆ Director of l’Association pour la promotion de la retraite et de l’épargne des français (PERF) (France)
◆ Partner and member of the Executive Committee of the law firm Simont Braun SCRL (Belgium)
Bruno Pfister, a Swiss citizen, lawyer at the Geneva Bar and MBA graduate from UCLA Anderson School of Management, is, since December 2014, Chairman of the Board of Directors of Rothschild & Co Bank AG. He was Vice-Chairman of the Swiss Insurance Association, Group Chief Executive Officer and Chairman of Swiss Life AG, member of the Executive Committee of Crédit Suisse Banking and Chief Financial Officer and member of the Executive Board of LGT Groupe AG.
POSITIONS THAT EXPIRED DURING THE LAST FIVE YEARS ◆ Vice-Chairman and member of the Supervisory Board of Macifimo ADB, formerly GPIM (France) ◆ Member of the Executive Board and member of the Board of Macif and Vice-Chairman of Gema (France) ◆ Chairman of Inter Mutuelles Solutions ex Macifilia Courtage (France) ◆ Chief Executive Officer of Macifilia (France) ◆ Chief Executive Officer of Sferen (France) ◆ Member of the Management Board of Macifin’ (France) ◆ Member of the Management Board of Mutavie (France) ◆ Director of Sferen (France) ◆ Director of Macif Mutavie Finance (GIE) (France) ◆ Director of Socram Banque (France) ◆ Director of BPCE Assurances (permanent representative of Macif) (France) ◆ Director of OFI Asset Management (France) ◆ Director of Ofivalmo Partenaires (permanent representative of Macif) (France) ◆ Member of the Executive Committee of Siil (France) ◆ Member of the Steering Committee of Sipemi (permanent representative of Macif) (France) ◆ Director of Thémis (permanent representative of Macifilia) (France) ◆ Director of Euresa Holding (Luxembourg) ◆ Manager of GEIE Euresa (Belgium)
OTHER POSITIONS ◆ Chief Executive Officer of Malakoff Médéric Assurances (France) ◆ Chairman of SAS Totem MM3 (France) ◆ Chairman of SAS Totem MM4 (France) ◆ Director of Quatrem (France) ◆ Director of Auxia (France) ◆ Director of Auxia Assistance (France) ◆ Permanent Representative of Malakoff Médéric Prévoyance at the Board of Directors of OPPCI Vivaldi (France) ◆ Permanent Representative of Malakoff Médéric Assurances at the Supervisory Board of La Foncière Hospi Grand Ouest (France) ◆ Sole director of GIE SI2M (France) ◆ Chief Executive Officer of SGAM Malakoff Médéric (France) ◆ Chief Executive Officer of La Caisse Mutuelle Assurance sur la Vie “CMAV” (France) ◆ Chief Executive Officer of Malakoff Médéric Prévoyance (France) ◆ Chief Executive Officer of Institution Nationale de Prévoyance des Représentants “INPR” (France) ◆ Chief Executive Officer of Capreval (France) ◆ Chief Executive Officer of Malakoff Médéric Retraite AGIRC (France) ◆ Chief Executive Officer of Malakoff Médéric Retraite ARRCO (France) ◆ Chief Executive Officer of Malakoff Médéric Mutuelle (France) ◆ Chief Executive Officer of Énergie Mutuelle (France) ◆ Chief Executive Officer of Malakoff Médéric Groupement Assurantiel de Protection Sociale (France) ◆ Chief Executive Officer of l’AS2M (France) ◆ Chief Executive Officer of l’Association Sommitale Malakoff Médéric Humanis (France) ◆ Chief Executive Officer of l’Association de Moyens Assurances (France) ◆ Chief Executive Officer of l’Association de Moyens Retraite (France) ◆ Chief Executive Officer of Malakoff Médéric Innovation Santé (France) ◆ Chief Executive Officer of l’UGM Agilis (France) ◆ Chief Executive Officer of SGAM Malakoff Médéric Humanis (France) ◆ Chief Executive Officer of SGAPS Humanis Développement Solidaire (France) ◆ Chief Executive Officer of Humanis Prévoyance (France) ◆ Chief Executive Officer of Caisse de retraite pour la France et l’extérieur (France) ◆ Chief Executive Officer of the Institution de retraite des cadres et assimilés de France et de l’extérieur (IRCAFEX) (France) ◆ Chief Executive Officer of Humanis retraite Arrco (France) ◆ Chief Executive Officer of Humanis retraite Agirc (France) ◆ Operational Manager of Mutuelle Humanis Nationale (France) ◆ Chief Executive Officer of l’Association Sommitale du Groupe Humanis (France) ◆ Chairman and Chief Executive Officer of l’Association Totem 1 (France) ◆ Chairman and Chief Executive Officer of l’Association Totem 2 (France) ◆ Chairman and Chief Executive Officer of l’Association Totem 3 (France) ◆ Director of La Fondation Malakoff Médéric Handicap (France)
Member of the Strategic Committee, Risk Committee and Crisis Management Committee
British – Age: 50 – SCOR SE, 5, avenue Kléber, 75116 Paris, France
◆ Member of the Supervisory Board of Bank Gutmann AG (Austria)
Member of the Strategic Committee, Risk Committee, Compensation and Nomination Committee and Corporate and Social Responsibility and Environmental Sustainability Committee
◆ Chairman of the Board of Directors of GENERALI IARD (France)
◆ Chairman of the Board of Directors of Generali Vie (France)
◆ Member of the Supervisory Board of Generali Investments SpA (Italy)
Claude Tendil, a French citizen, began his career at the Union des Assurances de Paris (UAP) in 1972. He joined the Drouot Group in 1980 as Chief Operating Officer. He was promoted in 1987 to Chief Executive Officer, before being appointed Chairman and Chief Executive Officer of Présence Assurances, a subsidiary of the AXA Group. In 1989, he was appointed Director and Chief Executive Officer of AXA-Midi Assurances, Chief Executive Officer of AXA from 1991 to 2000, then Vice-Chairman of the Management Board of the AXA Group until November 2001. During this same period, he was also Chairman and Chief Executive Officer of the AXA Group’s French insurance and assistance companies. Claude Tendil was appointed Chairman and Chief Executive Officer of the Generali Group in France in April 2002 until October 2013, when he became the Chairman of the Board of Directors, holding this position until June 2016.
Wang Zhen, a Chinese citizen, holds a BA degree from the Beijing Normal University, and is a Fellow of the Chartered Insurance Institute (FCII). She began her insurance career in 1982 by joining PICC, the insurance monopoly then, and became the General Manager of International Department in 1996 upon PICC becoming PICC Group. From 1997 to 2016, she worked for Munich Re, was the Chief Representative of MR Beijing, the Chief Executive of MR Beijing Branch, the Board member of MR Greater China Advisory Board respectively. From 2014, she has been the Independent Director of Bank of China Insurance Company in China. From 2017, she is also the Independent Director of Trust Mutual Life Insurance Company in China.
Chairman of the Corporate and Social Responsibility and Environmental Sustainability Committee
◆ Non-executive Member of the Board of the Department of Digital, Culture, Media and Sport of the UK Government (UK)
◆ Member of the Board of HMG Ministry of Justice (UK)
◆ Member of the Board of the Batten School of Leadership, University of Virginia (US)
2019 3 years ◆ Chairman of the Compensation and Nomination Committee
Zhen WANG 62 Female Chinese 246 0 Yes April 26, 2018 2020 < 1 year ◆ Member of the Strategic Committee
British 2019 5 years ◆ Chairman of the Corporate Social and Societal Responsibility and Environmental Sustainability Committee
On the basis of proposals made by the Compensation and Nomination Committee, the Board of Directors has established a number of guiding principles including, in particular maintaining the Board’s broad expertise, its international character, the diversity of the director profiles and genders and a predominant share of independent directors. These guiding principles, similar to those that led to the appointment of Mr. Jean-Marc Raby, Mr. Augustin de Romanet, Mrs. Kory Sorenson and Mrs. Fields Wicker-Miurin as directors, governed the Board’s decision, on the proposal of the Compensation and Nomination Committee on January 31, 2019, to propose the renewal of their mandates. These four directors have also been re-assessed regarding their skills, honorability and independence. As part of its decision, the Board also noted that these four directors had an attendance rate close to 100% since their respective first appointments.
Denis KESSLER (Chairman and Chief Executive Officer) X X X X X X X X X
Malakoff Médéric Assurances, represented by Thomas SAUNIER X X X X X X X X X
Kory SORENSON X X X X X X X X X
Claude TENDIL X X X X - X - X X
Fields WICKERMIURIN X X X X X X X X X
02 REPORT ON CORPORATE GOVERNANCE Corporate governance principles, Shareholders’ Meetings, corporate officers, executives, employees, information required by article L. 225-37-5 of the French Commercial Code 2.1.3.3. COMPOSITION OF THE BOARD OF DIRECTORS
SCOR SE’s bylaws provide that the Board of Directors shall comprise no fewer than nine and no more than eighteen members.
Under SCOR SE’s bylaws, each director must own at least one ordinary share for the duration of his or her entire term of office, and under the Board Internal Charter, each director shall agree to acquire shares with a value of at least EUR 10,000 and to hold them throughout his or her term as director. Under French law, a director may be a natural person or a corporate entity for which an individual is appointed as permanent representative, except for the Chairman, who must be an individual. Pursuant to Article L. 225-20 of the French Commercial Code, the permanent representative of a corporate entity is subject to the same conditions, obligations and civil and criminal liabilities as if he or she was director in his or her own name, without prejudice to the joint and several liability of the corporate entity he or she represents. Of the twelve members of the Board of Directors, eleven are natural persons and one, Malakoff Médéric Assurances, is a corporate entity (represented by Thomas Saunier as permanent representative).
◆ 45.4% are women (41.7% as at December 31, 2017). The composition of the Board of Directors is therefore compliant with applicable law.
Thus, for several years now, SCOR has been complying with the legal requirements and those of the AFEP-MEDEF Code in terms of diversity. Indeed, in its composition, the Board of Directors of SCOR makes sure to maintain a balanced representation between men and women, as well as a balance between age and seniority of the members on the Board. It also ensures, on the basis of a skills matrix, that directors have varied and complementary experience and skills. This allows a great openness during debates and a better quality in the decision-making process at the Board level. Given the global dimension of the Group, a strong diversity of nationalities is also sought.
At the Shareholders’ Meeting held on April 27, 2017, SCOR changed its bylaws in order to introduce new rules for the election of the employee director, pursuant to articles L. 225-27-1-V and L. 225-27 of the French commercial Code. The employee director is now elected by the employees of SCOR SE and its direct and indirect subsidiaries whose head office are in France. The mandate of the employee director elected pursuant to these new rules began at the end of the Ordinary and Extraordinary Shareholders’ Meeting held in April 2018.
Changes in the composition of the Board of Directors during the year
The following table displays the changes in the composition of the Board of Directors, during the year: Name 1st nomination Renewal Departure Sex Nationality Reason of the change
Bruno Pfister April 27, 2016 April 26, 2018 M Swiss Renewal
Thierry Derez resigned from SCOR’s Board of Directors on November 13, 2018. This resignation came in response to (i) the multiple reminders by SCOR to Thierry Derez regarding the situation of conflicts of interests that affected him and his commitment to resign from SCOR’s Board of Directors pursuant to the provisions of the latter’s Internal Charter, due to Covéa’s unsolicited proposed combination with SCOR and (ii) the opinion rendered on October 30, 2018 by the Haut Comité de Gouvernement d’Entreprise consulted by SCOR’s Lead Independent Director regarding the situation of Thierry Derez, which confirmed SCOR’s position in all respects and unequivocally.
The term of office of the directors appointed or renewed, as set forth in SCOR SE’s bylaws, shall not exceed four years. Under SCOR SE’s bylaws, directors may hold office until the age of 77. A director who reaches the age of 77 while in office has to retire at the expiration of his or her term of office, as determined at the Shareholders’ Meeting. Except the employee director, the directors are elected by the shareholders and serve until the expiration of their respective term, or until their resignation, death or removal, with or without cause, by the shareholders. Vacancies on the Board of Directors may, under certain conditions, be filled by the Board of Directors, pending the next Shareholders’ Meeting. The appointment is then submitted for ratification at the next Shareholders’ Meeting.
Directors are required to comply with applicable law and SCOR SE’s bylaws. Under French law, directors are liable for violations of French legal or regulatory requirements applicable to European Companies, violation of a Company’s bylaws or mismanagement (faute de gestion). Directors may be held liable for such actions both individually and jointly with other directors.
The Board of Directors’ meeting held on March 31, 2004 adopted a Board Internal Charter (the “Board Internal Charter”) in order to enhance or specify the rules governing the Board. This Board Internal Charter was amended by successive decisions of the Board of Directors with the last one being dated February 19, 2019. It is available on the website of the Company (www.scor.com). The main provisions of the Board Internal Charter are provided below: Functioning and duties of the Board of Directors of the Company
— below this threshold, the Board, based on a report of the Compensation and Nomination Committee, systematically takes into account the structure of the Company’s capital and the existence of a potential conflict of interest when evaluating independence.
The table below presents the results of the detailed review, criterion by criterion, of the independence of each director carried out by the Board of Directors in February 2019, based on the proposal of the Compensation and Nomination Committee, with regard to the criteria stated above: Denis Kessler, Chairman of the Board No No No Yes No Yes Yes Yes No
Vincent Foucart No No Yes Yes Yes Yes Yes Yes No
Thomas Saunier(1) Yes Yes Yes Yes Yes Yes Yes Yes Yes
The Board of Directors, upon the recommendation of the Compensation and Nomination Committee, has especially studied the criteria relating to any significant business ties that directors might have with the Company as a customer, supplier, investment or commercial banker or consultant. In particular, it has checked that none of the current directors have business activities with SCOR that generate revenues greater than the threshold indicated in the Board Internal Charter.
Moreover, the three following directors are either a shareholder (Malakoff Médéric Assurances) or directly related to a shareholder of SCOR: ◆ Malakoff Médéric Group (3.04% of SCOR’s capital and 3.14% of voting rights as of December 31, 2018), represented by Thomas Saunier; ◆ Jean-Marc Raby, Chief Executive Officer of Macif Group (1.48% of SCOR’s capital and 1.52% of its voting rights as of December 31, 2018); ◆ Claude Tendil, Chairman of the Board of Directors of Generali IARD, Generali Group (0.75% of SCOR’s capital and 0.77% of its voting rights as of December 31, 2018).
