Any of the above 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. A cyber-attack could also assist external fraudsters resulting in a financial loss.
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.
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 intragroup reinsurance, intra-group financing, portfolio transfer, capital transfer or collateral posting).
Underwriting Management. This function provides worldwide treaty and facultative underwriting guidelines, policies regarding the delegation of capacity, underwriting support to specific lines of business or individual risks when required, ceding company portfolio analysis and risk surveys and is responsible for monitoring and referral of non-standard business and for authorizing exceptions to the underwriting guidelines.
• Risk-related topics of the P&C business unit are discussed at the quarterly P&C Risk and Capital Committee.
• Cross reviews are conducted by specialists, to assess the quality of underwriting, pricing and claims handling of particular market areas or 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.
SCOR’s Group Risk Management, along with the Life business unit, has implemented mechanisms to mitigate certain risks specific to the Life business: • Claims deterioration risks are mitigated through yearly renewable terms for parts of the mortality business, and through premium adjustment clauses for some products.
• Lapse risks are mitigated through appropriate reinsurance treaty clauses, as well as product, client and market diversification.
• Adverse selection risks are mitigated through careful product design and a well-defined medical and financial underwriting process.
• 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.
• Guidelines and other documents defined by the Life business unit specify the underwriting rules and principles to be complied with, underwriting capacities delegated to the underwriters and pricing actuaries in each of the markets in which the Group operates, as well as maximum acceptable commitments per risk and per event. These guidelines outline contract types and terms and conditions of acceptance. Furthermore, they set out the level of retention of the Life business unit for various risks and types of cover (for more information, see Section 3.3.3 – Retrocession and other risk mitigation techniques). Revisions and updates follow a formalized approval process.
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 business unit level by the
Pricing department and, where applicable, the Finance department. Cases which may have a significant impact on the balance sheet of the Group are submitted for a second review by Group Risk Management. Thresholds or conditions for a second referral to Group Risk Management are outlined in specific guidelines.
• 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.
The Chief Reserving Actuaries of the business units are responsible for overseeing the reserves of their respective business units, to assure appropriateness in the reserving methods and parameters used and to enhance reserving governance. The Group Chief Actuary is in charge of the independent validation and testing of reserving tools, workflows, assumptions and processes.
When a claim is reported to the ceding company, its claims department establishes a reserve corresponding to the estimated amount of the ultimate settlement for the claim. The estimate is based on the cedent’s own evaluation methods. The ceding company reports the claim and its suggested reserve amount to the Group entity with which it concluded its reinsurance contract. The Group records the ceding company's suggested reserve and is free to establish greater or smaller reserves based on the review and analysis by P&C’s claims team. Greater or smaller potential reserves are based upon the consideration of many factors, including the level of the commitments, seriousness of the claims and the P&C business unit’s assessment of the ceding company's claims' management.
• the estimated cost variation on claims already reported to the Group.
The mathematical reserves are generally calculated as the present value of projected future payments to cedents less the present value of projected premiums still payable by cedents. The calculation includes assumptions relating to mortality, morbidity, disability, lapses and expected future interest rates.
The mathematical reserves are established on initial recognition of a contract on the basis of best estimate assumptions and allow for an adequate safety margin for the risks of change, error and random fluctuation. They are subject to a liability adequacy test.
A table showing changes in the mathematical reserves in Life reinsurance is provided in Section 4.6 – Notes to the consolidated financial statements, Note 15 – Net contract liabilities.
SCOR aims to diversify its retrocession and risk mitigation instruments as well as counterparties in order to take advantage of all different sources of capacities on the market. This enables the retrocession and risk mitigation program to be constructed with complementary mitigation effects offering optimal efficiency and also to avoid overdependence on a limited number of counterparties.
Beyond traditional retrocession, purchased for all main lines of business, SCOR has implemented a Capital Shield Strategy, which combines the following solutions: • traditional retrocession (proportional or non-proportional); • capital markets solutions and alternative risk transfer solutions
Retrocession procedures are centralized within the retrocession teams of the P&C and Life business units: SCOR’s P&C and Life Retrocession Departments establish and implement the external retrocession plans for the P&C and Life businesses. These departments are responsible for proper application of the plan, for monitoring the solvency of the retrocessionaires, the related counterparty risk and, when necessary, recovery of balances due. The availability and efficiency of SCOR’s retrocession and risk mitigation program is monitored at Group level on a regular basis in order to ensure that the Group’s overall exposure remains within pre-defined risk tolerances.
An analysis of the share of retrocessionaires in contract liabilities by rating of the retrocessionaires and collateral from retrocessionaires in favor of SCOR at December 31, 2019 and 2018 is presented in Section 4.6 – Notes to the consolidated financial statements, Note 15 – Net contract liabilities and Note 19 – Net retrocession result.
3.3.4. MANAGEMENT OF MARKET RISKS The Group’s investment strategy is prudent, with the majority of assets held in cash and fixed income securities. It is defined in line with the Group’s risk appetite and its risk tolerance limits and considers the economic and market environment, and the ALM process.
SCOR has outsourced the implementation of its investment strategy to its asset management company “SCOR Investment Partners SE” and to external asset managers. They are provided with the Investment Guidelines.
Interest rate risk is managed within the Group primarily at two levels. At the level of each entity, the Group takes account of regulatory and accounting constraints. At the Group level, SCOR reviews its consolidated investment portfolios in order to identify the overall level of risk and return. It uses analytical tools which guide both its strategic allocation and local distribution of assets. Sensitivity to changes in interest rates is analyzed on a weekly basis.
For further information on the sensitivity of the Group’s consolidated income and consolidated equity to interest rate risk, see Section 3.3.4.6 – Monitoring of sensitivity to market risks.
3.3.4.3. Management of credit spread 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 3.3.5 – Management of credit risks.
3.3.4.5. Management of real estate risks SCOR has adopted an active strategy to select core buildings and takes environmental quality into account during the decisionmaking 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: • for interest rate: The interest rate sensitivities for shareholders’ equity presented in the table below include movements on the bond portfolio, cash and cash equivalents, structured notes, the impact of changes in interest rates on variable rate financial liabilities and the Guaranteed Minimum Death Benefit business. The interest rate sensitivities of income presented in the table below show the impact of changes in fair value of financial assets at fair value through income held at closing date, and changes in income on variable rate financial assets held at the closing date, following an increase/decrease in interest rates of 100 basis points. An estimate of the impact on the future income following a change of 100 basis points is therefore included. However, SCOR does not include in this analysis the potential impact of change in interest rates on the reinvestment of future cash flows, as future cash flows of SCOR business are difficult to predict and asset allocations might change over time; • for equity price risks: SCOR conducted an analysis of the sensitivity of net income and shareholders’ equity to the price of equity securities. The analysis considers the impact on both equities at fair value through the income statement and on equities classified as available for sale. For equities classified as available for sale, the impact on impairment is computed by applying the accounting policy and application guidance set out in Section 4.6 – Notes to the consolidated financial statements, Note 7 – Insurance business investments, to theoretical future market value changes. SCOR estimates that, excluding any impairment arising from duration, a further uniform decline of 10% from December 31, 2019 market values would generate no further impairment of equity securities (2018: EUR 0 million; 2017: EUR 0 million). It should be noted that, the potential further impairment should not be scaled up or down as the impairment rules are not a linear function of market value. For example, a scenario with a market value decline of 20% would not double the potential further equity impairment. Both Life and P&C businesses have minimal sensitivity to equity price movements.