He advises the directors when they are concerned that they may be involved in a conflict of interest.
First and foremost, the Board Internal Charter sets out the legal and regulatory provisions requiring confidentiality with regard to privileged information of which directors could have knowledge while performing their duties.
Then, the Board Internal Charter requires directors to register all SCOR shares that they themselves or their minor children hold at the time they enter office or those acquired subsequently. In addition, the Board Internal Charter lays down certain restrictions on trading in SCOR’s securities: ◆ first, it is forbidden to trade in SCOR’s securities while in possession of information which, when made public, is likely to have a significant influence on the stock market price. In this regard, any director must refrain from (a) performing or attempting to perform insider dealing, in particular by acquiring or disposing of, for its own account or for the account of a third party, directly or indirectly, financial instruments to which that information relates or by cancelling or amending orders already placed concerning a financial instrument to which the information relates; (b) recommending, inducing or attempting to recommend or induce that another person engage in insider dealing on the basis of a privileged information; (c) unlawfully disclosing or attempting to disclose privileged information to another person, except where the disclosure is made in the normal exercise of an employment, a profession or duties; ◆ in addition, it is forbidden to directly or indirectly conduct any transaction with regard to SCOR’s securities during certain sensitive periods that the Group notifies to the directors or during any period preceding an important event affecting SCOR and likely to influence the stock market price. In all cases, the following periods are considered sensitive: the thirty (30) calendar days before the publication of semi-annual and annual results; the fifteen (15) calendar days before the publication of quarterly results and the announcement of the dividend.
Lastly, directors are required to inform the Company and the AMF, in accordance with the procedure in force, of all transactions conducted with regard to its securities, directly or by an intermediary, on their behalf or on behalf of a third party, by their spouse, or by a third party holding a power of attorney. The declaration also applies to the transactions carried out by the persons closely associated with the directors, as defined by applicable laws and regulations.
02 REPORT ON CORPORATE GOVERNANCE Corporate governance principles, Shareholders’ Meetings, corporate officers, executives, employees, information required by article L. 225-37-5 of the French Commercial Code 2.1.3.5. PREVENTION OF RISKS OF CONFLICT OF INTERESTS
In the event a characterized punctual conflict of interest should arise on a specific topic submitted for discussion at a Board of Directors meeting, the Director in question shall (i) disclose the conflict to the Board prior to the meeting and (ii) abstain from taking part in the Board’s debate or decision on the topic (in this case, he/she shall be excluded from quorum and voting calculations); it being specified that any Director also director of a consolidated company must abstain from taking part in the decisions of the Board in the event of a conflict of interest because of his/her quality of director with the concerned subsidiary.
Any Director may, in the event a conflict of interest is likely to continue beyond the time period mentioned above, ask to be heard by the Compensation and Nomination Committee.
The Company’s Board of Directors held seven meetings in 2018 and they lasted on average two hours and a half.
The average attendance rate of the members of the Board was 97%(1). The following table displays the attendance of the members of the Board of Directors during 2018: Board members Attendance rate (%)
Moreover, two training sessions were held in 2018 for Board members on the following topics: ◆ SCOR activities in Asia-Pacific, focusing on China, India and Japan on July 25, 2018; ◆ economic valuation on October 23, 2018.
The directors expressed their very high level of satisfaction with the composition of the Board, its organization, its functioning and with the composition of its Committees. They are satisfied with the compliance of the governance practiced by SCOR with the requirements of the AFEP-MEDEF Code and with the AMF recommendations. They considered that the Board of Directors of SCOR SE functions better than the other Boards in which they participate and that the new Corporate Social and Societal
Responsibility and Environmental Sustainability Committee works well. Following the evaluation of the previous years, they appreciate that SCOR’s management has drawn up action plans to respond to the suggestions for improvement made by the directors and implemented them. In particular, they welcomed that requests to allocate more time to certain meetings and to strengthen the international dimension of the Board were considered, in particular by the arrival of a female Board member with Chinese nationality in 2018. The ratings are at a high level and increasing compared to the previous year.
To SCOR’s knowledge, during the last five years: ◆ no director and no member of the Executive Committee has been convicted of fraud; ◆ no director and no member of the Executive Committee has been associated with a bankruptcy, sequestration, or liquidation; ◆ no director and no member of the Executive Committee has been the subject of an incrimination or official public sanction issued by statutory or regulatory authorities; ◆ no director and no member of the Executive Committee has ever been prohibited by a court from acting as a member of an administrative, management, or supervisory body of an issuer or from participating in the management or business of an issuer.
Pursuant to the provisions of the Internal Regulations of SCOR’s Board of Directors, Marguerite Bérard informed the Chairman of the Board and the Lead Independent Director, on February 18, 2019, of a potential punctual conflict of interest situation due to private interests with one of the financial institutions against which SCOR announced the launch of legal actions on January 29, 2019. She will therefore abstain from taking part in the Board’s discussions and any decisions of the Board of Directors of SCOR and its specialized Board Committees in relation to these legal actions.
The Strategic Committee met on five occasions in 2018, each meeting lasting approximately two hours.
Its work dealt with various aspects of the strategy of the Group, including in particular the exploratory analysis of a potential combination with another reinsurer and the in-depth review and position to be taken concerning Covéa’s unsolicited proposed combination with SCOR.
** Representing Malakoff Médéric Assurances, director. *** Member of the Strategic Committee from April 26, 2018.
The Audit Committee is composed of Kory Sorenson (Chairman), Marguerite Bérard, Vanessa Marquette, Bruno Pfister and Fields Wicker-Miurin. Each of its members is independent.
The Audit Committee has two main missions: ◆ accounting, financial and non-financial responsibilities, including the analysis of periodic financial statements, the review of the relevance of choices and correct application of accounting standards, the review of the accounting treatment of any material transaction, the review of the scope of consolidation, the review of significant off-balance sheet commitments, the control of the selection of Statutory Auditors, the review of any accounting and financial reporting documents before they are made public. The Group audit fees for services rendered during the year are subject to a quarterly review and approval by the Audit Committee, with a specific review for the services other than audit services. The Audit Committee approves the non-core audit fees to ensure that the auditors’ independence is not impaired;
◆ ethical, internal control and compliance responsibilities: the Audit Committee is responsible for ensuring that internal procedures relating to the collection and auditing of data guarantee the quality and reliability of the Group’s financial statements. The Audit Committee is also in charge of reviewing agreements with related parties (conventions réglementées), analyzing and responding to questions from employees with regard to internal controls, the preparation of financial statements and the treatment of internal accounting books and records. It gives its opinion on the organization of Internal Audit, examines its annual work program, receives internal audit reports and stays informed regarding the implementation of recommendations. Finally, it examines the annual compliance plan and stays informed regarding the Company’s compliance activities.
If applicable, the Audit Committee ensures the implementation of a mechanism to prevent and detect corruption and influence peddling. It receives all of the information needed for this purpose and reports, if applicable, to the Board of Directors. The Committee may consult the Chief Financial Officer, the Head of Internal Audit, the Heads of the actuarial and compliance functions and the Statutory Auditors on these issues, including in the absence of the Chairman and CEO. It may also call upon outside experts. During the 2018 financial year, and for each meeting, it met with the Statutory Auditors and the Group Chief Financial Officer (during the review of the financial statements), in the absence of the Chairman and CEO. The review of the financial statements was completed by a presentation made by the Statutory Auditors highlighting the main results of their work and the accounting methods used, as well as by a presentation made by the Group Chief Financial Officer describing risk exposure and material off-balance sheet liabilities.
The Audit Committee met on four occasions in 2018, each meeting lasting approximately two hours and a half. The Chairman and Chief Executive Officer attended all the meetings in 2018.
The attendance rate of the Committee members was 100%. The following chart states the attendance of the Audit Committee’s members in 2018: Board members Attendance rate (%)
The Risk Committee is composed of Bruno Pfister (Chairman), Vanessa Marquette, Kory Sorenson, Claude Tendil, Zhen Wang and Fields Wicker-Miurin. Each of its members is independent except Claude Tendil.
The Risk Committee met four times in 2018, each meeting lasting approximately two hours and a half.
The average attendance rate of the Committee Members was 93%. The following chart states the attendance of the members of the Risk Committee in 2018: Board members Attendance rate (%)
Fields Wicker-Miurin 100 * During its meeting held on October 23, 2018, after having examined the unanimous opinion of the Compensation and Nomination Committee and noted that the situation of Thierry Derez disturbed the proper functioning of SCOR’s governing bodies of which he was a member, the Board of Directors unanimously decided that Thierry Derez was no longer, with immediate effect, a member of the Strategic Committee, the Risk Committee, the Compensation and Nomination Committee and the Corporate Social Responsibility Committee. Thierry Derez was included in the calculation of the attendance to the meetings of the Committees until October 23, 2018, taking into account the situation of conflicts of interests which preceded it.
The Compensation and Nomination Committee is composed of Augustin de Romanet (Chairman), Vincent Foucart (employee director), Vanessa Marquette, Bruno Pfister, Claude Tendil and Fields Wicker-Miurin.
The attendance rate of the Committee members was 100%. The following chart states the attendance of the members of the Compensation and Nomination Committee in 2018: Board members Attendance rate (%)
02 REPORT ON CORPORATE GOVERNANCE Corporate governance principles, Shareholders’ Meetings, corporate officers, executives, employees, information required by article L. 225-37-5 of the French Commercial Code 2.1.4.5. THE CORPORATE SOCIAL AND SOCIETAL RESPONSIBILITY AND ENVIRONMENTAL SUSTAINABILITY COMMITTEE
Its mission is to: ◆ examine the main corporate social, societal responsibility and environmental sustainability issues faced by the Company; ◆ examine the corporate social and societal responsibility and environmental sustainability strategy and actions plans, including commitments made by the Company in this regard, to monitor their implementation and to propose any actions in this respect; ◆ submit to the Board of Directors any proposals designed to take the corporate social and societal responsibility and environmental sustainability issues faced by the Company into consideration when determining its business orientations; ◆ examine the corporate social and societal responsibility and environmental sustainability related reports submitted to the Board of Directors in accordance with applicable laws and regulations, particularly the extra-financial performance declaration referred to in Article L. 255-102-1 of the French Commercial Code; ◆ study the extra-financial ratings obtained by the Company and to define, if necessary, objectives in this area; ◆ ensure that the executive officers implement a policy of non-discrimination and diversity, notably with regard to the balanced representation of men and women on the governing bodies and reports to the Board of Directors.
The Corporate Social and Societal Responsibility and Environmental Sustainability Committee may call upon outside experts.
The Corporate Social and Societal Responsibility and Environmental Sustainability Committee met four times in 2018, each meeting lasting approximately two hours.
The Committee mainly discussed the following matters: review of the 2017 integrated activity and CSR report, review of the ESG report on investments, the implementation of the CSR action plan, a project study to develop forest in an emerging country, the position of the Group regarding coal and tobacco, protection of world heritage sites and gender equality.
The attendance rate of the Committee members was 100%. The following chart states the attendance of the members of the Corporate Social and Societal Responsibility and Environmental Sustainability Committee in 2018: Board members Attendance rate (%)
Depending on the agenda, the Lead Independent Director, who chairs this Committee, may exclude the Chairman and Chief Executive Officer from the discussions of the Crisis Management Committee. Moreover, the Chairman and Chief Executive Officer must be disqualified from such discussions if the crisis is linked to a subject that personally concerns him.
The attendance rate of the Committee members was 100%. The following chart states the attendance of the members of the Crisis Management Committee in 2018: Board members Attendance rate (%)
It brings together the non-executive directors so that they can exchange ideas outside the context of the Board of Directors’ meetings. It may be called in case of a conflict of interest between the Board and the management team, a non-adherence to the corporate governance code, an inability of the corporate officer to carry out his duties as a result of an accident or his death or a proven breach of the Code of Ethics on the part of the corporate officer.
The Board of Directors of the Company also limited the powers of the Chairman and Chief Executive Officer by stipulating in the Board’s Internal Charter the need for prior Board approval for the following operations: ◆ organic growth investments and major internal structuring operations; ◆ any significant operation falling outside of the scope of the strategy announced by the Group; ◆ any project regarding a sale or acquisition, merger or asset contribution higher than one hundred million Euros. In addition, any project regarding a sale, in one or more transactions, concerning at least half of the Company’s assets must be submitted to the Shareholders’ Meeting, as recommended by the AFEP-MEDEF corporate governance code.
Furthermore, in addition to the Chairman and Chief Executive Officer of SCOR SE, two other persons effectively running SCOR SE and the Group have been appointed. Thereby, since January 1, 2016, the effective management of the Company and the Group has been overseen by at least two persons, pursuant to the requirements of the French Insurance Code.
Brona Magee, an Irish citizen, holds a Bachelor of Actuarial and Financial Studies degree from University College Dublin. From 2006 to 2011 she worked for Transamerica International Reinsurance Ireland, which was acquired by SCOR in 2011. She became CFO for SCOR Global Life Reinsurance Ireland from 2011 to 2013. In 2013, Brona moved to the United States to take the position of Chief Financial Officer, Americas at SCOR Global Life and in 2015 was promoted to Deputy Chief Executive Officer, Americas. In February 2017 she returned to Dublin and became Chief Actuary for SCOR Global Life. She was appointed Head of Client Solutions and a member of SCOR Global Life’s Executive Leadership Team in November 2017. Brona is a Fellow of the Society of Actuaries in Ireland. In September 2018, she became Deputy Chief Executive Officer of SCOR Global Life.
Victor Peignet, a French citizen, is a Marine & Offshore Engineer and graduate of the École Nationale Supérieure des Techniques Avancées (ENSTA), who joined SCOR’s Facultative Department in 1984 from the offshore Oil & Gas contracting industry. He has more than 15 years’ underwriting and management experience in Energy & Marine insurance at SCOR. He has been at the head of the Group’s Corporate Business Division (Business Solutions) since its creation in 2000, first as Executive Vice-President and as Managing Director from April 2004. Since July 5, 2005, he has been the Chief Executive Officer of SCOR Global P&C.
02 REPORT ON CORPORATE GOVERNANCE Corporate governance principles, Shareholders’ Meetings, corporate officers, executives, employees, information required by article L. 225-37-5 of the French Commercial Code 2.1.7. NUMBER OF EMPLOYEES
For the principles and rules stated for the determination of the compensation and in-kind benefits attributable to Mr. Denis Kessler as Chairman and Chief Executive Officer for the 2018 reporting period, please refer to the 2018 Shareholder’s Meeting brochure to the Combined General Meeting.