The market sensitivities of the Group are estimated as follows: Equity(2)(3)Income(2)(3) Income(2)(3) Equity(2)(3)(4)Income(2)(3) Equity(2)(3)In EUR millions
Exposure analyses are performed on a regular basis (sector, geographical area, counterparty and rating) and enables critical risks to be identified and evaluated in order to take appropriate actions.
For further information on how risks related to invested assets are managed, see Section 3.3.4 – Management of market risks.
Management of credit risk related to deposits with cedents SCOR favors deposit arrangements with the ability to offset liabilities against deposits with high legal certainty.
3.3.5.4. Aging of assets The following table provides an overall analysis of the aging of financial assets and receivables as at December 31, 2019: > 36 monthsIn EUR millions months1-12 monthsCurrent months Total Available-for-sale financial assets -18,843 -- 18,8431, 351Financial assets at fair value through income -- -- 1,351 --Loans and receivables -- 9,2209,220 131131 --Tax receivables -Miscellaneous assets – others -- 196194 -2 Cash and cash equivalents -1,435 -- 1,435-
Some of the above operational risks are transferred in whole or in part to direct insurers as follows: • the properties and other main physical assets of SCOR and its subsidiaries are covered locally through property damage policies; • risks which are mostly covered at Group level include civil liability risks related to the operation of the company caused by employees and real estate, professional liability risks, civil liability risks of directors and officers, and cyber risks.
Pursuant to Article 19 of Regulation (UE) 2017/1129 of June 14, 2017 of the European Parliament and Council, the following information is incorporated by reference in this Universal Registration Document (URD): • The consolidated financial statements as at December 31, 2018 are included from pages 163 to 248 and the Statutory Auditors’ report on these consolidated financial statements as at December 31, 2018 is included from pages 249 to 255 of the Registration Document filed with the AMF on March 4, 2019 under Number D.19-0092 (and from pages 163 to 248 and from pages 249 to 255, respectively, of the free translation into English of the above mentioned Registration Document. The translation is available on SCOR’s website www.scor.com).
• The consolidated financial statements as at December 31, 2017 are included from pages 153 to 233 and the Statutory Auditors’ report on these consolidated financial statements as at December 31, 2017 is included from pages 234 to 239 of the Registration 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).
In EUR millions 20182019 Goodwill arising from insurance activities 788Note 5 788
Derivative instruments 67208 Investments in associates 9Note 2 13 Share of retrocessionaires in insurance and investment contract liabilities 2,141Note 15 2,227 10,748Other assets 10,142 Accounts receivable from assumed insurance and reinsurance transactions 6,724Note 8 6,352 267Accounts receivable from ceded reinsurance transactions 351Note 8 554Deferred tax assets 532Note 17 188Tax receivables 131
SHAREHOLDERS' EQUITY AND LIABILITIES As at December 31 2019In EUR millions 2018 Shareholders’ equity – Group share 5,800Note 12 6,348 1,473 1,521Share capital 815624Additional paid-in capital
Note 8 773Accounts payable on assumed insurance and reinsurance transactions 910 Accounts payable on ceded reinsurance transactions 1,2541,431Note 8
Consolidated balance sheet CONSOLIDATED FINANCIAL STATEMENTS04 158 SCOR Universal Registration Document 2019
Total income from ordinary activities 15,688 15,35316,618 Gross benefits and claims paid (11,792) (11,963)(11,168) Gross commission on earned premiums (2,786)(2,869) (2,472)
(8)(1)Share in results of associates (1) 569CONSOLIDATED INCOME, BEFORE TAX 497 341
For the year ended December 31 2019 2017In EUR millions 2018 285422 322Consolidated net income 482Other comprehensive income (182) (492) (24)Items that will not be reclassified subsequently to income (18) 4 12Remeasurements of post-employment benefits (24)(31) Taxes recorded directly in equity 7 (8)Note 17 6
125(202) (35)Shadow accounting 145126Effect of changes in foreign exchange rates (521) (1)
30 5(6)Net gains/(losses) on cash flow hedges (110) (10)Note 17 90Taxes recorded directly in equity
(1) Largely due to negative impact of USD weakening against EUR.
Consolidated statement of comprehensive income CONSOLIDATED FINANCIAL STATEMENTS04 160 SCOR Universal Registration Document 2019
(219)Net cash flows provided by/(used in) investing activities (101) (1,280) 2723Issuance of equity instruments 10
(137)(117) (126)Interest paid on financial liabilities (2)11Other cash flows from financing activities (35)
(373) (638)Net cash flows provided by/(used in) financing activities (467) Effect of change in foreign exchange rates on cash and cash equivalents (84)2211
(101)Net cash flows provided by/(used in) investing activities (219) (1,280) (638)Net cash flows provided by/(used in) financing activities (373) (467)
(6) Of which EUR 2 million of dividends paid by MRM to non-controlling interests (EUR 2 million paid in 2018 and EUR 2 million paid in 2017). (6) Cash generated by issuance of financial liabilities includes net proceeds from subordinated notes issuance of USD 125 million (USD 625 million in 2018). (7) Cash used to redeem financial liabilities includes the redemption of two subordinated debts, CHF 315 million and CHF 250 million.
Consolidated statement of cash flows CONSOLIDATED FINANCIAL STATEMENTS04 161SCOR Universal Registration Document 2019
Net income for the year ended December 31, 2019 - -
Net income for the year ended December 31, 2018 - -- 322- - --
(1) 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).
(1) 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).
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 165SCOR Universal Registration Document 2019
Note•1.1 GENERAL INFORMATION SCOR SE (“the Company”) is a European Company (Societas Europaea) domiciled in France and governed by the provisions of French law relating to European Companies as well as by the French corporate law provisions applicable to joint stock companies (sociétés anonymes) where this is not contrary to the specific provisions applicable to European Companies. SCOR’s shares are publicly traded on the Eurolist by Euronext Paris stock market and on the SIX Swiss Exchange. The principal activities of the Company and its subsidiaries (“the Group” or “SCOR”) are Life and Non-Life reinsurance.