2.2.1.2. APPROVAL OF THE COMPENSATION ITEMS ATTRIBUTABLE TO MR. DENIS KESSLER AS CHAIRMAN AND CHIEF EXECUTIVE OFFICER FOR THE FINANCIAL YEAR ENDED DECEMBER 31, 2018
In accordance with article L. 225-37-3 of the French Commercial Code, the compensation elements due or attributed to the executive corporate officer for the financial year ended December 31, 2018 are presented below. Those compensation items are compliant with the principles and rules stated for the determination of compensation and in-kind benefits attributable to Mr. Denis Kessler, Chairman and Chief Executive Officer for the 2018 reporting period and as approved by the 2018 Shareholders’ Meeting.
The following table presents a summary of the total compensation including gross compensation, shares and stock options granted to the executive corporate officer for financial years 2018, 2017 and 2016: Amount due Amount paid Amount due Amount paid Amount due Amount paid
(2) It should be noted that the figures stated above do not represent paid compensation but correspond to actuarial estimates in line with the AFEP-MEDEF corporate governance code. The value is calculated according to the same assumptions as those used for the Group financial statements (IFRS 2). Since 2009, 100% of shares and stock options granted are subject to performance conditions.
In accordance with the recommendations stated in the AFEPMEDEF corporate governance code (Section 24.3) and pursuant to its implementation guide, the compensation elements due or attributed to the executive corporate officer for the financial year ended December 31, 2018 are presented below.
Annual variable and exceptional compensation items are subject to the approval of the Shareholders’ Meeting. In accordance with article L. 225-37-2 of the French Commercial Code, their payment needs to be approved by the Shareholders’ Meeting.
Following the recommendation of the Compensation and Nomination Committee at its February 20, 2018 meeting, the Board of Directors at its February 21, 2018 meeting decided that the Chairman and Chief Executive Officer would receive a target variable annual compensation of EUR 1,200,000 (100% of his fixed gross annual amount), unchanged from last year. This variable annual compensation is determined as follows: ◆ 50% on the basis of the achievement of financial objectives, set at the beginning of each year by the Board of Directors on the recommendation of the Compensation and Nomination Committee; and ◆ 50% on the basis of the achievement of personal objectives, set at the beginning of each year by the Board of Directors on the recommendation of the Compensation and Nomination Committee.
In accordance with the Group compensation policy applicable to all Partners within the Group, the variable annual compensation of the Chairman and Chief Executive Officer may benefit, in the event of outperformance, from a multiplier applied to financial objectives (capped at a maximum of 130% of the target of the financial objectives portion) and personal objectives (capped at a maximum of 150% of the target of the personal objectives portion) which may increase the variable annual compensation of the Chairman and Chief Executive Officer up to a ceiling of 140% of his target variable annual compensation. Moreover, the Group policy states that, for participation and strong contribution to the success of specific strategic projects, an additional and exceptional bonus (“Exceptional Contribution Bonus” – ECB) may be granted; the ECB can reach a maximum of 25% of the target variable annual compensation of the Chairman and Chief Executive Officer. The total variable annual compensation of the Chairman and Chief Executive Officer may not exceed 165% of his target variable annual compensation of EUR 1,200,000, and consequently cannot exceed 165% of his fixed annual compensation. The variable compensation for any given year is paid in year y+1, after the financial statements of the Company for such given year are approved by the Board of Directors and is subject, as of 2019 for the variable compensation relating to 2018, to the approval of the Shareholders’ Meeting.
Stock options EUR 188,000 Shares EUR 3,878,750 (accounting valuation under IFRS)
In accordance with the authorization by the Shareholders' Meeting on April 27, 2017 in its 21st resolution, the Board of Directors decided at its February 21, 2018 meeting, on a proposal from the Compensation and Nomination Committee at its February 20, 2018 meeting, to allocate on March 8, 2018, stock options to the Chairman and Chief Executive Officer and to the other members of the Executive Committee. On this plan, 100,000 stock options have been granted to the Chairman and Chief Executive Officer. These stock-options are 100% subject to performance conditions. The performance conditions are defined as follows and are assessed and validated annually by the Compensation and Nomination Committee: Half of the options will be exercisable from March 9, 2022, provided: (1) that the conditions set out in the Plan of March 8, 2018 are fulfilled and in particular that he remains a corporate officer of SCOR Group until March 8, 2022 inclusive, except as otherwise stated by the Plan; (2) that the Group’s ethical principles as described in its Code of Conduct are respected; therefore, in case of actual misconduct as per the Code of Conduct, for instance in the event of fraud, the beneficiary will lose all of his/her stock options (clawback policy); (3) that the training obligation in terms of corporate social responsibility (CSR) is met; (4) that the average SCOR ROE over three years (from January 1, 2018 to December 31, 2020) is equal to the average of SCOR ROE strategic target (the “Target ROE”) over the period.
Aside from the mandatory conditions (1), (2) and (3), if the observed average ROE (condition (4)) is lower or higher than the Target ROE, the options will be exercisable according to the sliding scale set out in the table below: Ratio between the observed average ROE and the Target ROE
Compensation elements due or attributed for the financial year ended December 31, 2018
between 0 and up to - 35 percentage points linear sliding scale lower than or equal to -35 percentage points 0%
The achievement of performance conditions is assessed by the Compensation and Nomination Committee and the Board of Directors. In accordance with the authorization by the Shareholders’ Meeting on April 27, 2016 in its 19th resolution, the Company’s Board of Directors decided at its February 21, 2018 meeting, on a proposal from the Compensation and Nomination Committee of February 20, 2018, to grant performance shares to the Chairman and Chief Executive Officer and to the other members of the Executive Committee. On this plan, The Chairman and Chief Executive Officer was granted 125,000 performance shares. These performance shares will be acquired on February 22, 2021, provided that he remains a corporate officer of SCOR Group until February 21, 2021 inclusive, except as otherwise stated by the Plan, and are 100% subject to the same performance conditions as those for the stock options with the exception of the requirement for training in corporate social responsibility (CSR). The stock options and performance shares granted to the executive corporate officer in 2018 represent 0.117% of the share capital, 8.84% of the total allocations in 2018, and 63% of his overall compensation.
The total pension benefits provision relating to the Chairman and CEO amounts to EUR 22.5 million based on his reference compensation. This amount breaks down as follows: 18.1 million euros excluding employer social contributions and 4.3 million euros corresponding to employer social contributions. The provision has decreased by EUR 0.9 million from December 31, 2017. This decrease mainly reflects the evolution of demographic assumptions, the acquisition of an additional year of rights, as well as the revision of assumptions relating to reversion.
SCOR’s solvency ratio, as defined by the internal model, is estimated at 215% at the end of 2018, i.e. 30 bps above 185%.
Achievement of strategic plan “Vision in Action” Preparation of the Group to the Brexit Adaptation of the Group to new (i) fiscal, (ii) competitive and (iii) regulatory context Preparation of the merger of SCOR SE, SCOR Global Life SE and SCOR Global P&C SE
In addition, the business initiatives planned as part of the strategic plan are in line with the plan, or even beyond (e.g. development of SCOR Global Life in Asia-Pacific). On the Brexit, a P&C specialty insurance company, SCOR Europe SE, was specifically created and business continuity is ensured.
The Group has ensured compliance with the General Data Protection Regulation (GDPR) in strict compliance with regulatory deadlines and with a budget lower than that assigned to this project. Several information systems have been adapted for this purpose and a major effort has been made to raise awareness and mobilize employees. In addition, the security of the Group’s information systems has been significantly strengthened, in particular through the implementation of a new Security Operation Center and access rights management software. The Group has also made significant progress in building a cyber risk coverage offer. The corresponding actions were structured around the following axes: development of a tool for assessing the cyber risk of companies (Cyrus), development of models for underwriting and construction and sharing of risk knowledge by supporting customers, training and raising the awareness of local teams and active participation in market research, particularly in the context of the CYRIM project (CYber RIsk Management) in Singapore. The Board of Directors notes the very significant progress made by the Group in 2018 both in strengthening its protection against cyber risk and in developing an offer to cover this risk.
(1) The normalized net combined ratio (94.7%) is equal to the net combined ratio (99.4%) plus reserve release (+1,9%) and minus natural catastrophe ratio delta from budget (-6.6%).
The Board of Directors notes the very significant progress made by the Group in terms of climate policy, beyond the objectives set, in line with the strong involvement of the President and Chief Executive Officer.
Under the leadership of the Chairman and CEO, the Group pursued an active employee development policy with 98.5% of employees having received training during the year. In addition, more than 85% of employees will have been covered by the internal process of Strategic Talent Workforce Review (STWR), allowing management to have a broad view of everyone’s skills and aspirations, to prepare succession plans and to promote internal promotion. Thus, the Group has experienced 8 internal promotions at the top management level (EGP-SGP) against only one external recruitment, attesting to the depth of its talent pool. Finally, the Group successfully deployed its employer brand, with the deployment of a proactive communication campaign between late 2018 and early 2019 using internal and external social networks. This campaign has made it possible to significantly increase the number of SCOR followers on social networks. The Board of Directors notes the high quality of the Group’s human capital management and the fact that it has exceeded its objectives.
Denis Kessler February 21, 2018 125,000 3,878,750 February 22, 2021 February 22, 2021
Solvency ratio at the end of each quarter ≥ 150% in 2014 and 2015 ✓ Yes
02 REPORT ON CORPORATE GOVERNANCE Executive compensation and share ownership 2.2.1.3. DIRECTORS’ FEES AND NUMBER OF SHARES HELD BY DIRECTORS
The Board of Directors decided to allocate the directors’ fees as follows: ◆ partly in one fixed sum of EUR 28,000 annually payable at the end of each quarter. For non-French directors, an additional EUR 10,000 per year is allocated; ◆ partly based on the effective presence of directors at the meetings of the Board of Directors and of its Committees, in an amount equal to EUR 3,000 per Board or per Committee meeting they attend, except for the Chairmen of the Audit Committee, Risk Committee, Compensation and Nomination Committee, Corporate Social and Societal Responsibility and Environmental Sustainability Committee and Crisis Management Committee, who receive an amount equal to EUR 6,000 for each meeting of the Committee that they chair.
Moreover, natural persons being members of the Board except the Chairman and Chief Executive Officer and the employee director received EUR 10,000 in SCOR shares on December 13, 2018.
Fees paid to directors in 2018 and 2017 are broken down as follows: In EUR 2018 2017
(1) Pursuant to the decision made by the Board of Directors on March 21, 2006, the Chairman and Chief Executive Officer receives directors’ fees along with the other members of the Board of Directors of the Company, based on the same conditions for distribution.
TOTAL 7,093,806 2.2.1.4. PRINCIPLES AND CRITERIA FOR THE DETERMINATION, THE ALLOCATION AND THE GRANT OF THE FIXED, VARIABLE AND EXCEPTIONAL ITEMS COMPRISING THE TOTAL COMPENSATION AND IN-KIND BENEFITS ATTRIBUTABLE TO MR. DENIS KESSLER AS CHAIRMAN AND CHIEF EXECUTIVE OFFICER FOR THE 2019 REPORTING PERIOD
Principles and rules for determining the compensation and benefits of the Chairman and Chief Executive Officer
The compensation policy was established in accordance with the recommendations of the AFEP-MEDEF Code as revised in June 2018.
The Board of Directors has decided that the evolution of the Chairman and Chief Executive Officer’s compensation would be determined in the light of benchmark analysis.
The Board of Directors has decided that, should a new Chief Executive Officer be appointed, these same principles will apply.
This variable compensation is designed to encourage the Chairman and Chief Executive Officer to achieve the annual performance objectives fixed by the Board of Directors on the proposal of the Compensation and Nomination Committee, in line with the Company’s strategy. In accordance with the AFEP-MEDEF Code, the potential amount of variable compensation is expressed as a percentage of the fixed compensation.
◆ 50% on the basis of the achievement of personal objectives (quantitative or qualitative), defined at the beginning of each year by the Board of Directors on the recommendation of the Compensation and Nomination Committee.
The personal objectives are essentially defined on the basis of the following categories: ◆ Solvency; ◆ Strategy; ◆ Risk management; ◆ Corporate Social Responsibility.
At the end of each year, and for each objective, the level of the achieved result compared to the expected target is communicated.
The variable compensation for year “Y” is paid during the year “Y+1”. Applying the applicable regulatory provision, the payment of the variable annual compensation is subject to the approval of the Shareholders’ Meeting.
Should the Chairman and Chief Executive Officer leave during the current year: ◆ his variable compensation relating to the previous year will be payable during the current year; ◆ in addition, in the event of dismissal, the amount of his variable compensation for the current year will be determined on the basis of the variable compensation for the prior year and prorated on the basis of the departure date for the current year.
No exceptional remuneration of this sort has been paid by the Company over the past few years.
The stock options can be exercised at the earliest four years after the grant date and are subject to performance conditions over three calendar years, i.e. 2019, 2020 and 2021 for the plans granted in 2019.
Identical to those applicable to other Group beneficiaries, these performance conditions rest on demanding levels and full transparency, the results being based on public data.
Each year, the Board of Directors, on the recommendation of the Compensation and Nomination Committee, confirms or determines the performance conditions, their weighting, their targets and their achievement levels, based on the authorizations granted by the Shareholders’ Meeting. All of these conditions are made public every year in this Registration Document.
In any case, if the average ROE is lower than 5%, the portion of shares definitively acquired/the portion of stock options that could be exercised based on this criterion would be at 0%.
For the remaining 50%: ◆ Achievement, during the period used to measure the performance criteria (three years), of an average solvency ratio that is at least equal to the average of SCOR’s strategic target solvency ratio over the period (the “Target Solvency Ratio”)*.
Proportion of the shares definitively acquired / options that could be exercised via this criterion
The Board of Directors has decided that the Chairman and Chief Executive Officer is required to hold as registered shares at least 10% of the shares resulting from the exercise of stock options granted and at least 10% of the performance shares, during the entire duration of his mandate.
The Board of Directors has decided that, in the event that a new Chief Executive Officer is appointed, these same principles will apply, bearing in mind that a specific allocation may be made to compensate the new executive corporate officer for the loss of the variable long-term compensation linked to his/her departure from his/her previous employer.
Following the Shareholders’ Meeting of April 27, 2017, the Board of Directors, on the recommendation of the Compensation and Nomination Committee, decided to renew the terms of office of Denis Kessler as Chairman of the Board of Directors and Chief Executive Officer of the Company. On February 21, 2018, the Board of Directors authorized the modification of the severance pay commitment, as follows. This new commitment has been approved during the 2018 Shareholders’ Meeting (5th resolution).
In the event of the termination of the Chief Executive Officer’s term of office, the benefits he may be allocated would be determined according to the following situations: (i) in the event of dismissal for misconduct, non-renewal of the term of office of the Chief Executive Officer, resignation (other than for the purposes of paragraphs (ii) and (iii) below) or following a notably negative performance of the Company (non-achievement of the performance condition (C_n) as described below) no severance pay will be due; (ii) in the event of a forced departure or dismissal prior to the twelve (12) months preceding the end of his term of office as Chief Executive Officer, typically for divergent views on the Group’s strategy, the Chief Executive Officer would then benefit from severance pay equal to the sum of the fixed and variable components of his gross annual compensation paid in the twenty-four (24) months preceding the date of his departure from the Group. No severance pay would be due if the performance condition (C_n) defined below is not fulfilled.
Finally, in the event of the termination of the Chairman and Chief Executive Officer’s duties, there is no non-competition clause.
As the Company representative, the Chairman and Chief Executive Officer is granted a Company car with a shared driver. The insurance, maintenance, fuel and all costs related to the driver are paid by the Company. The Chairman and Chief Executive Officer also benefits from a health insurance policy under the terms of a contract dated September 16, 1988.
Moreover, the Chairman and Chief Executive Officer benefits from death or permanent disability insurance in case of an accident, also underwritten for the senior executives of the Company, on January 1, 2006. It is specified that this collective insurance is renewed or renegotiated on an annual basis so that the Chairman and Chief Executive Officer will benefit from any policies that may replace the existing one.
REPORT ON CORPORATE GOVERNANCE Executive compensation and share ownership 02 2.2.2. COMPENSATION OF EXECUTIVE COMMITTEE MEMBERS OTHER THAN THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
2.2.2.1. PRINCIPLES AND RULES STATED FOR THE DETERMINATION OF COMPENSATION AND IN-KIND BENEFITS FOR THE EXECUTIVE COMMITTEE MEMBERS (OTHER THAN THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER)
If within a 12 month period following a change of control, a member of the Executive Committee were dismissed (except for serious or gross misconduct (faute grave ou lourde)) or decided to resign, he/she would benefit from an indemnity equal to the sum of fixed and variable compensation elements and non-exceptional cash benefits paid by the Group during the two years preceding his/her departure. However this indemnity shall not be payable if SCOR’s average solvency ratio over the three financial years preceding the date of departure is less than SCOR’s strategic solvency ratio target average (defined in the strategic plan), calculated over the same period (the “Target Solvency Ratio”) (it being specified that, if the strategic plan defines a target or “optimum” range, the lower end of this range shall be considered the Target Solvency Ratio for the purposes of the calculation). Moreover, the rights to the performance shares and options granted before the departure would be maintained whilst remaining subject, in their entirety, to the performance conditions of each of the plans as approved by the Board of Directors at the time of the award.
Like all senior executives employed in France, the members of the Executive Committee who joined SCOR before June 30, 2008 and are employed in France, are entitled to a guaranteed pension plan conditional notably upon a minimum five years of service with the Group, the payment of which is based on their average compensation over the last five years. This pension plan was closed to employees hired after June 30, 2008.
Executive Committee members that are not employed in France benefit from the collective pension schemes in place in their entity and do not have any specific plan except for the member with Swiss contract who benefits from a specific guaranteed pension plan similar to the one granted to the Executive Committee members employed in France and hired before June 30, 2008.
For Executive Committee members under French contracts and hired before June 30, 2008 or under Swiss contracts, the amount of the additional pension guaranteed by the Group varies from 5% to 50% (with a maximum growth of 5% per year) of the average compensation over the last five years, depending on seniority acquired in the Group at retirement, less any pension benefits acquired under other collective and mandatory pension schemes. Moreover, this amount may under no circumstances exceed 45% of the benchmark compensation.
The total commitment of the Group for defined benefit pension plans in France, Germany, the United States and Switzerland for the Executive Committee members (including the Chairman and Chief Executive Officer) amounts to EUR 57 million as at December 31, 2018, i.e. 13% of the total commitment of the Group for pension plans of EUR 450 million.
Gross compensation of the Executive Committee members excluding the executive corporate officer(1) 8,600,715 8,184,565 8,792,838 9,868,958 9,787,318 9,587,353
For information on stock options and performance shares held by the members of the Executive Committee, see Section 2.2.3 – Stock options and performance shares.
The table below presents the stock option plans granted to the Executive Committee and the executive corporate officer as at December 31, 2018: Number of shares underlying granted Date of plans
The table below presents the share award rights granted to the Executive Committee and the executive corporate officer as at December 31, 2018: Plan
2.2.3.3. POTENTIAL VOLUME OF NEW SHARES FROM OUTSTANDING SHARE-BASED COMPENSATION PLANS AS OF DECEMBER 31, 2018
The potential volume of new shares from outstanding share-based compensation plans stood at 5,768,655 shares as of December 31, 2018, broken down as follows: Potential volume of new shares from outstanding share-based compensation plans linked to Group executive and employee compensation instruments 5,768,655
◆ of which number of potential new shares from outstanding stock option plans (options allocated but not vested + options vested but not exercised) 4,459,993
◆ of which number of potential new shares from outstanding warrants 0
The Company’s fully diluted issued share capital, as defined below, stood at 216,743,829 shares as of December 31, 2018, broken down as follows: Fully diluted issued share capital 216,743,829
◆ of which number of potential new shares from outstanding options 4,459,993
◆ of which potential shares from other securities convertible or redeemable into new shares(2) 19,198,044
As of December 31, 2018, the potential volume of new shares from outstanding share-based compensation plans linked to Group executive and employee compensation instruments stands at 2.66% of the fully diluted share capital.
If the free shares were taken into account in the calculation of the potential volume of new shares from outstanding share based compensation plans and in the calculation of the fully diluted share capital, this theoretical volume (which corresponds to outstanding shares or new shares to be issued) would stand at 6.58% of the fully diluted share capital on December 31, 2018.
Pursuant to provisions of Article L. 225-184 of the French Commercial Code, information provided in this section constitutes the special report of the Board of Directors on the allocation of stock options in order to inform the Shareholders’ Meeting of transactions completed under the provisions of Articles L. 225-177 to L. 225-186-1 of the same code.
The Board of Directors’ meeting of February 21, 2018, on the proposal of the Compensation and Nomination Committee meeting of February 20, 2018, decided to allocate 100,000 stock options to the Chairman and Chief Executive Officer and 280,000 stock options to the other members of the Executive Committee on March 8, 2018.
Refer to Section 2.2.3.1 of this document for the details of the stock options allocated to the members of the Executive Committee.
The exercise of half of the options granted is subject to the fulfilment of the following conditions: (1) that the conditions set out in the Plan are fulfilled and in particular that the beneficiary remains an employee or a corporate officer of the SCOR Group until March 8, 2022 inclusive, except as otherwise provided by the Plan; (2) that the average SCOR ROE over three years (from January 1, 2018 to December 31, 2020) is equal to the average SCOR ROE strategic target (the “Target ROE”) over the same period.
The exercise of the remaining half of the options is subject to the fulfilment of the following conditions: (1) that the conditions set out in the Plan are fulfilled and in particular that the beneficiary remains an employee or a corporate officer of the SCOR Group until March 8, 2022 inclusive, except as otherwise provided by the Plan; (2) that the average solvency ratio over three years (from January 1, 2018 to December 31, 2020) is at least equal to the average SCOR solvency strategic target over the same period (the “Target Solvency Ratio”(1)).
In accordance with a decision taken by the Board of Directors on October 23, 2018 following a proposal from the Compensation and Nominations Committee at its October 23, 2018 meeting, in accordance with the authorisation granted to it by the Combined General Meeting of April 26, 2018, 191,338 stock options were granted on December 22, 2018 to 56 Partners (Executive Global Partners and Senior Global Partners), including two members of the COMEX.
Those options can be exercised four years after the grant date at the earliest, if the presence condition (four years) is respected. The exercise price is calculated without a discount, based on a twenty-day average opening share price of SCOR SE’s shares before the grant date. The stock options can be exercised on one or more occasions from the beginning of the exercice period on December 23, 2022 until December 22, 2028 inclusive. After this date, purchase rights shall expire.
The options granted during the financial year ended December 31, 2005 and thereafter are stock subscription option plans.
Stock options granted to the top ten non­officer employees and exercised by them
On April 26, 2018, the Shareholders’ Meeting of the Company, in its 24th resolution, authorized the Company’s Board of Directors, under the provisions of Articles L. 225-197-1 to L. 225-197-6 of the French Commercial Code, to grant, upon a proposal of the Compensation and Nomination Committee, on one or more occasions, in favor of employees of the Company and of companies or groups affiliated with it pursuant to Article L. 225-197-2 of the French Commercial Code, as well as in favor of the corporate officers as defined under Article L. 225-197-1-II of the French Commercial Code, free allocations of existing or yet-to-be-issued shares of the Company and resolved that the Company’s Board of Directors would determine the identity of the beneficiaries of the allocation as well as the rights and conditions attached to the conditional entitlement to receive the shares.
This authorization was given for a period of 24 months from the day of shareholder’s meeting, i.e. until April 26, 2020 and renders ineffective, for its unused part, the previous authorization granted on April 27, 2017 in its twenty-second resolution.
At the same time, 200,000 performance shares were awarded on February 21, 2018 to the non-French tax resident members of the Executive Committee as part of a so-called non-qualified plan.
Refer to Section 2.2.3.2 of the present Registration Document for the details of the performance shares granted to the members of the Executive Committee.
The final vesting of the shares is also subject performance conditions.
The final vesting of half of the shares granted is subject to the fact that the average solvency ratio for three years (from January 1, 2018 to December 31, 2020) is at least equal to the average SCOR solvency strategic target over the same period (the “Target Solvency Ratio”(1)). If the observed average solvency ratio is lower than the Target Solvency Ratio, the shares will vest according to the sliding scale set out in the table below: Difference between the average solvency ratio and the Target Solvency Ratio Proportion of the shares finally vested in line with this criterion
The achievement of these performance conditions will be assessed and validated annually by the Compensation and Nomination Committee.
In addition, notwithstanding the total or partial achievement of the performance conditions described above, the right to exercise all or some options would be subject, in any event, to strict compliance with the Group’s ethical principles as set out in the Group’s Code of Conduct.
In accordance with the authorization given by the Extraordinary Shareholders’ Meeting on April 26, 2018, the Company’s Board of Directors’ meeting of October 23, 2018, on the proposal of the Compensation and Nomination Committee meeting of October 23, 2018, decided to grant on the December 22, 2018 performance shares to Partners and specific Non Partners.
December 23, 2018 free shares plans as part of a collective plan
The final vesting of the shares granted is subject to the fulfilment of the terms and conditions set out in the Plan, and in particular that the beneficiary remains employee or corporate officer of the SCOR Group until December 23, 2021 inclusive, except as otherwise stated by the Plan, and to the respect of the Group’s ethical principles as described in its Code of Conduct.
In the meantime, 66,642 performance shares were awarded on the December 22, 2018 to Non-French tax residents Partners and specific Non Partners employees of the Group (57 employees) in a non qualified Long Term Incentive Plan (LTIP).
The final vesting of the remaining half of the shares is subject to the fact that the average solvency ratio over six years (from January 1, 2018 to December 31, 2023) is at least equal to the average SCOR solvency strategic target over the same period (the “Target Solvency Ratio”(1)). If the observed average solvency ratio is lower than the Target Solvency Ratio, the shares will vest according to the sliding scale set out in the table below: Difference between the average solvency ratio and the Target Solvency Ratio Proportion of the shares finally vested in line with this criterion
Members of the Executive Committee 0 0 399,362 9 50,000 1 380,000 8
In 2018, the Compensation and Nomination Committee acknowledged the partial validation of all the performance conditions attached to the December 18, 2015 performance share plan as defined in the 2015 Registration Document, bringing the share acquisition rate to 95%. In addition to the performance conditions described below, the strict compliance with Group’s ethical principles as described in the Code of Conduct of SCOR Group was required.
Difference between the average Solvency Ratio over 2015 – 2017 and the average Target Solvency Ratio +31 bps 100%
In 2018, the Compensation and Nomination Committee acknowledged the partial validation of all the performance conditions attached to the July 26, 2012 Long Term Incentive Plan, bringing the share acquisition rate to 95%. In addition to the performance conditions described below, the strict compliance with Group’s ethical principles as described in the Code of Conduct of SCOR Group was required.
Ratio between the observed average ROE over 2015 – 2017 and the target ROE 94% 90%
The following table shows the free shares plans currently in force within the Group.
During 2018, the rights vested by the ten employees of the Company and of any company included in the scope of consolidation with the highest number of shares thus obtained represent 412,500 shares. Those rights relate, for non-French tax residents, to the performance share plans of March 4, 2014 and December 18, 2015 whose transfer occurred on March 5, 2018 and December 19, 2018, and for French tax residents to the performance plan of December 18, 2015 whose transfer occurred on December 19, 2018.
On April 26, 2018, the Shareholders’ Meeting of the Company, in its 25th resolution, delegated its authority to the Company’s Board of Directors in order to increase the share capital by issuing shares reserved for employees of the Company and of French and foreign companies affiliated with it pursuant to Article L. 225-180 of the French Commercial Code, who are participants in savings plans and/or mutual funds. This new authorization replaces the authorization granted by the Shareholders’ Meeting of April 27, 2017.
Transactions made in 2018 for an amount greater than EUR 20,000
Exercise of stock options for a total amount of EUR 2,036,161 Sale of shares resulting from the exercise of stock options for a total amount of EUR 3,378,630,14 Sale of shares for a total amount of EUR 3,069,380.96 Acquisition of shares for a total amount of EUR 2,194,500
* Thierry Derez has been a director of SCOR SE until November 13, 2018.
02 REPORT ON CORPORATE GOVERNANCE Major shareholders and related party transactions 2.3. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Every quarter, SCOR conducts «TPI» (titres aux porteurs identifiables) searches to find out the number and identity of its bearer shareholders.