The consolidated financial statements as at and for the year ended December 31, 2019 will be presented for approval at the 2020 Annual Shareholders’ Meeting.
Use of judgments and estimates The preparation of the consolidated financial statements requires management to make certain judgments, assumptions and estimates. These may affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent assets and liabilities at the reporting date. Management reviews these estimates and assumptions periodically, based on past experience and other factors. The actual outcome and results could differ substantially from estimates and assumptions made. The main material financial statement captions for which the Group uses estimates and assumptions are reinsurance reserves, accounts receivable from and accounts payable on reinsurance transactions, the fair value and impairment of financial instruments, intangible assets, retirement and other defined postemployment benefits and deferred taxes, in particular with respect to the recognition of deferred tax assets and the availability of future taxable income against which tax loss carryforwards can be used.
Significant events of the year Please refer to Section 1.3.3. of the Universal Registration Document for a description of the significant events in 2019.
The other key currencies in which the Group conducts business and the exchange rates used for the preparation of the consolidated financial statements are as follows: Closing rate As at December 31, 2019
Transactions denominated in foreign currencies (currencies other than the functional currency) are translated into the functional currency at the exchange rate applicable at the date of the transaction (for practical purposes, an average rate is used). These rates may differ from the rates used to translate functional currency into the reporting currency as mentioned above.
Argentina is considered to be a hyperinflationary economy as from July 2018. The impact of IAS 29 – Financial Reporting in Hyperinflationary Economies – related to SCOR’s entity in Argentina is immaterial to the Group’s consolidated financial statements.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 167SCOR Universal Registration Document 2019
Premiums are earned on a basis that is consistent with the risks covered under the terms of the reinsurance contracts, which is generally one to two years. For certain US and Japanese catastrophe risks, agriculture risks in Brazil and certain other risks, premiums are earned commensurate with the seasonality of the underlying exposure.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 168 SCOR Universal Registration Document 2019
• IFRIC 23 – Uncertainty over income tax treatments became applicable on January 1, 2019. The EU endorsed IFRIC 23 on October 23, 2018. The interpretation clarifies the application of recognition and measurement requirements in IAS 12 – Income taxes in case of uncertainties over income tax treatments. An entity needs to consider whether an uncertain tax treatment will be accepted by the tax authorities. If acceptance is considered probable no provision is required. If acceptance is not considered probable, this uncertainty must be reflected by determining an expected value or the most likely amount. SCOR considered uncertain tax positions individually and by measuring the most likely amount. The adoption of IFRIC 23 resulted in a tax provision of EUR 34 million in opening retained earnings.
IFRS 9 requires financial assets to be classified based on the business model for managing the financial assets and their contractual cash flows characteristics. Based on their classification, financial assets will be measured at amortized cost, fair value through other comprehensive income (OCI) or fair value through P&L. The new impairment model requires recognition of expected credit losses based on available historical, current and forecast information. The hedging model included in IFRS 9 aligns hedge accounting more closely with risk management but does not fundamentally change the types of hedging relationships or the requirements to measure and recognize hedge effectiveness. The adoption of IFRS 9 will affect the classification and measurement of the Group’s financial assets as more financial assets are expected to be accounted for at fair value through profit or loss. SCOR’s impairment policies will also be affected as impairments will be recognized based on expected credit losses and no longer based on incurred credit losses only. There are no significant changes expected for the hedge accounting as applied by SCOR. The Group is in the process of determining the impacts of IFRS 9 on its financial position and performance as well as on disclosures in more detail.
Fair value as of 2019 year-end and the amount of change of fair value during the financial year 2019 for the two groups of financial assets meeting or not meeting the SPPI criteria are the following: Fair value as at December 31, 2019In EUR millions
Financial assets with contractual terms that meet the SPPI test definition 18,516 592 754,462Other financial assets 22,978TOTAL FINANCIAL ASSETS(2) 667
(1) The change in fair value during 2019 displays the movement in unrealized gain/loss balances of financial assets held as at December 31, 2019. The change in fair value includes the impact from foreign exchange rate changes and partial reductions in holdings of financial assets still in the portfolio as at
AA 4,728 A 5,058 BBB 2,875 <BBB 709 2,263Not rated 18,516TOTAL FINANCIAL ASSETS THAT MEET SPPI CRITERIA
The fair value for financial assets that meet the SPPI criteria and that do not have a low credit risk (i.e. those rated < BBB or not rated) corresponds to the carrying amount before impairment shown in the table.
• On May 18, 2017, the IASB published IFRS 17 – Insurance Contracts which will replace the current guidance in IFRS 4 – Insurance Contracts. On November 14, 2018, the IASB voted to propose a one-year deferral of the effective date for IFRS 17 to January 1, 2022. The IASB also decided to propose extending to 2022 the temporary exemption for insurers to apply IFRS 9, so that both IFRS 9 and IFRS 17 can be applied at the same time. IFRS 17 will significantly change the accounting for insurance contracts as currently applied. IFRS 17 introduces a current fulfilment measurement approach as the general model for all insurance and reinsurance contracts. Insurance obligations will be the sum of current fulfilment cash flows and the unearned profit for a contract or group of contracts. Current fulfilment cashflows comprise the discounted expected future cash in- and outflows in the boundary of a contract or group of contracts, including a risk adjustment. The unearned profit is called CSM (Contractual Service Margin). Contracts that are onerous on initial recognition require an immediate loss recognition. Insurance contracts will be re-measured based on current market information at each reporting date. Under IFRS 17, the performance of the Group will mainly be depicted through the insurance service result (the profit earned from providing (re)insurance coverage) and the financial result (investment income from managing insurance assets and insurance finance expense from discounting insurance obligations). Gross written premiums will no longer be presented on the face of the income statement. Presentation of balance sheet and income statement
will change under IFRS 17 compared to current practice. The new Standard also requires additional disclosures and reconciliations to enable users of the Financial Statements to understand the amounts recognized on the balance sheet and in total comprehensive income as well as the risks embedded in insurance contracts that the Group issues. IFRS 17 requires significant changes in systems and processes at substantial cost. SCOR continued to work on the implementation phase of the IFRS 17 project throughout 2019. Developments of potential changes to IFRS 17 are being closely monitored to ensure consequential impacts on the implementation work are timely taken into account. The IASB issued a new exposure Draft with proposed Amendments to IFRS 17 Insurance Contracts in June 2019. The IASB’s tentative decision to postpone the effective date of IFRS 17 by one year to January 1, 2022 has been considered in the overall project planning.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 171SCOR Universal Registration Document 2019
Certain subsidiaries have been included within the Group financial statements under the equity method and are not fully consolidated on a line-by-line basis as they are not core business and as they are immaterial to the Group’s consolidated financial statements.
Interests in joint arrangements and associates The Group’s investments in associates are accounted for using the equity method. Associates are companies in which the Group exercises significant influence but no control or joint control. Significant influence generally occurs when the Group owns, directly or indirectly, between 20% and 50% of the outstanding voting rights. For certain associates accounted for under the equity method, the Group consistently uses provisional financial year-end information and makes adjustments, if necessary, in the following reporting period.
Structured entities Structured entities are entities that have been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when voting rights relate to administrative tasks only and relevant business activities are directed by means of contractual arrangements.
SCOR Services Switzerland AG 100100 FullSwitzerland 100100 100100SCOR Switzerland AG 100100 FullSwitzerland
UK 100100SCOR Underwriting Ltd. 100100 Full FullUK 100100SCOR UK Company Ltd. 100100
SCOR Holding (UK) Ltd. 100UK 100100 Full100 UKSCOR Asia House Limited Partnership 100100 100100 Full 100US 100100 Full100General Security Indemnity Company of Arizona 100100 100100 FullUSGeneral Security National Insurance Company 100100 Full100SCOR Global Life USA Holdings Inc. 100US 100US 100100SCOR Global Life Americas Holding Inc. (Delaware) Full100
SCOR Reinsurance Company (Asia) Ltd. 100Hong Kong 100100 Full100 SingaporeSCOR Reinsurance Asia Pacific Pte Ltd. 100100 100100 Full
South Africa 100100 100100SCOR Africa Ltd. Full FullBrazil 100100SCOR Brazil Reasseguros SA 100100
Note•2.2 INVESTMENTS CONSOLIDATED USING THE EQUITY METHOD The Group has investments that are accounted for using the equity method and are not individually or in aggregate material to the Group. The following table provides a summary of the aggregate amount of SCOR’s share of these investments.
As at December 31 In EUR millions 20182019 913Aggregate net book value (in SCOR) of individually immaterial associates Aggregate amount of the reporting entity’s share of net income/(loss) (8)(1)
Note•2.3 INFORMATION RELATED TO UNCONSOLIDATED STRUCTURED ENTITIES The Group sponsors a number of special purpose vehicles (SPVs) designed to reduce SCOR’s exposure to catastrophe losses and to longevity developments through the transfer of risk to external investors.
In EUR millions -85 17-Insurance business investments -- -152Share of retrocessionaires in insurance and investment contract liabilities 17- 152Total assets 85 153-Other liabilities 2092 -Total liabilities 153 2092
Atlas Capital UK 2018 PLC – Catastrophe bond On June 1, 2018, as part of its policy of diversifying its capital protection tools, SCOR sponsored a catastrophe bond, 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 runs from June 1, 2018, to May 31, 2022.
Atlas Capital UK 2019 PLC – Catastrophe bond On June 1, 2019, SCOR successfully sponsored a new catastrophe bond, Atlas Capital UK 2019 PLC, which provides the Group with multi-year risk transfer capacity of USD 250 million to protect itself against US named storms, US and Canada earthquake events and windstorms in Europe. The risk period for Atlas Capital UK 2019 runs from June 1, 2019, to May 31, 2023. The instrument is accounted for as a derivative instrument.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 174 SCOR Universal Registration Document 2019
Mangrove Insurance PCC Limited – Quota Share Longevity Retrocession Agreement On December 18, 2019, as part of its policy of diversifying its capital protection tools, SCOR entered into a structured retrocession transaction with Mangrove Insurance PCC Limited, which provides the Group with a multi-year source of retrocessional capacity. The transaction covers longevity risks arising from nine existing in-force reinsurance treaties with clients in the United Kingdom. The risk period for Mangrove Insurance PCC Limited runs from October 1, 2019 until October 1, 2031. The contract has been accounted for as a reinsurance contract, in accordance with IFRS 4 – Insurance Contracts.
In 2019, the Group accounted for the following acquisition: Coriolis Capital On September 10, 2019, SCOR Investment Partner SE acquired 100% of Coriolis Capital Limited (“Coriolis Capital”). Coriolis Capital is a London based fund manager specialized in the Insurance-Linked Securities (“ILS”), investing in catastrophe bonds, collateralized reinsurance and climate derivatives. This acquisition will enable SCOR to accelerate its development in the field of ILS.
In 2018, the Group accounted for the following acquisitions: MutRé On July 17, 2017, SCOR signed an agreement with the Fédération Nationale de la Mutualité Française and Matmut to acquire of 100% of the shares of MutRé S.A. The ratification of the agreement by MutRé’s other shareholders (which represent approximately 15% of MutRé’s capital) was finalised during October 2017.
The consideration paid by SCOR for the additional 67% share on January 3, 2018 amounted to EUR 70 million. The control was obtained on the same date. Following agreement between the seller and the buyer, SCOR received a purchase price adjustment of EUR 2 million reducing the total consideration paid to EUR 68 million.
ASSETS 6Value of business acquired 376Insurance business investments Share of retrocessionaires in insurance and contracts liabilities 19 140Other assets 541Total assets
Value of business acquired (VOBA) The VOBA has been estimated based on the best estimate of expected future profits using a discount rate including an appropriate risk premium. This intangible asset will be amortized over the lifetime of the underlying treaties, in line with expected emergence of profits.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 176 SCOR Universal Registration Document 2019
On April 10, 2017, SCOR exercised an option over 80% of the capital and voting rights of Château Mondot S.A.S., a French company managing a vineyard located in the Bordelais region of France, Château Troplong Mondot (Premier Grand Cru Classé B of Saint-Émilion). This acquisition was subject to the regulatory approval by SAFER (a French agricultural authority) at the end of a two-month review period, which ended on July 6, 2017. The acquisition of control generated a gain of EUR 13 million on the previously held 20% equity interest, recognized in other operating income.
The fair values of the assets acquired, and liabilities assumed as at December 31, 2017 were as follows: Château Mondot – Fair value of assets acquired and liabilities assumed
Consideration paid 178 45Fair value of the 20% previously held interest
(1) Of which EUR 43 million were related to internal operation with the Group and was eliminated through the intercompany consolidation.
Intangible assets Fair values have been determined by independent appraisers, having a wide and extensive experience in the valuation of French vineyards, including related trademarks.
Tangible assets Tangibles assets refer to lands and vineyards, wine inventories and other tangible assets. Their fair value have been determined by an independent appraiser based on comparable transaction method, market prices or independent expert valuation.