As of December 31, 2018, SCOR’s shareholders are mainly institutional as they represent 75% of SCOR’s share capital. Institutional shareholders come mainly from Europe (72%), the United States (25%) and Asia (3%). The rest of the share capital is split between treasury shares (5%), employees (4%), retail (2%), brokerage (4%) and others (10%).
Distribution of capital (number of shares, % of capital and voting rights) – (i) shareholders with more than 2.5% of the registered capital and/or voting rights and (ii) shareholders who are members of the Board of Directors (on the basis of a study of identifiable share bearers (TPI) conducted by the Company as at December 31, 2017): As at December 31, 2017 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 year-end, excluding the Company’s own treasury shares. (2) BlackRock Inc.’s aggregated number of shares, including BlackRock Fund Advisors, amounted to 11,355,866 representing 5.87% of the capital and 6.05%
of the voting rights. (3) Member of the Board of Directors.
(4) Employee shares carrying voting rights, excluding sold or transferred employee shares. (5) This shareholding notably includes performance shares granted in accordance with the authorizations of the SCOR SE Shareholders’ Meeting, prior to the publication of Law No. 2015-990 of August 6, 2015 and held as registered shares by employees as at December 31, 2017. Employee shareholdings, as defined in Article L. 225-102 of the French Commercial Code, amount to 0.36% of the capital and 0.37% of voting rights.
Distribution of capital (number of shares, % of capital and voting rights) – (i) shareholders with more than 2.5% of the registered capital and/or voting rights and (ii) shareholders who are members of the Board of Directors (on the basis of a study of identifiable share bearers (titres aux porteurs identifiables – «TPI») conducted by the Company as at December 31, 2016): As at December 31, 2016 Number of shares % of capital % voting rights(1)
(3) BlackRock Inc.’s aggregated number of shares, including BlackRock Institutional Trust Company, amounted to 10,545,559 representing 5.48% of the capital and 5.71% of the voting rights.
There is no covenant stipulating preferential terms for the sale or purchase of ordinary shares eligible for trading on a regulated market, or for which an application is pending, and representing 0.5% or more of the share capital or voting rights that has been notified to the AMF. No ordinary shares have been pledged.
To SCOR’s knowledge, there is no shareholder agreement, or other agreement, among Company shareholders pursuant to which they act in concert. To the Group’s knowledge, there have been no transactions between executives, corporate officers, or shareholders holding more than 2.5% of the Company’s share capital (or of the company controlling them) and the Company on terms other than market terms.
To SCOR’s knowledge, the percentages of share capital and voting rights held by its directors and Executive Committee members were 4.17% of the capital and 4.37% of the voting rights as at December 31, 2018 (December 31, 2017: 3.97% of the capital and 4.09% of the voting rights).
On October 5, 2018, Allianz Global Investors GmbH declared to have exceeded the registered threshold of 5.0% of the capital and voting rights in SCOR SE and that it held 9,644,644 shares or 5.01% of the capital and 9,644,644 voting rights or 5.01% of the voting rights in SCOR SE.
On October 24, 2018, Allianz Global Investors GmbH declared that it went below the registered threshold of 5.0% of the capital and voting rights in SCOR SE and that it held 9,583,623 shares or 4.97% of the capital and 9,583,623 voting rights or 4.97% of the voting rights in SCOR SE.
Until January 3, 2009, pursuant to Article 8 of the bylaws (“Rights attached to each share”), for two years after the Company’s reverse stock split, as decided by the Company’s Ordinary and Extraordinary Shareholders’ Meeting on May 16, 2006 in its 17th 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 remained proportional to the percentage of share capital they represented.
April 30, 2015 Situation on April 30, 2015 according to the decision of the Board of Directors on April 30,
April 27, 2016 Situation on April 27, 2016 according to the decision of the Board of Directors on April 27,
April 27, 2017 Situation on April 27, 2017 according to the decision of the Board of Directors on April 27,
See Section 4.6.23 – Notes to the consolidated financial statements, Note 23 – Commitments received and given.
See paragraph of this Section 2.3.6.1 – Amount of convertible securities, exchangeable securities or securities with subscription warrants for a description of the warrants issued on December 16, 2016.
Number of shares initially authorized at the date of the Shareholders’ Meeting and number of outstanding shares authorized at the date of the Registration Document
DELEGATIONS OF AUTHORITY GRANTED BY THE EXTRAORDINARY SHAREHOLDERS' MEETING OF APRIL 26, 2018 13th resolution (Delegation of authority granted to the Board of Directors for the purpose of deciding upon the incorporation of profits, reserves or premiums into the share capital) 25,390,466 shares 25,390,466 shares 26 months 14th resolution (Delegation of authority granted to the Board of Directors for the purpose of deciding on the issuance of shares and/or of securities granting access to the capital or giving entitlement to debt instruments, with pre-emptive subscription rights) 77,400,126 shares 77,400,126 shares 26 months 15th resolution (Delegation of authority granted to the Board of Directors for the purpose of deciding on the issuance, in the context of a public offering, of shares and/or of securities granting access to the capital or giving entitlement to debt instruments, without pre-emptive subscription rights) 19,350,031 shares 19,350,031 shares 26 months 16th resolution (Delegation of authority granted to the Board of Directors for the purpose of deciding on the issuance, in the context of an offer referred to in paragraph II of Article L. 411-2 of the French Monetary and Financial Code, of shares and/or of securities granting access to the capital or entitling the holder to debt instruments, without pre-emptive subscription rights) 19,350,031 shares 19,350,031 shares 26 months 17th resolution (Delegation of authority granted to the Board of Directors for the purpose of deciding on the issuance of shares and/or securities granting access to the capital or entitling the holder to debt instruments, as compensation for shares contributed to the Company in the context of any public exchange offer launched by the Company, without pre-emptive subscription rights) 19,350,031 shares 19,350,031 shares 26 months 18th resolution (Delegation of authority granted to the Board of Directors for the purpose of issuing shares and/or securities granting access to the capital or entitling the holder to debt instruments, as compensation for shares contributed to the Company in the context of contributions in kind within a limit of 10% of the share capital, without pre-emptive subscription rights) 19,350,031 shares 19,350,031 shares 26 months 20th resolution (Delegation of authority granted to the Board of Directors for the purpose of issuing warrants for the issuance of ordinary shares of the Company, with cancellation of shareholders’ preferential subscription rights to the benefit of one or several investment services providers authorized to provide underwriting investment services) 19,350,031 shares 19,350,031 shares 18 months 21st resolution (Delegation of authority granted to the Board of Directors for the purpose of issuing warrants for the issuance of ordinary shares of the Company, with cancellation of shareholders’ preferential subscription rights to the benefit of a category of entities meeting specific characteristics) 19,350,031 shares 19,350,031 shares 18 months 25th resolution (Delegation of authority granted to the Board of Directors in order to issue shares reserved for the members of savings plans (plans d’épargne), without pre-emptive subscription rights) 3,000,000 shares 3,000,000 shares 18 months
AUTHORIZATIONS GRANTED BY THE EXTRAORDINARY SHAREHOLDERS’ MEETING OF APRIL 26, 2018 19th resolution (Authorization granted to the Board of Directors for the purpose of increasing the number of shares issued in accordance with the 14th, 15th and 16th resolutions in the event of over-subscription to the share capital increase, with or without cancellation of pre-emptive subscription rights)
This resolution can only be used with the 14th, 15th and 16th resolutions and is in any case capped by the 26th resolution 26 months 23rd resolution (Authority to issue shares for stock option plans) 1,500,000 shares 1,308,662 shares 24 months 24th resolution (Authorization granted to the Board of Directors to grant shares under free share allocation plans) The authorization is limited to existing shares(1)
24 months 26th resolution (Aggregate ceiling of the capital increases) 101,250,157 shares shares -
(1) The authorisation of the Ordinary and Extraordinary Shareholders’ Meeting of April 26, 2018 is limited to 3,000,000 existing shares (the remaining amount being on December 31, 2018 2,578,953 shares).
On April 26, 2018, the Shareholders’ Meeting, in its 12th resolution, authorized the Board of Directors, with the option to sub-delegate, to trade on the Company’s shares in the framework of the 2018-2019 annual share repurchase program. The program allows to buy, sell and transfer Company shares pursuant, inter alia, to the provisions of Regulation (EU) No. 596/2014 of the European Parliament and of the Council of April 16, 2014, Articles L. 225-209 et seq. of the French Commercial Code and to the General Regulation (Règlement général) of the French Financial Markets Authority (Autorité des marchés financiers).
Such transactions on securities can be carried out for any purposes permitted or which would become authorized under applicable laws and regulations, including for purposes of the following objectives: ◆ stimulation of the secondary market or provision of liquidity to the Company’s shares by an investment service provider through a liquidity contract in accordance with a code of practice recognized by the regulation; ◆ setting-up, implementation or hedging of any stock option plans, other plans for allocation of shares and, generally, any form of allocation to employees and/or corporate officers (mandataires sociaux) of the Company and/or of affiliated companies, including hedging of any Company stock option plan pursuant to the provisions of Articles L. 225-177 et seq. of the French Commercial Code, allocation of free shares of the Company in conjunction with the provisions of Articles L. 225-197-1 et seq. of the French Commercial Code, allocation of Company shares pursuant to a profit sharing scheme (participation aux fruits de l’expansion de l’entreprise) or allocation or transfer of Company shares within the framework of any employee savings plan (plan d’épargne salariale), including in conjunction with the provisions of Articles L. 3321-1 et seq., and L. 3332-1 et seq., of the French Labor Code; ◆ purchase of Company shares for retention and subsequent remittance in exchange or as payment, in particular in conjunction with financial or external growth transactions, without exceeding the limit set by paragraph 6 of Article L. 225-209 of the French Commercial Code in conjunction with a merger, spin-off or contribution; ◆ compliance with all obligations related to the issuance of securities granting access to capital; ◆ cancellation of any shares repurchased, within the limits established by law, in conjunction with a reduction in share capital approved or authorized by the Shareholders’ Meeting.
02 REPORT ON CORPORATE GOVERNANCE Major shareholders and related party transactions
The 2018 Shareholders’ Meeting set the maximum purchase price at 1.33 times the consolidated book net asset value per share (excluding acquisition fees).
In the context of the abovementioned buyback program, SCOR carried out, between January 1, 2018 and December 31, 2018: ◆ the purchase of 9,976,509 treasury shares; ◆ the sale of 2,459,170 treasury shares; ◆ the transfer of 2,548,311 treasury shares; ◆ the cancellation of 1,692,602 treasury shares.
Objectives of the transactions carried out in the course of the financial year 2018 and allocation of the treasury shares
The stock buyback authorization described in the above paragraph will expire on October 25, 2019 at the latest, unless the Shareholders’ Meeting convened on April 26, 2019 approves the resolution described below, in accordance with the provisions of articles L. 225-209 and subsequent of the French Commercial Code.
REPORT ON CORPORATE GOVERNANCE Major shareholders and related party transactions 02
◆ setting-up, implementation or hedging of any stock option plans, other plans for allocation of shares and, generally, any form of allocation to employees and/or corporate officers (mandataires sociaux) of the Company and/or of affiliated companies, including hedging of any Company stock option plan pursuant to the provisions of Articles L. 225-177 et seq. of the French Commercial Code, allocation of free shares of the Company in conjunction with the provisions of Articles L. 225-197-1 et seq. of the French Commercial Code, allocation of Company shares pursuant to a profit sharing scheme (participation aux fruits de l’expansion de l’entreprise) or allocation or transfer of Company shares within the framework of any employee savings plan (plan d’épargne salariale), including in conjunction with the provisions of Articles L. 3321-1 et seq., and L. 3332-1 et seq., of the French Labor Code; ◆ purchase of Company shares for retention and subsequent remittance in exchange or as payment, in particular in conjunction with financial or external growth transactions, without exceeding the limit set by paragraph 6 of Article L. 225-209 of the French Commercial Code in conjunction with a merger, spin-off or contribution; ◆ compliance with all obligations related to the issuance of securities granting access to capital; ◆ cancellation of any shares repurchased, within the limits established by law, in conjunction with a reduction in share capital approved or authorized by the Shareholders’ Meeting.
As part of the implementation of a contingent capital facility program, SCOR issued, on December 16, 2016, 9,599,022 Warrants for the benefit of BNP Paribas, (which transferred them to UBS during the year), each allowing UBS to subscribe, as from January 1, 2017 and no later than May 1, 2020, to two new SCOR shares (within the limit of an aggregate amount of subscription of EUR 300 million – issuing premiums included, without exceeding 10% of SCOR’s share capital) when the aggregated amount of (i) the estimated ultimate net losses resulting from eligible natural catastrophes incurred by the Group (in its capacity as an insurer/ reinsurer) between January 1, 2017 and December 31, 2019 or (ii) the ultimate net claims amount recorded by SCOR Group Life segment (in its capacity as an insurer/reinsurer) over two consecutive semesters over the period from July 1, 2016 and December 31, 2019 reaches certain contractual thresholds. In addition, subject to no drawdown having already been conducted under the facility, if SCOR’s daily volume-weighted average share price falls below EUR 10 an individual tranche of EUR 150 million will be drawn down out of the EUR 300 million facility.
See: ◆ Section 2.2.3 – Stock options and performance shares; ◆ Section 2.3.1.6 – Share capital; ◆ Section 4.6 – Notes to the consolidated financial statements, Note 12 – Information on share capital, capital management, regulatory framework and consolidated reserves; ◆ Section 4.6 – Notes to the consolidated financial statements, Note 14 – Provisions for employee benefits; ◆ Section 4.6 – Notes to the consolidated financial statements, Note 16 – Stock options and share allocations; ◆ Appendix C – Notes to the corporate financial statements, 5.3.5 – Stock options; and
◆ Appendix C – Notes to the corporate financial statements, 5.2.3 – Shareholders’ equity.
See: ◆ Section 2.2.3 – Stock options and performance shares; ◆ Section 2.3.1.6 – Share capital; ◆ Section 4.6 – Notes to the consolidated financial statements, Note 14 – Provisions for employee benefits; ◆ Section 4.6 – Notes to the consolidated financial statements, Note 16 – Stock options and share allocations; and
The shares of Group companies other than SCOR SE are neither under option nor agreed to be put under option.
REPORT ON CORPORATE GOVERNANCE Major shareholders and related party transactions 02 2.3.2. RELATED PARTY TRANSACTIONS AND AGREEMENTS
Regulated agreements within the meaning of Articles L. 225-38 et seq. of the French Commercial Code appear in the Statutory Auditors’ special report in Section 2.3.3 – Special report of the Statutory Auditors on related party agreements and commitments.
In accordance with Article L. 225-37-4 of the French Commercial Code, no agreements were concluded during the year 2018 directly or through a third party between, on the one hand, SCOR SE Chief Executive Officer, one of SCOR SE directors or one of its shareholders holding a fraction of the voting rights greater than 10% and, on the other hand, another company in which SCOR SE owns directly or through a third party more than half of the capital unless such agreements were ordinary transactions carried out under arm’s length conditions.
02 REPORT ON CORPORATE GOVERNANCE Major shareholders and related party transactions 2.3.3. SPECIAL REPORT OF THE STATUTORY AUDITORS ON RELATED PARTY AGREEMENTS AND COMMITMENTS
This is a translation into English of a report issued in French and it is provided solely for the convenience of English-speaking users.
In our capacity as statutory auditors of your Company, we hereby report on certain related party agreements and commitments referred to in article L. 225-38 of the French commercial code (Code de commerce) and on the information referred to in article R. 322-7 of the French insurance code (Code des assurances).
In addition, we are required, where applicable, to inform you in accordance with article R. 225-31 of the French commercial code (Code de commerce) concerning the implementation, during the year ended December 31st, 2018, of the agreements and commitments already approved by the Annual General Meeting of shareholders.
We hereby inform you that we have not been notified of any agreements or commitments previously authorized during the year ended December 31, 2018 to be submitted to the Annual General Meeting for approval in accordance with Article L. 225-38 of the French Commercial Code (Code de commerce) and R. 322-7 of the French Insurance code (Code des assurances).
AGREEMENTS AND COMMITMENTS PREVIOUSLY APPROVED BY THE ANNUAL GENERAL MEETING OF SHAREHOLDERS
Amendment to the SCOR SE regulation on the supplementary retirement plan of article 39 of the French General Tax Code.
On its March 18, 2008 meeting, the Board of Directors authorized, in accordance with Article L. 225-38 of the French Commercial Code, the signature of the supplementary corporate retirement plan. This agreement was definitively concluded on May 15, 2008.
The salary taken into account for the calculation of the depending rights is the average of the remuneration of the last five years of activity (or professional activity, if any), revalued on the date of departure according to the evolution of the average annual INSEE consumer prices index.
The participant who leaves the Group to retire will be entitled to an additional pension if, at the time of his departure, he meets the conditions set by the regulations, which includes having acquired a seniority of at least five years at the time of said departure and having liquidated all pension benefits from mandatory retirement plans.
On April 27, 2017, the Board of Directors authorized an amendment to the Supplementary Retirement Plan Regulations, notably to bring it into line with the “Macron Law” No. 2015-990 of August 6, 2015 on Growth, Business improvement and Equality of economic opportunities: ◆ introduction of an annual limit of 3% of the reference income instead of 5% for the increase of the future conditional rights of the Chairman and Chief Executive Officer; ◆ introduction of conditions related to the performance of the Chairman and Chief Executive Officer for the acquisition of future rights; ◆ extension of the eligibility for the reversionary pension of the supplementary retirement plan, limited to the married or divorced spouse, to the other legal schemes of joint living, subject to the absence of a spouse or former eligible spouse.
The following paragraphs are added: ◆ addition of a second paragraph to Article 2 – Title III: “As from January 1, 2017 and concerning the Chief Executive Officer, the acquisition of any additional conditional rights per new year of seniority in the company is limited to 3% of the Reference Income instead of 5%, until a maximum amount of 50% of the Reference Income is reached minus the annuities acquired under the external plans listed in article 5 of the title II, but this amount can in no case exceed 45% of the Reference Income; ◆ this acquisition of additional contingent rights by new year of seniority in the company is also subject to a condition related to the performance of the beneficiary considered as fulfilled if the variable portion of the remuneration of the Chief Executive Officer, paid in N + 1. in respect of the year N during which the new seniority year was acquired, reaches 100% of the target amount of this variable portion. In the event that the variable portion does not reach 100% of the target amount, the calculation of the newly acquired rights is made pro rata. The acquisition of any additional conditional rights is also subject to absolute compliance with the Group’s ethical principles as described in the SCOR Group Code of Conduct”; ◆ addition of a third paragraph to Article 5 – Title III: “In case of absence of any married spouse(s), separated or divorced not remarried, the spouses under another legal regime of cohabitation will be eligible for the survivor’s pension according to the same principles”.
M. Denis Kessler, Chairman and Chief Executive Officer of your Company
Pursuant to a decision dated July 26, 2012, taken in accordance with article L. 225-42-1 of the French commercial code and with the provisions of article L. 225-40 of the French commercial code, the Board of Directors of the Company has authorized, based on the recommendations of the Compensations and Nominations Committee of July 25, 2012, and in accordance with the decision of the Board of Directors dated May 3, 2012 and the subsequent commitments made by the Chairman and Chief Executive Officer during the Mixed Shareholders’ Meeting of May 3, 2012, the adoption of an amendment to the regulated agreement relating to the commitments made for the benefit of the Chairman and Chief Executive Officer, the terms of which are outlined below, with respect notably to the compensation elements taken into account for the indemnity to be granted to M. Denis Kessler in case of his forced departure from the SCOR Group, as well as the performance conditions which this indemnity is subject to.
Pursuant to a decision dated February 21, 2018, made pursuant to Article L. 225-42-1 of the French Commercial Code and in accordance with the provisions of Article L. 225-40 of the French Commercial Code, the On the basis of the recommendations of the Remuneration and Appointments Committee of January 30, 2018, the Board of Directors authorized the adoption of an amendment to the regulated agreement relating to the commitments made for the benefit of the Chairman and Chief Executive Officer, whose terms below, aiming in particular at aligning the performance conditions to which this allowance is subject to those provided for in the Group’s current strategic plan: In the event of the termination of his duties as Chief Executive Officer, the items likely to be due to him will be determined according to the following situations: (i) in the case of dismissal for misconduct, non-renewal of the term of office of Chief Executive Officer, resignation (other than as a result of a forced departure referred to in paragraphs (ii) and (iii) below) or following a notoriously negative performance of the Company (failure to meet performance condition (C_n) as described below), no severance pay would be due; (ii) in the event of a forced departure or dismissal prior to the twelve months preceding the end of his term as Chief Executive Officer, typically for divergent views on the Group’s strategy, the Chief Executive Officer would receive severance pay equal to the sum fixed and variable components of his gross annual compensation paid in the twenty-four (24) months preceding his departure from the Group. No severance pay would be payable in the event of non-fulfillment of performance condition (C_n) defined below.
in case of forced departure or dismissal during the twelve (12) months preceding the end of his term as Chief Executive Officer, no severance pay would be due; (iii) in the event that the Chairman and Chief Executive Officer is dismissed or his departure is imposed due to a hostile offer resulting in a change of control in the SCOR Group, the Chairman and Chief Executive Officer will benefit from an indemnity limited to the amount of fixed and variable compensation paid to him by the Group during the last twenty-four months preceding the date of his departure from the Group. No severance pay would be payable in the event of non-fulfillment of the performance condition (C_n) defined below.
The performance condition (C_n) set by the Board of Directors on the recommendation of the Compensation and Appointments Committee, will be met if the two criteria below are met: (A) SCOR’s average return on equity “ROE” for the three financial years preceding the date of departure of the Chief Executive Officer exceeds 50% of the average SCOR’s strategic objective’s ROE (defined in the strategic plan) calculated over the same period (the “Target ROE”); and
The aforementioned regulated commitments are referred to in section 2.3.2 - Transactions with related parties and regulated agreements in Chapter 2 - Report on Corporate Governance in accordance with Article L.225-37-3 of the French Commercial Code.
The information included in this section referring to the nature and extent of risks arising from financial instruments and insurance and reinsurance contracts as required by IFRS 7 – Financial Instruments: Disclosures and IFRS 4 – Insurance Contracts, is an integral part of the consolidated financial statements as at December 31, 2018. As such, the corresponding information is audited.
All risks described in Section 3 are managed through a variety of mechanisms in SCOR’s ERM (Enterprise Risk Management) Framework and the most important of these are described below.
The Group’s operating result could be materially affected by the economic and financial situations in France and other countries in continental Europe, the United Kingdom, the United States of America and elsewhere around the world, particularly in Latin America and Asia-Pacific. Any protracted deterioration in macroeconomic trends could have an adverse effect on SCOR’s business and operating result. Even though the global economy is expected to continue its expansion in 2019, several imbalances accumulated since the 2008 crisis and escalating trade conflicts pose significant risks. For example, the growing debt of governments in advanced economies and of private companies in emerging countries could generate significant adjustments if the main central banks were to significantly raise interest rates. As a result, financial markets could enter a period of high volatility, which could lead to adverse consequences such as waves of company defaults, significant decreases in the prices of major assets (i.e. bonds, equity, real estate), or a major liquidity crisis. Current trade conflicts could significantly reduce growth rates, spur inflation and destabilize exchange rates and financial systems, especially in vulnerable emerging economies.
Although growth in the Eurozone has become more robust over the years, thanks to both internal and external momentum, its maintenance may become increasingly difficult due to several challenges; for example, the ongoing Brexit negotiations, continuing economic disparities between EU countries and increased political risks. Increases in Eurozone members’ sovereign yields or even sovereign defaults by major eurozone members, may result from these challenges. SCOR cannot predict whether any of the government securities that it holds in its investment portfolio will be adversely affected in the future by ratings downgrades or potential sovereign debt market tensions. This uncertain environment and the potential market volatility may have an adverse effect on SCOR, from both an investment and reinsurance business viewpoint. For further information on investments, see Section 1.3.5.4 – Net investment income and investment income on invested assets and Section 4.6 – Notes to the consolidated financial statements, Note 7 – Insurance business investments.
A protracted period of deflation would also induce a decrease in interest rates all along the yield curve and may therefore negatively impact the returns on SCOR’s fixed income assets. In addition, the value of SCOR’s equity portfolio might be reduced as deflation could reduce the future cash flows of the companies whose stocks are part of the Group’s portfolio.
In conclusion, both high inflation and a protracted episode of deflation could have a material adverse effect on SCOR.
In particular, developments in existing or emerging prudential regulations (such as Solvency II, ComFrame or the regulations on systemic risk) are monitored at Group level by the Prudential and Regulatory Affairs Department. Regulations relating to corporate law and business compliance are monitored by the General Secretariat and, within it, the Legal Department.
03 RISK FACTORS AND RISK MANAGEMENT MECHANISMS Strategic risks 3.2.3.2. MANAGEMENT OF VALUATION RISKS RELATED TO SCOR’S INTANGIBLE ASSETS AND DEFERRED TAX ASSETS
3.2.4.1. SCOR OPERATES IN A HIGHLY COMPETITIVE SECTOR AND WOULD BE ADVERSELY AFFECTED BY LOSING COMPETITIVE ADVANTAGE OR IF ADVERSE EVENTS HAD AN IMPACT ON THE REINSURANCE INDUSTRY
3.2.4.2. CONSOLIDATION IN THE INSURANCE AND REINSURANCE INDUSTRIES COULD ADVERSELY IMPACT SCOR
As for risks related to the macro-economic environment, risks related to the competitive environment are monitored via a robust strategic planning approach and regular risk reporting mechanisms throughout the Group, including complementary risk analyses on ad-hoc topics, where deemed necessary. For more details on risk reporting mechanisms and roles and responsibilities of SCOR’s main governance bodies, see Appendix A – Internal control and risk management procedures.
Some LOCs issued by banks providing such facilities may be collateralized with securities. The value of the collateral can be different from the amount of the LOC. For some facilities, initial collateral requirements may be increased following a downgrade of SCOR’s rating, impacting the Group’s liquidity level. In the case of a LOC being drawn by a cedent, the bank has the right to request a cash payment from this collateral, up to the amount drawn by the cedent.
SCOR’s current ratings are at the highest levels within the reinsurance sector after Standard & Poor’s and Fitch upgraded the Group’s ratings to “AA-/Stable” from “A+/Positive” in 2015, followed by a Moody’s upgrade to “Aa3/Stable” in 2016 and the recent upgrade by AM Best to “A+/Stable” in 2017. Therefore, a downgrade by one notch would have a limited impact on its future business development, its liquidity position or its capacity to raise funds. For further information on SCOR’s current rating, see Section 1.2.4 – Ratings information.
SCOR monitors its ratings assigned by the top four rating agencies via a dedicated team placed under the supervision of the Group Chief Financial Officer.
This team analyses rating agencies’ methodologies, reports published on the reinsurance market, on SCOR and on its main competitors, in order to anticipate any potential rating actions. It also monitors specific qualitative and quantitative Key Performance Indicators developed by the four main rating agencies and performs analyses of selected deterministic scenarios (for more details on ‘footprint scenarios’ process, see Appendix A – Internal control and risk management procedures). The team also monitors the capital adequacy level as measured by the capital models developed by rating agencies.
03 RISK FACTORS AND RISK MANAGEMENT MECHANISMS Strategic risks 3.2.6. OTHER STRATEGIC RISKS
Adverse capital and credit market conditions may significantly affect SCOR’s ability to access capital and/or liquidity and increase the cost of capital
For further information on changes in the macro-economic environment that could impact SCOR, refer to Section 3.2.1 – Risks related to the macroeconomic environment affecting SCOR’s strategy.
Risks related to capital are managed via specific principles and processes throughout the Group. SCOR ensures maximum capital fungibility within the Group through: ◆ a reduced number of subsidiaries enhancing fungibility while supporting local business presence. It is facilitated by the “Societas Europaea” (SE) structure supported by an efficient branch set-up in Europe, enabling integrated supervision at Group parent company level through SCOR SE, focusing on communication with a limited number of supervisors with whom SCOR can share its global strategy, while taking advantage of diversification benefits; ◆ an integrated supervision of regulatory constraints at Group level and an optimal capital allocation.
SCOR efficiently manages its capital allocation and fungibility between subsidiaries within the legal and regulatory constraints. SCOR is continuously leveraging, in its day-to-day activity, on various tools that are core to the reinsurance activity (such as intra-group reinsurance, intra-group financing, portfolio transfer, capital transfer or collateral posting).
Specific risks relating to the acquired businesses are as follows: Integration of the acquired activities may prove to be more difficult than expected
Integrations may take longer, be more expensive or more difficult than expected. The success of integrations may depend on operational and commercial planning, execution of systems and procedures, and on the retention of key employees. Difficulties could result in higher integration costs or fewer synergies than expected.