Pro forma information No pro forma information was required since the financial situation of the Group was not significantly impacted by the consolidation of Château Mondot S.A.S.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 177SCOR Universal Registration Document 2019
Change in unearned premiums reserves -(435) (42) (191)-(11) (203)- (165)(446) (161)
Gross commission on earned premiums -(1,543) (1,050) (2,472)- (1,332) (2,786) (1,422)(1,326)
Change in fair value of investments - 4- 2(13)(1) (13) -26 25
The solid operating profitability of SCOR Global Life was increased thanks to a robust flow of new business and expansion of franchise in various key markets and product lines. The in-force book globally contributed positively to the results, despite underlying US mortality claim experience being higher than expected, thanks to a strong overall reserve position, as well as successful premium rate increases on certain individual reinsurance treaties. Changes in estimates due to reserve harmonization across certain US portfolios in 2019 resulted in a one-off net reduction in reserves on these portfolios of EUR 159 million, largely offset by changes in estimates across various other portfolios. Both claim expenses and in-force management actions may vary over time. The Life technical margin was 7.5% in 2019, compared to 7.0% in 2018.
In 2019, the market responsibility for one portfolio was reallocated from the Americas to EMEA. The contract liabilities for SCOR Global Life previously reported in the 2018 Registration Document for the year ended December 31, 2018 were EUR 4,576 million for
For SCOR Global P&C, contract liabilities, allocated on the same basis as gross written premiums, and share of retrocessionaires in contract liabilities, based on the location of the retrocessionaire, are as follows: As at December 31, 2019 As at December 31, 2018
Life Goodwill arising from insurance activities 74345 45788 788743 1,4711,302Value of business acquired 1,471--1,302 1,575652 6502,227 2,141Share of retrocessionaires in insurance and investment contract liabilities 1,491 599Cash and cash equivalents (1) 576 1,175593 1,435842
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 181SCOR Universal Registration Document 2019
Note•4.3 ASSETS AND LIABILITIES BY GEOGRAPHIC REGION Assets and liabilities by geographic region are based on the location of the entities and can be broken down as follows: As at December 31, 2018As at December 31, 2019 Asia-
Note•4.4 CASH FLOWS BY OPERATING SEGMENT Cash flows by segment are presented as follows: Total SCOR
Net cash flows provided by/(used in) investing activities (8) (924)(356)(265)46 (1,280)
Net cash flows provided by operating activities amounted to EUR 841 million in 2019 (2018: EUR 891 million and 2017: EUR 1,144 million).
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 182 SCOR Universal Registration Document 2019
At least annually, goodwill is tested for impairment. For the purposes of impairment testing, goodwill acquired in a business combination is allocated by SCOR to the groups of cash generating units (CGUs) that are expected to benefit from the profitability and synergies of the business combination. SCOR groups its CGUs by operating segment, i.e. SCOR Global P&C and SCOR Global Life. This is consistent with the way SCOR manages and monitors its business and cash flow. Goodwill arising from non-insurance activities is allocated to a separate CGU and tested for impairment at entity level. As part of the impairment testing, SCOR assesses whether the recoverable amount of operating units is at least equal to the total carrying amount of operating units (including goodwill). If it is determined that an impairment exists, the total carrying amount is adjusted to the recoverable amount. Any impairment loss is recorded in income in the period in which it arises.
Goodwill arising from insurance activities 71969Gross value at December 31, 2017 -Foreign exchange rate movements -
The goodwill impairment tests conducted annually show recoverable amounts in excess of the respective total carrying amounts for the financial years ended December 31, 2019, 2018 and 2017. Consequently, no goodwill impairment charges were recognized.
Goodwill arising from non-insurance activities Goodwill (carrying amount as at December 31, 2019: EUR 71 million) and trademark (carrying amount as at December 31, 2019: EUR 136 million, refer to Note 9.1. – Other intangible assets) of the CGU Château Mondot have been tested for impairment at year end 2019, using the value in use approach. The recoverable amount of the CGU has been valued on the basis of the present value of forecast cash flows determined in the context of a long-term business plan to reflect the wine industry specificities and notably the length of the production and distribution cycles of a vintage.
The annual growth rate applied beyond the business plan horizon is 1.50%. Future cash flows after taking tax into consideration have been discounted using a post-tax discount rate of 4.5%. A standard CAPM (Capital Asset Pricing Model) approach is used to determine the adequate weighted average cost of capital (WACC) of Chateau Mondot. Based on these assumptions, no impairment charge has been recognized.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 184 SCOR Universal Registration Document 2019
VOBA also includes the intangible asset related to the acquisition of the business portfolio of ReMark Group BV (“ReMark”) to reflect the stream of expected future profits.
Gross value at December 31, 2018 1,801 Foreign exchange rate movements 37 -Additions - (1)Disposals
Cumulative amortization and impairment at December 31, 2018 (330) (5)Foreign exchange rate movements
Cumulative amortization and impairment at December 31, 2019 (536) CARRYING VALUE AS AT DECEMBER 31, 2017 1,412 CARRYING VALUE AS AT DECEMBER 31, 2018 1,471 1,302CARRYING VALUE AS AT DECEMBER 31, 2019
(1) In 2019 there were no disposals and amortization of VOBA resulting from the derecognition of VOBA due to treaty terminations to report (2018: EUR 146 million). Regular amortization related to business in force amounts to EUR (64) million for the year ended December 31, 2019 and EUR (89) million for the year ended December 31, 2018.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 185SCOR Universal Registration Document 2019
Interest on debt instruments is calculated in accordance with the effective interest rate method, which includes the amortization of any premiums or discounts and is recognized as investment income. Dividends on equity instruments are recognized as investment income on the ex-dividend date. Upon the derecognition of an available-for-sale financial asset, the accumulated unrealized gains and losses included in shareholders’ equity are transferred to realized capital gains/ (losses) on investments, net of any amounts previously recorded in income.
In 2019 and 2018 respectively, there were no material gains or losses realized on the disposal of available-for-sale investments which were previously carried at cost.
Included in this level are financial instruments for which quoted prices or rates represent actual and regularly occurring transactions that are available from a stock exchange, dealer or broker. Such instruments comprise listed equities, government, covered and agency bonds, as well as short-term investments. For investments in closed- or openended funds, fund shares and units and derivative financial instruments (including real estate, interest rate and mortality swaps, options etc.), fair value is determined by reference to published bid values.
The Group has certain investments which are valued based on models prepared by internal and external experts using observable market inputs. These primarily comprise structured products, other than securities issued by government agencies for which the market is considered active, hybrid tier 1 and tier 2 corporate debt, private placements, inflation-linked government assimilated bonds, specific alternative investments and derivative instruments.