Acquisitions could result in the concentration of business and the reliance on intermediate business relationships
SCOR retains outside legal, accounting, tax, actuarial, regulatory and financial counsel for its due diligence, valuation and integration assessments and execution, led by experienced employees in various multi-jurisdictional disciplines, including but not limited to underwriting, structuring, valuation, accounting, tax, actuarial, risk management, legal, audit, strategy, claims management, regulatory, rating agencies, and asset management. SCOR’s governance is overseen by a Group Steering Committee, chaired by its Chief Executive Officer and includes various members of SCOR’s Executive Committee. All progress, assessments and any offers made to third parties are generally presented and approved by the Strategic Committee of SCOR’s Board of Directors.
All planned acquisition projects that may have an impact on SCOR’s risk profile are reviewed in collaboration with SCOR’s risk management teams. Integration of acquired businesses typically begins during the due diligence phase and is carefully planned between SCOR and the personnel of the acquired companies. SCOR integration plans typically take into account all systems, procedures, commitments and constraints, as well as employees, clients, suppliers and contractual third parties, and focuses on pre-closing, closing day and post-closing objectives. While SCOR has experience in managing acquisitions and takes care in planning and executing such operations, the outcomes may not always meet expectations.
Generally, SCOR’s ability to increase or maintain its portfolios of insurance and reinsurance risks in the P&C and Life divisions may depend on external factors such as professional practices, legal, jurisdictional, regulatory, social, political, economic, financial and environmental conditions. These factors create uncertainties and may adversely affect SCOR’s business due to either an interpretation of the contracts leading to an extension of coverage (e.g. through inapplicability or interpretation or overriding of treaty clauses) or by increasing the frequency and/ or severity of claims beyond what was anticipated at the time of the underwriting.
(e.g. the multi-year securitization of catastrophic risk in the form of Insurance-Linked Securities (“ILS”) and the issuance of contingent capital facilities). However, there is a risk that SCOR may not be able to transfer its liabilities through the purchase of such instruments on economically viable terms and conditions in the future. For further details on retrocession and other risk mitigation techniques within SCOR, see Section 3.3.1.4 – Management of underwriting risks related to the P&C business and 3.3.2.7 – Management of underwriting risk related to Life reinsurance business and Appendix A – Internal control and risk management procedures – paragraph on capital shield strategy.
SCOR underwrites reinsurance covers in P&C and Life and occasionally in direct P&C and Life insurance.
The main risks linked with the P&C reinsurance business (and direct insurance activity) underwritten by SCOR’s P&C division are, natural catastrophes, P&C long-tail reserves deterioration and man-made catastrophes, including terrorism, and other risks beyond its direct control such as systemic crises or the cyclicality of the business.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS Underwriting risks related to the P&C and Life reinsurance businesses 03 3.3.1.2. NATURAL AND MAN-MADE CATASTROPHES
For further information on management of underwriting risks within the P&C division, refer to Section 3.3.1.4 – Management of underwriting risks related to the P&C business. For further information on SCOR’s retrocession and other risk mitigation techniques, refer to Section 3.3.5 – Retrocession and other risk mitigation techniques.
The amount of information available on casualty catastrophes is limited. In contrast to property catastrophes, which are short term in nature (limited number of days between insured event and loss emergence) and for which reasonable estimates of the size of the loss can be calculated, most casualty catastrophes emerge gradually and the full extent of the losses is often not known for decades.
For further information on management of underwriting risks within the P&C division, refer to Section 3.3.1.4 – Management of underwriting risks related to the P&C business.
03 RISK FACTORS AND RISK MANAGEMENT MECHANISMS Underwriting risks related to the P&C and Life reinsurance businesses 3.3.1.3. OTHER RISKS
In addition to the two main underwriting risks of SCOR’s P&C division as listed above, other factors could have an adverse impact, such as systemic crises, cyclicality of the business and concentration risks related to its broker business.
Historically, reinsurers have experienced significant fluctuations in operating income due to volatile and unpredictable developments, many of which are beyond the control of the reinsurer including general economic conditions, levels of capacity offered by the market, and the level of competition with regards to pricing. In particular, some of SCOR’s lines of business which are directly linked to financial activities, are more exposed to global economic recessions (e.g. the Global Financial Crisis): as an example, specialty lines such as credit and surety or liability risk such as Errors & Omissions and Directors & Officers Liability.
Beyond the general trends, the premium rate cycle affects certain geographic markets and/or certain lines of business in different ways and different extents, independently of each other.
◆ Most of the business underwritten is renewed on agreed dates. This enables SCOR to establish annual underwriting plans, both qualitative (description of the environment) and quantitative (activity budget). These plans are approved by the Executive Committee.
◆ The Property and Casualty Treaty underwriters manage client relationships and offer reinsurance support after a careful review and assessment of the cedents’ underwriting policies, portfolio profiles, exposures and management procedures. They are responsible for writing treaty business as well as associated support on small and medium-size facultative risks in their respective territories within the limits of their individually delegated underwriting authority and the scope of underwriting guidelines.
◆ Most of SCOR’s facultative underwriters work in the Business Solutions domain of Specialty Insurance, which operates worldwide. The Business Solutions area is dedicated to large corporate businesses and is geared to provide clients with solutions for coverage of large conventional risks.
a. Underwriting guidelines in place within the P&C division specify (i) the underwriting rules and principles to be complied with: (ii) the underwriting capacities individually delegated to the underwriters in each of the markets and lines of business in which the Group operates as well as (iii) the relevant maximum acceptable commitments per risk and per event. They are reviewed and updated annually by Underwriting Management and approved by the Chief Executive Officer and Chief Risk Officer of SCOR’s P&C division.
b. Pricing guidelines and parameters apply to all treaties priced within the P&C division. There are additional guidelines related to Natural Catastrophes and others specific to certain products which include Agriculture and Credit & Surety. These guidelines seek to ensure that the analyses provide: i) best estimate of the costs and profitability of a treaty as well as the uncertainty surrounding estimates; ii) assistance with underwriting decisions and iii) the suitable outputs needed for the risk management process, in particular the internal model, such as probability distributions for losses/Net Present Value (NPV), cash flow patterns for premium/losses, etc. They are set to provide consistency and continuity across the organization but also to take into account differences between markets and lines of business as well as the geographical location of the client and the risks insured. Parameters are revised at least once a year to consider, as the case may be, changing market conditions and environment. Contracts that meet certain risk thresholds are subject to mandatory peer reviews that have to be performed and documented before pricing is completed. SCOR’s P&C division uses a data system that allows management to monitor and review the results from pricing tools.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS Underwriting risks related to the P&C and Life reinsurance businesses 03
◆ Business opportunities going beyond the stipulations of the guidelines previously defined are subject to special referral procedures at two levels: (1) by Underwriting Management and, where applicable, by Legal and/or Finance; (2) and for cases which may have a significant impact on the balance sheet (thresholds and/or conditions defined in a procedure or specific guidelines) by Group Risk Management.
◆ P&C division’s Actuarial Pricing is responsible for the pricing of the reinsurance business which is done by individual treaty. Guidelines, methods and tools are set and maintained at the global level which are used by the pricing team across the SCOR offices. Delegation authorities specify criteria under which the underwriters may price certain contracts still subject to the use of the Pricing Guidelines and tools. Pricing results quantify expected underwriting statistics (such as loss and expense ratios), volatility measures, and profitability measures (such as NPV, Return on Risk Adjusted Capital (RORAC), and Profit Excess Targets). The results are also used as criteria for referrals within Underwriting teams. Pricing actuaries, team up with underwriters and modelers by market or by line of business.
◆ Risk Modeling & Global Natural Hazards is responsible for monitoring accumulations. A “CAT” sub-group of the P&C Risk and Capital Committee meets regularly to review accumulations and decide on or arbitrate the allocation of CAT capacities by country. Earthquake and storm risks gross exposures are measured using proprietary external models from industry-leading catastrophe model suppliers, including Risk Management Solutions RiskLink® (“RMS”) and AIR Worldwide Catrader® (“AIR”). 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 alternative risk transfer solutions (e.g. catastrophe bonds) that are needed to ensure that the net aggregate exposure is optimized for the Group’s risk appetite and remains within predefined tolerance limits.
◆ Risks specific to the administration of contracts are subject to checks performed at the subsidiary and branch level. SCOR’s Group Information System includes multiple automatic checks and additional tools.
◆ A quarterly review of technical results is performed by business area (Reinsurance, Specialty Insurance, Business Ventures and Partnerships) and region. The review enables the analysis of technical results by underwriting year, by nature and by line of business.
◆ The P&C division’s Risk Management organizes the quarterly P&C Risk and Capital Committee, which is responsible for overseeing and guiding the identification, management and monitoring of risks and defined mitigation actions with the P&C division.
◆ Cross reviews are conducted by P&C division’s Risk Management, to assess the quality of underwriting, pricing and claims handling of particular business units or certain lines of business, to identify and assess risks, to evaluate the appropriateness and effectiveness of controls and to propose risk management measures, including mitigating actions.
03 RISK FACTORS AND RISK MANAGEMENT MECHANISMS Underwriting risks related to the P&C and Life reinsurance businesses 3.3.2. LIFE REINSURANCE
This risk refers to potential negative deviations in future mortality relative to current best-estimate assumptions, due to a higherthan -anticipated number of deaths (i.e. increased mortality rates) among the portfolio of lives reinsured by SCOR. This could result from inherent volatility, incorrect estimation of the expected claim level or an adverse long-term trend.
In Life reinsurance, a severe pandemic is a major risk. In the past century, three major outbreaks of influenza occurred and claimed millions of lives. The occurrence of a similar event could cause large losses to SCOR due to an increased mortality far beyond the usual volatility. A lethal virus strain not only of influenza but of any other communicable disease could lead to a material increase in mortality rates and increased medical costs which could significantly affect SCOR’s results.
The risk to the (re)insurer is of policyholders deliberately deciding among other things to: ◆ take out a policy in the knowledge that either their chance of claiming is high or higher than average; ◆ terminate a policy in the knowledge that their chance of claiming is low or lower than average; or
◆ Generally, the Life reinsurance business is underwritten throughout the year. The Life business underwritten is monitored on a quarterly basis against prior year development as well as the business plan and regular updates are provided to the Executive Committee.
◆ The Life business is underwritten following internal underwriting and pricing guidelines. Mandates for underwriting Life reinsurance business are assigned to teams on a mutually exclusive basis.
◆ In order to ensure that the Life division is continually up-todate with biometric trends and scientific developments, the expertise of seven dedicated Research & Development centers is used to analyze and assess the key factors underlying mortality, longevity, morbidity and policyholder behavior. These Research & Development Centers provide recommendations for the implementation of the research results into the pricing, underwriting and determination of exposure limits.
Business opportunities going beyond the stipulations of these guidelines and documents are subject to a special referral process in order to ensure that the business complies with established risk-adjusted return criteria and risk tolerance limits. These cases are examined at the Life division level by the Regional and Global Pricing and Risk Management
◆ Accumulations of risk particularly exposed to catastrophes in the Life business are regularly assessed in “footprint” scenarios and local catastrophe scenarios. Specific tools are used to monitor known group cover accumulation in selected geographical areas. Specifically, designed retrocession programs aim at protecting the Life reinsurance business. One program protects assumed catastrophe excess of loss acceptances; another one protects the net retained lines in respect of proportional and per risk acceptances. SCOR uses the RMS model for infectious diseases in order to assess the potential exposure to risk arising from global pandemics.
◆ The adequacy of SGL reserves is monitored based on specific procedures. For further information on how risks related to reserves are managed, see Section 3.3.4.2 – Management of reserving risks.
◆ Risks specific to the management of contracts are mitigated by specific controls supported by SCOR’s IT systems which include numerous automatic controls and additional tools.
◆ In addition, cross reviews are commissioned by the Life division’s Chief Executive Officer to evaluate, on the one hand, the quality of underwriting, pricing, medical underwriting and claims handling of particular market areas or lines of business and, on the other hand, to identify and assess risks, to evaluate the appropriateness and effectiveness of controls and to propose risk-management actions.
In the event of a very large natural catastrophe or terrorist attack, the losses generated in the P&C and Life Divisions could potentially accumulate, with losses on financial assets related to the potential reaction of markets (i.e. movements in interest rates, exchange rates, spreads and/or equity market prices). In the same way, a major pandemic event may cause financial market turmoil and/ or business interruptions.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS Underwriting risks related to the P&C and Life reinsurance businesses 03 3.3.4. RISKS RELATED TO RESERVES
Within SCOR’s P&C division, in order to ensure an adequate and efficient monitoring of the reserves, a report is established on a yearly basis by the Group Actuarial Department, where the Group Chief Actuary, reporting to the Group Chief Risk Officer, gives his opinion on the year-end booked reserves’ adequacy. The main objective of this report is to provide SCOR’s Executive Committee and Audit Committee with an overall opinion on the adequacy of the P&C division’s reserves but also to highlight the inherent uncertainties surrounding this assessment. The monitoring of the reserves by the division’s and Group’s Actuarial Department is centered on three mechanisms: ◆ a quarterly follow-up of the claims activity and review of reserves for each segment through adequate reporting procedures; ◆ an annual internal actuarial analysis, including a review of all segments together with a full analysis of the segments that may have a substantial impact on SCOR’s balance sheet. This analysis is performed by the P&C division’s reserving actuaries and reviewed by the Group Actuarial Department which performs as well its own full analysis. These analyses are recorded in an annual actuarial report; ◆ regular external reviews of the P&C division’s reserves adequacy are performed including those required by local regulators (Canada, South Africa, Argentina, India, China and SCOR’s Lloyd’s syndicate).
03 RISK FACTORS AND RISK MANAGEMENT MECHANISMS Underwriting risks related to the P&C and Life reinsurance businesses
03 RISK FACTORS AND RISK MANAGEMENT MECHANISMS Market risks 3.4. MARKET RISKS
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument fluctuates because of changes in interest rates. Interest rate fluctuations have direct consequences on both the market value and the return on SCOR’s investments as the level of unrealized capital gains or losses and the return on securities held in its portfolio both depend on the level of interest rates. Floating-rate instruments expose the Group to cash flow interest rate risk, whereas fixed interest rate instruments expose the Group to fair value interest rate risk.