For available-for-sale equity securities which are listed on an active market, a line-by-line analysis is performed when there has been a decline in fair value as compared to the initial purchase price of more than 30%, or a consistent unrealized loss over a period of more than 12 months. The different factors considered in this analysis include the existence or inexistence of significant adverse changes in the technological, market, economic or legal environment in which the issuer operates. After consideration of these factors, if a security remains unimpaired, the Group ultimately considers objective evidence of impairment, as per IAS 39, by reference to three further key criteria being the existence or not of: • a consistent decline of more than 30% for 12 consecutive months; or
For certain investments, in addition to the above impairment guidelines, SCOR takes into consideration other important factors such as: • the fact that the asset is specifically excluded from any actively traded portfolio; • its ability and intent to continue to hold the investment for a significantly longer period than a normal investment; • its business relationship with the investee; and
Transfers into level 3 -- --- -Transfers out of level 3 -- -Change in fair value through OCI -- -- - -- -- -Change in scope of consolidation 85- -CARRYING AMOUNT AT DECEMBER 31, 2019 85-
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 189SCOR Universal Registration Document 2019
(1) Movements in derivative instruments are due to the change in fair value of Atlas IX Series 2015-1 and Atlas IX Series 2016-1 derivatives recorded in other operating expenses, and of the contingent capital facility, recorded in investment income.
Investment properties Real estate held by the Group is classified as investment property when it is held to earn rental income, for capital appreciation or both. Properties are measured at cost, net of accumulated depreciation and impairment losses. Depreciation is recorded on a straight-line basis over the useful lives of the assets as follows: Useful lifeCategory Indefinite (not depreciated)Land
At the end of each reporting period, properties are assessed to determine whether there is any indication of impairment. One such indicator is that the building’s market-value is below its carrying amount. If any impairment indicator is present, the Group assesses the recoverable amount of the building in question. The recoverable amount is the higher of the property’s fair value less cost to sell and its value in use. The value in use is assessed using an internal discounted cash flow model based on current market assumptions and considers rental situation, completeness of construction and renovation work, as well as recent developments within the local real estate market. If the recoverable amount is greater than 20% below the carrying amount, the resulting impairment loss is recognized in the statement of income.
The movements in real estate investments are analyzed as follows: Finance leasesIn EUR millions Real estate investments Total 825Gross value at December 31, 2017 - 825 -Foreign exchange rate movement --
Gross value at December 31, 2018 830830 - --Foreign exchange rate movement 64Additions 64- (90)-(90)Disposals -Reclassification -- ---Change in scope of consolidation 804804Gross value at December 31, 2019 - -Cumulative depreciation and impairment at December 31, 2017 (124)(124)
(19) (19)-Depreciation for the period -(7) (7)Impairment for the period 5Other -5 -Cumulative depreciation and impairment at December 31, 2018 (145)(145) Depreciation for the period -(16) (16)
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 191SCOR Universal Registration Document 2019
Valuation techniques and unobservable inputs The fair value of real estate investments is categorized within level 3. The valuation techniques and unobservable inputs were as follows as at December 31, 2019 and 2018: Real estate
Rental income As part of its real estate investment activities described above, SCOR leases its investment properties. The leases generally conform to the local market conditions and have annual indexation clauses for the rental payments. The estimated minimum future rental income is as follows: Minimum rental incomeIn EUR millions
Minimum rental income 37 55% Less than one year 41 8456 37% From one to five years 10 8% More than five years 8
Property-related commitments As part of its real estate investment activities, the Group committed to purchasing several properties through contracts of sale before completion. As at December 31, 2019, SCOR has off balance sheet commitments of EUR 21 million related to such contracts (December 31, 2018: EUR 68 million). The decrease compared to 2018 is mainly due to the payment of the last instalment of one building fully delivered and standard works in progress.
Note•7.5 BREAKDOWN OF SECURITIES AVAILABLE-FOR-SALE AND AT FAIR VALUE THROUGH INCOME
The following table summarizes the debt and equity securities and unrealized gains/(losses) by class of securities classified as available-forsale and at fair value through income: In EUR millions As at December 31, 2019 As at December 31, 2018 Net unrealized gains/(losses)
Equity securities 1,7571,950 4224 18,856 (336)20,194 325TOTAL AVAILABLE-FOR-SALE AND FAIR VALUE THROUGH INCOME
As at December 31, 2019, the net unrealized gain (loss) on debt securities included EUR 355 million of unrealized gains and EUR 54 million of unrealized losses (as at December 31, 2018: EUR 56 million of unrealized gains and EUR 434 million of unrealized losses).
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 193SCOR Universal Registration Document 2019
In EUR millions As at December 31, 2019 As at December 31, 2018
Ten to twenty years 2%354 3%484 1%237 2%259More than twenty years 17,099 100%18,244 100%TOTAL DEBT SECURITIES
Loans and receivables primarily include cash deposits made at the request of ceding companies as collateral for commitments (insurance contract liabilities), short-term investments and related accrued interest. Short-term investments include government bonds, certificates of deposit (CDs) and treasury bills (T-bills) maturing between 3 and 12 months from the date of purchase. CDs and T-bills maturing in more than 12 months from the date of purchase are included in “Other loans maturing in more than one year”.
A material embedded derivative is separated from the host contract and is recognized as a derivative when: • its economic features and risks are not closely linked to the economic features of the host contract; • the embedded instrument has the same conditions as a separate derivative instrument; and
Hedging instruments A hedging instrument is a designated derivative instrument or, in the case of a foreign currency hedge, a designated nonderivative asset or liability for which the fair value or cash flows offset changes in the fair value or cash flows of the hedged item.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 195SCOR Universal Registration Document 2019
(1)1- 42Interest rate swaps - -1 -34Cross currency swaps 14- 312479 (10)
Catastrophe bonds Atlas Capital UK 2019 PLC provides the Group with multi-year risk transfer capacity of USD 250 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 2019 runs from June 1, 2019, to May 31, 2023.
The significant unobservable inputs used in the valuation model are: Atlas IX Series 2016-1Unobservable inputs Atlas Capital UK 2019 PLC 3.03%Expected loss US named storm based on AIR model 10.10%
Expected loss US and Canadian earthquake based on AIR model 5.94%2.59% 1.27%NAExpected loss European windstorm based on AIR model
A significant catastrophic event (US or Canadian Earthquake or a US Named Storm or a Europe Windstorm) that would occur during the coverage period of the respective bond would lead to a change in the fair value of the derivative instrument.
Interest rate swaps SCOR has entered into interest rates swaps to cover its exposure to financial liabilities with variable interest rates relating to real estate investments. The fair value of these swaps is obtained from the banking counterparty and is based on market inputs. As part of the usual analysis of accounts processes, these third-party valuations are checked for reasonableness against internal models. The total notional amount relating to these swaps is EUR 86 million as at December 31, 2019 (December 31, 2018: EUR 98 million). Net interests paid under these swaps amounted to EUR 1 million in 2019 (2018: EUR 4 million).
Valuation and presentation Cash-flow hedge accounting is applied when the hedging relationship is determined to be highly effective throughout the term of the hedge. Effectiveness testing is performed at the inception of the hedging relationship and at each reporting date throughout the term of the hedge relationship. Where hedge effectiveness is not attained, the hedging instrument (interest rate swap) is measured at fair value through income from the date the hedge relationship ceases to be effective. As at December 31, 2019, the fair value of the interest rate swaps was a liability of EUR 2 million (December 31, 2018: liability of EUR 1 million). The amount recognized in other comprehensive income in 2019 is EUR (1) million (2018: EUR 4 million). The amount recognized in the statement of income in 2019 is not material (2018: EUR 1 million).
Cross-currency swaps In order to hedge the foreign exchange risk associated with debts issued in USD (USD 625 million issued in 2018 and USD 125 million issued in 2019, see Note 13 – Financial debt), SCOR entered into cross-currency swaps which exchange principal and coupons on the notes from USD into EUR. The swaps mature on March 13, 2029.
Valuation and presentation Cash flow hedge accounting is applied. The fair value of the swaps is obtained from the banking counterparty using market inputs. As part of the usual analysis of accounts processes, these third-party valuations are checked for reasonableness against internal models. The total related notional amount is USD 625 million as at December 31, 2019 (December 31, 2018: USD 625 million). The fair value of cross currency swaps is EUR 79 million as at December 31, 2019 (EUR 34 million as at December 31, 2018). No inefficiency was identified on the remaining swap during 2019.
Hedge of a net investment At December 31, 2019 and 2018, one forward currency contract is designated as a hedge of a net investment (see Note 12 – Information on share capital, capital management, regulatory framework and consolidated reserves).
The outstanding contracts at December 31, 2019 and 2018, converted into EUR at the closing rates, were as follows: In EUR millions
Contingent capital facility See Note 12 – Information on share capital, capital management, regulatory framework and consolidated reserves, for the details on the new issuance of warrants to J.P. Morgan in the context of the contingent capital facility program.
Amounts related to this transaction are recorded in the balance sheet as assets, recognized at fair value through income, and as other liabilities representing the amount of commission payable. In the absence of observable market inputs and parameters to reliably determine a fair value for these derivative instruments, the best measure of fair value is the expected cost of the instrument, corresponding to the total annual fees payable under the arrangement net of the warrants’ subscription amounts received, amortized over the life of the instrument. These assets are disclosed as level 3 investments within insurance business investments (see Note 7.1 above).
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 197SCOR Universal Registration Document 2019
The amount recoverable is reduced in the form of a bad debt provision when there is an event arising that provides objective evidence that the Group may not receive all amounts due under the contract and the event has a reliably measurable impact on the expected amount that will be recovered from the reinsurer.
Premiums payable in respect of reinsurance ceded are recognized in the period in which the reinsurance contract is entered into and includes estimates where the amounts are not determined at the reporting date. Retroceded premiums are expensed over the term of the reinsurance contract in the same manner as assumed business.
Gross receivables from ceding companies 957443 475492 Provision for bad debts (9)(2) (3)(11) (11)(8)
Accounts receivable from assumed insurance and reinsurance transactions 3,425 6,3523,395 126 354228 158112Amount due from reinsurers 270 - (3)(3) (3)-Provision for bad debts (3)
Amounts payable on assumed insurance and reinsurance transactions (536) (773) Liabilities for cash deposits from retrocessionaires (596)(351) (311)(258) (569)(245)
Additions 47 Disposals (2) Change in scope of consolidation 494Gross value at December 31, 2018
-Change in scope of consolidation 563Gross value at December 31, 2019 (131)Cumulative amortization and impairment at December 31, 2017 -Foreign exchange rate movements Amortization for the period (19)
(165)Cumulative amortization and impairment at December 31, 2019 CARRYING VALUE AS AT DECEMBER 31, 2017 317 CARRYING VALUE AS AT DECEMBER 31, 2018 344
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 199SCOR Universal Registration Document 2019
The Group conducted its annual assessment of the amortization periods and amortization methods of these finite useful life intangible assets and concluded that both the amortization periods and existing amortization methodology are appropriate. The amortization expense recognized for other intangible assets with finite useful life was EUR 8 million, EUR 19 million, and EUR 8 million, for the years ended December 31, 2019, 2018, and 2017 respectively.
Right-of-use assets are assets that represents a SCOR’s rights as lessee to use an underlying asset for the term of the respective lease contracts, determined as the non-cancellable period of a lease under consideration of extension and termination options in when their exercise is reasonably certain. Right-of-use assets are measured at the amount of the related lease liability, considering up-front payments made, lease incentives received and initial direct costs where applicable. Subsequently, right-ofuse assets are measured at cost, less accumulated depreciation and impairment, if any. Depreciation is determined in accordance with IAS 16 and recognized in the income statement.
SCOR uses the exemptions for certain short-term leases and leases of low-value assets and continues to recognize the lease payments for those contracts as an expense on a straight-line basis.
In EUR millions Other equipment Right-of-use assets Transport Land and Buildings 182 2186Gross value at January 1, 2019 2 Foreign exchange rate movements -4 -4 -- --Reclassification -Change in scope of consolidation -- - --Other --
-(1)Depreciation for the period (29)(30) --Impairment for the period -78 -1Disposal
IFRS 16 exemptions In the period under review, no significant expense relating to short term leases and to leases of low-value items has to be reported.
Total cash outflow for leases is EUR 30 million as of December 31, 2019.
Buildings Building structure and exterior 30-80 years Insulation 30 years 20 yearsTechnical installations 10-15 yearsFixtures and fittings
Owner-occupied property is assessed for impairment whenever there is an indication that it may be impaired. It is considered a corporate asset, which does not generate cash inflows independently. Hence, the assessment is made at the level of the cash generating units (CGU) or groups of CGUs to which the property belongs. Should impairment indicators exist, the Group determines the recoverable amount of the CGU or group of CGUs to which the property belongs and compares it to its carrying amount.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 201SCOR Universal Registration Document 2019
In EUR millions Tangible Assets Gross value at December 31, 2017 861 Foreign exchange rate movement 3 42Additions -Reclassification
Gross value at December 31, 2019 929 (159)Cumulative depreciation and impairment at December 31, 2017
Cumulative depreciation and impairment at December 31, 2018 (172) (29)Depreciation for the period -Impairment for the period Reclassification Disposals 10
The increase in 2019 is mainly related to work in progress and to improvement costs for office space for a total of EUR 43 million. The increase is partially offset by the disposal of not fully amortized tangible assets (furniture and office equipment) of EUR 11 million.
Property-related commitments received and granted There is no commitment received or granted at year end 2019 and 2018.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 202 SCOR Universal Registration Document 2019
Capitalization of new contracts over the period/Change over the year 602233 Change in scope of consolidation and contract portfolio exchanges ---- --- 1212
(772)(617)Amortization for the year (562)(171) (149)(733)(155) (704)(555) - -Impairment losses during the year --- -- --
Cash and cash equivalents comprise cash, net bank balances and short-term deposits or investments with a maturity of less than three months at the date of purchase or deposit. Money market funds are also classified as cash and cash equivalents, though only to the extent that the fund assets qualify as cash equivalents, or there are strict fund management policies and limits that allow the funds to qualify as cash equivalents.