SCOR has issued debt instruments in currencies other than the Euro, currently Swiss Francs, and to the extent that these are not used as a hedge against foreign currency investments, it may be similarly exposed to fluctuations in exchange rates. Most debts are fully hedged. For more information on the forward sales and purchases and swaps of currencies used to hedge these risks see Section 4.6 – Notes to the consolidated financial statements,
For further information on the sensitivity of the Group’s consolidated income and consolidated equity to currency risk, see Section 3.4.3 – Sensitivity analysis to market risks.
SCOR applies strict limits in terms of asset concentration by asset class but also within a single asset class and actively diversifies its portfolio (by type of investment, by issuer, by country and by sector). The application of these limits also helps to mitigate the counterparty default risk arising from investments, as described in the Section 3.5.2 – Management of credit risks.
SCOR has adopted an active strategy to select core buildings and takes environmental quality into account during the decision making process.
The following table summarizes the accounting sensitivity of the Group’s consolidated income and consolidated equity to market risks based on reasonably possible movements in key variables with all other variables held constant. The assumptions included are: Interest rate risks
(2) The reduction in equity represents the estimated net asset impact including the additional impairment recognized in the income statement. (3) Net of tax at an estimated average rate of 21% in 2018 (23% in 2017 and 27% in 2016).
The Group recognized a net foreign exchange loss of EUR 13 million for the year ended December 31, 2018 (2017: loss of EUR 27 million and 2016: gain of EUR 11 million).
For currency translation risk, the following sensitivity analysis(1) considers the impact on equity of a 10% movement in the exchange rates of the Group’s two largest translation risk currency exposures, USD and GBP relative to the EUR.
Credit risk is the risk of incurring a loss as a result of an unexpected change in the financial situation of a counterparty.
This risk applies also to loan transactions in which the Group invests. The borrower’ solvency deterioration may lead to a partial or total loss of the coupons and the nominal invested by SCOR.
For information on the debt securities portfolio, see Section 4.6 – Notes to the consolidated financial statements, Note 7 – Insurance business investment.
Credit risk related to future cash flows of Life reinsurance treaties
Credit risk on future cash flows from Life reinsurance policies arises from two risk factors: ◆ the payment of future cash flows expected under Life reinsurance contracts requires that the cedent is financially sound. Therefore, SCOR risks a reduction in the value of its portfolio of Life contracts in the event of a deterioration in the financial strength of the cedent. This may lead to the impairment of SCOR’s intangible assets, i.e. the value of business acquired (VOBA) and deferred acquisition costs (DAC); ◆ a reduction in the value of future cash flows could arise from material unexpected lapsation of policies following a deterioration of the cedent’s credit rating or standing or an event which has a negative effect on the cedent’s reputation.
SCOR transfers part of its risks to retrocessionaires via retrocession programs in exchange for the payment of premiums. The retrocessionaires then assume the losses related to claims covered by the retrocession contracts. If a retrocessionaire defaulted, or its financial situation deteriorated, SCOR could lose part or all of the coverage provided by its retrocessionaire whereas it would retain its liability towards the cedent for the payment of all claims covered under the reinsurance contract.
The retrocessionaires’ share in the reserves broken down by retrocessionaires’ credit rating is included in Section 4.6 – Notes to the consolidated financial statements, Note 15 – Net contract liabilities.
For further information on how risks related to invested assets are managed, see Section 3.4.2 – Management of market risks.
SCOR selects retrocessionaires carefully, taking into account their financial strength, and regularly monitors the Group’s exposure to retrocessionaires taking into account all relevant accounting balances (estimated and actual claims, premiums, reserves, deposits and pledges). SCOR typically requires that unrated retrocessionaires pledge assets or provide other forms of collateral (cash deposits or letters of credit) to the value of their maximum potential contract liability, even though the actual retrocessionaire liability to SCOR in the balance sheet is lower.
◆ via the careful consideration of the financial situation of other pool members. This contributes to the application of sound and robust governance.
The following table provides an overall analysis of the aging of financial assets and receivables as at December 31, 2018: In EUR millions Current months months months months Total
Financial assets at fair value through income 1,157 - - - - 1,157
Liquidity risk arises when available liquidity is not sufficient to meet liquidity needs. Liquidity risk can result either from: ◆ a deviation from planned liquidity needs over either the short term, or the medium/long term; ◆ a deviation from estimated liquidity capacities, e.g. due to adverse business conditions.
Information on SCOR’s letter of credit facilities, including related financial covenants, is included in Section 4.6 – Notes to the consolidated financial statements, Note 23 – Commitments received and granted.
The availability of additional financing will depend on a variety of factors. These notably include market conditions, the general availability of credit, the volume of trading activities, the overall availability of credit to the financial services industry, SCOR’s credit ratings and credit capacity, as well as the possibility that customers or lenders could develop a negative perception of SCOR’s long- or short-term financial prospects if the Group incurs large investment losses or if the level of SCOR’s business activity decreases due to a market downturn. Similarly, access to funds may be impaired if regulatory authorities or rating agencies take negative action that could penalize SCOR. The liquidity of several asset classes owned by SCOR may also be negatively impacted by changes to regulations or by non-conventional monetary policies. If so, these factors could prevent SCOR from successfully obtaining additional financing on favorable terms.
SCOR assesses liquidity risks arising from both short-term and long-term liquidity needs. SCOR manages these risks via different mechanisms which consider: ◆ actions to be taken by the insurance or reinsurance business areas to take into account both short term and long-term liquidity risk (see maturity profiles in Section 3.6.3 – Maturity profiles); and
Additional information on the timing of repayments and liquidity risk is included in Section 3.6.3 – Maturity profiles. For further information on liquid assets of SCOR Group, see Section 4.6 – Notes to the consolidated financial statements, Note 7 – Insurance business investments.
The analysis of the balance sheet reserve movements, including net paid losses, is included in Section 4.6 – Notes to the consolidated financial statements, Note 15 – Net contract liabilities.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS Liquidity risks 03 3.6.4. FINANCIAL LIABILITIES
Interest rate ranges < 1 year 1-5 years > 5 years* Total**
* Accrued interest on perpetual debt as at December 31, 2018 of EUR 12 million (2017: EUR 12 million). ** Of the amounts above, EUR 15 million (2017: EUR 16 million) relate to variable rate debt. These amounts exclude debt which has been swapped from a variable interest rate to a fixed interest rate.
Risks related to systems or facilities can arise as follows: ◆ a malfunction or a major breakdown in SCOR’s IT systems, outages, disruptions due to viruses, attacks by hackers and thefts or data breaches. This can occur within SCOR’s own environment or to a third party providing services or data to SCOR; ◆ interruption of any of SCOR’s IT systems leading to loss of data, delays in service or in a loss of efficiency of teams, which could lead to remediation costs, loss of contracts or damage to the Group’s reputation. In addition, these incidents could increase other operational risks such as external fraud or human error (e.g. delay in the recognition of adverse business development). The interruption of these systems could damage commercial activities including underwriting, pricing, reserving, premium and claims payment, commercial support, and asset management; ◆ in addition, the facilities in which SCOR operates might be impacted by natural or man-made perils. The offices might need to be closed for a period of time potentially resulting in a loss of productivity and business opportunity, as well as remediation costs.
Risks related to staff can arise as follows: ◆ incidents due to mistakes or non-compliance with instructions, guidelines or policies; ◆ internal staff mandated by SCOR having authorized access to SCOR’s offices or systems taking advantage of SCOR’s assets for personal gain e.g. through misappropriation of assets, intentional mismarking of positions or bribery; ◆ the failure to attract or retain key personnel or the loss of crucial information/skills concentrated in a single person, or of a whole team; ◆ intentional damage to SCOR’s assets (including data) required to perform its operations by internal or external staff, which could lead to significant remediation costs (including to rebuild databases or systems).
Since SCOR remains responsible for commitments or services contracted, including for outsourced activities, an inappropriate client relationship management or inadequate level of service and/or product quality provided by SCOR to its clients or breach of contract may lead to a loss of profitable business relationships.
In addition, SCOR may be involved in legal and arbitration proceedings due to non-protective terms of a contract, denounced either by third parties or internally which could lead to an unfavorable outcome. For information on this issue, see Section 4.6 – Notes to the consolidated financial statements, Note 25 – Litigation.
As an international group, SCOR must comply with national and international laws, regulations and applicable accounting standards. This includes all applicable economic sanctions, programs relating to anti-corruption, anti-money laundering, in addition to anti-terrorism laws, and laws and regulations applicable to its operations. Laws and regulations applicable to some of SCOR’s operations refer inter alia to the economic trade sanctions laws and regulations administered by the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) and to certain laws administered by the United States Department of State. They also refer to applicable economic trade sanctions laws, regulations and directives of the European Union and its member states. Other directives with which SCOR complies apply to anti-money laundering, corruption, terrorism
SCOR is exposed to cyber-attacks which can be very diverse in their sophistication and execution. The main targets are system functions, data and cash management. Immediate repercussions include: ◆ systems could be slowed down, corrupted or stopped potentially resulting in loss of productivity, corrupted data and remediation costs; ◆ funds could be stolen through fraudulent wire transfers; ◆ data could be stolen, deleted or corrupted, or made public in contradiction with SCOR’s regulatory or contractual obligations.
Any of these could generate a reputational risk, give rise to a breach of SCOR’s legal responsibility, and may result in regulatory sanctions depending on the level of sensitivity of the data or system that is successfully attacked. The cyberattack could also assist external fraudsters resulting in a financial loss.
03 RISK FACTORS AND RISK MANAGEMENT MECHANISMS Internal control and risk management procedures 3.7.2. MANAGEMENT OF OPERATIONAL RISKS
4.1. CONSOLIDATED BALANCE SHEET 164 4.2. CONSOLIDATED STATEMENT OF INCOME 165 4.3. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 166 4.4. CONSOLIDATED STATEMENT OF CASH FLOWS 167 4.5. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY 168 4.6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 171 4.7. INFORMATION ON HOLDINGS 247 4.8. STATUTORY AUDITORS 248 4.8.1. Principal Auditors 248 4.8.2. Alternative Auditors 248 4.8.3. Resignation or non-renewal of auditors 248 4.8.4. Fees paid by the Group to the auditors 248 4.9. AUDITING OF HISTORICAL CONSOLIDATED FINANCIAL INFORMATION 249
In application of Article 28 of the EC Commission Regulation No. 809/2004, the following information is incorporated by reference in this Registration Document: ◆◆ The consolidated financial statements as at December 31, 2017 are included from pages 153 to 233 and the Statutory Auditors’
Document filed with the AMF on February 23, 2018 under Number D.18-0072 (and from pages 153 to 233 and from pages 234 to 239, respectively, of the free translation into English of the above mentioned Registration Document. The translation is available on SCOR’s website www.scor.com).
report on these consolidated financial statements as at December 31, 2016 is included from pages 223 to 224 of the Registration
Document filed with the AMF on March 3, 2017 under Number D.17-0123 (and from pages 143 to 222 and from pages 223 to 224, respectively, of the free translation into English of the above mentioned Registration Document. The translation is available on
Shareholders’ equity – Group share Note 12 5,800 6,195 Share capital 1,521 1,524 Additional paid-in capital 815 839 Revaluation reserves (145) 156 Consolidated reserves 3,556 3,508 Treasury shares (338) (179) Net Income for the year 322 286 Share-based payments 69 61 Non-controlling interests 28 30 TOTAL SHAREHOLDERS' EQUITY 5,828 6,225 Financial liabilities Note 13 2,831 2,702 Subordinated debt 2,277 2,211 Real estate financing 510 479 Other financial liabilities 44 12 Employee benefits and other provisions Note 14 224 204 Contract liabilities Note 15 30,253 29,006 Insurance contract liabilities 29,939 28,751 Investment and financial reinsurance contract liabilities 314 255 Other liabilities 5,247 5,097 Derivative instruments Note 7 55 28 Accounts payable on assumed insurance and reinsurance transactions Note 8 773 757 Accounts payable on ceded reinsurance transactions Note 8 1,254 1,215 Deferred tax liabilities Note 17 207 338 Tax payables 52 100 Miscellaneous liabilities 2,906 2,659 TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES 44,383 43,234
Items that will not be reclassified subsequently to income (18) 4 (30)
Items that will be reclassified subsequently to income (164) (496) 114
CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of cash flows 04 4.4. CONSOLIDATED STATEMENT OF CASH FLOWS
Cash generated by issuance of financial liabilities Note 13 739(7) 19 620(7)
Cash used to redeem financial liabilities Note 13 (658)(8) (30) (899)(8)
Net cash flows provided by/(used in) investing activities (101) (1,280) (368)
Note 13 – Financial liabitilties. (8) Cash used to redeem financial liabilities includes the redemptions of 2 debts CHF 315 million and CHF 250 million (EUR 350 million and CHF 650 million in 2016). See Note 13 – Financial liabitilties.
(9) Cash paid in respect of margin calls received in 2015 and linked to cross-currency swaps (EUR 88 million) following the CHF 650 million perpetual debt redemption.
04 CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of changes in shareholders’ equity 4.5. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Net income for the year ended December 31, 2018 - - - - - 322 - - 322
Other comprehensive income net of tax - - (301) 119 - - - - (182)
(1) Movements presented above relate to the issuance of shares related to the exercise of stock options for EUR 23 million (EUR 10 million in share capital and EUR 13 million in additional paid-in capital). This resulted in the creation of 1,278,077 shares during the year ended December 31, 2018. These movements were offset by a reduction in Group capital through the cancellation of treasury shares for EUR 50 million (EUR 13 million in share capital and EUR 37 million in additional paid-in capital).
CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of changes in shareholders’ equity 04
Revaluation – Assets available for sale - - 66 - - - - - 66
Effect of changes in foreign exchange rates - - - (521) - - - - (521)
Net gains/(losses) on cash flow hedge - - - 5 - - - - 5
(1) Movements presented above relate to the issuance of shares related to the exercise of stock options for EUR 27 million (EUR 12 million in share capital and EUR 15 million in additional paid-in capital). This resulted in the creation of 1,519,860 shares during the year ended December 31, 2017. These movements were offset by a reduction in Group capital through the cancellation of treasury shares for EUR 14 million (EUR 5 million in share capital and EUR 9 million in additional paid-in capital).
Allocation of prior year net income - - - 642 - (642) - - -
The consolidated financial statements were presented by Group Management to the Audit Committee. Management and the Audit Committee report to the Board of Directors, which approved the consolidated financial statements on February 19, 2019.
The consolidated financial statements as at and for the year ended December 31, 2018 will be presented for approval at the 2019 Annual Shareholders’ Meeting.