As at December 31, 2018As at December 31, 2019In EUR millions 679 53% 761Cash on hand 674Short-term deposits and investments 47% 496 1,435 1,175CASH AND CASH EQUIVALENTS(1)
(1) Cash and cash equivalents include cash held by the Group on behalf of third parties as part of its asset management activity for a total amount of EUR 211 million on December 31, 2019 (December 31, 2018: EUR 195 million).
The Group’s liquidity, defined as cash, cash equivalents, bank overdrafts and short-term government bonds with maturities of more than three months and less than twelve months, which is well diversified across a limited number of banks, amounts to EUR 1,532 million as at December 31, 2019 (December 31, 2018: EUR 1,215 million). It includes EUR 97 million of short-term governments bonds as at December 31, 2019 (December 31, 2018: EUR 40 million).
Note•11.2 NET CASH FLOWS FROM OPERATIONS The following table reconciles consolidated net income to net cash flows provided by/(used in) operations as presented in the consolidated statement of cash flows: 20182019 2017In EUR millions 322Consolidated Group net income 286422
717 (3)Cash flows from other assets and liabilities Change in taxes receivables and payables (38)63 (109)
841 891Net cash flows provided by/(used in) operations 1,144 in 2019 in 2019
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 204 SCOR Universal Registration Document 2019
Tax cash outflows during the year was EUR 97 million (2018: outflow of EUR 252 million and 2017: outflow of EUR 93 million).
• the issuance of new shares relates to the exercise of stock options for EUR 9 million (EUR 3 million in share capital and EUR 6 million in additional paid-in capital). This resulted in the creation of 509,135 new shares throughout the year.
• the issuance of new shares relates to the exercise of stock options for EUR 23 million (EUR 10 million in share capital and EUR 13 million in additional paid-in capital). This resulted in the creation of 1,278,077 new shares throughout the year.
• the issuance of new shares relates to the exercise of stock options for EUR 27 million (EUR 12 million in share capital and EUR 15 million in additional paid-in capital). This resulted in the creation of 1,519,860 new shares throughout the year.
Note•12.2 CAPITAL MANAGEMENT: OBJECTIVES AND APPROACH The primary source of capital used by the Group is shareholders’ equity and subordinated debt. The leverage ratio as at December 31, 2019 is 26.4%. For a description of the leverage ratio, see Universal Registration Document, Section 1.3.6 – Financial position, liquidity and capital resources.
In this regard, and in line with its strategic plan “Quantum Leap” for the period from mid-2019 to 2021, the Group aims to achieve the following two specific targets: • a ROE ≥ 800 basis points above the five-year risk-free rate over the cycle (1); • a solvency ratio (2) in the optimal range between 185% and 220%.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 207SCOR Universal Registration Document 2019
Solvency scale SCOR’s solvency is actively monitored and managed through a solvency scale coupled with a clear escalation process. The solvency scale includes an optimal solvency range targeted by the Group as a solvency ratio between 185% and 220%, as well as the management initiatives which could be carried out to steer the solvency position back to the optimal range if need be.
Contingent capital facility On December 3, 2019, SCOR arranged a contingent capital facility with J.P. Morgan taking the form of a contingent equity line, providing the group with EUR 300 million coverage in case of extreme natural catastrophes or life events impacting mortality. Under this arrangement, SCOR issued 9.4 million warrants in favor of J.P. Morgan, each warrant giving J.P. Morgan the right to subscribe to two new SCOR shares. J.P. Morgan has undertaken to exercise accordingly the number of warrants necessary for the subscription of up to EUR 300 million (issuance premium included) of new shares, without exceeding 10% of SCOR’s share capital, when the aggregate 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, 2020 and December 31, 2022 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, 2019 and December 31, 2022 reaches certain contractual thresholds subject to review by SCOR’s Statutory Auditors. 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.
Share buy-back program On July 27, 2017, SCOR announced its intention to buy-back own shares on the basis of robust underlying fundamentals and strong solvency. From that date, SCOR started buying back its own shares with an amount up to EUR 200 million over the next 24 months, subject to market conditions. The buy-back has been conducted within the framework approved by the Annual Shareholders’ Meeting held on April 27, 2017, renewed by the 2018 Annual Shareholders’ Meeting, which authorizes a share buy-back program capped at 10% of the Group’s share capital.
As part of this program, SCOR purchased 5,440,081 shares at an average purchase price of EUR 36.76 for an aggregated amount of EUR 200 million. All shares repurchased were cancelled by SCOR SE’s Board of Directors in 2018 and 2019.
The Group is subject to regulatory requirements in each of the jurisdictions in which it conducts business. Local authorities have broad supervisory and administrative powers over many aspects of the insurance and reinsurance industries.
In the majority of countries in which the Group operates, regulatory filings are not prepared on an IFRS basis.
Subordinated debt and debt securities These items comprise various subordinated debts or unsubordinated bonds issued by the Group. These borrowings are classified as financial liabilities, in accordance with IAS 32 – Financial Instruments: Presentation.
Other financial liabilities At initial recognition, other financial liabilities are recorded at fair value less directly attributable transaction costs. After initial recognition, they are measured at amortized cost using the effective interest rate method.
The following table presents an overview of the debt issued by the Group: Maturity
EUR 250 million perpetual subordinated debt On October 1, 2014, SCOR issued EUR 250 million in perpetual subordinated notes, redeemable by SCOR on each interest payment date from October 1, 2025. The coupon has been set at 3.875% (until October 1, 2025), and resets every 11 years at the prevailing 11-year EUR mid-swap rate + 3.7%.
USD 125 million perpetual subordinated debt On December 17, 2019, SCOR issued perpetual deeply subordinated notes on the “Regulation S” USD market in the amount of USD 125 million. These new notes are assimilated and form a single series with the existing USD 625 million perpetual deeply subordinated notes issued on March 13, 2018. The new issued notes bear the same terms and conditions as the original notes. The coupon has been set at 5.25%, until the first call date of March 13, 2029, and resets every 5 years thereafter at the prevailing 5-year US Treasury yield plus 2.37% (no step-up).
In December 2019, in order to hedge the foreign exchange risk associated with this new debt issued, SCOR entered into crosscurrency swap which exchanges the principal and the coupons on the notes into Euro and mature on March 13, 2029. See Note 7 – Insurance business investments (Derivative instruments).
EUR 250 million dated subordinated debt On June 5, 2015, SCOR issued EUR 250 million in dated subordinated notes on the Luxembourg Euro market, redeemable by SCOR at each interest payment date, from June 5, 2027. The coupon has been set at 3.25% (until June 5, 2027, the first call date), and resets every 10 years at the prevailing 10-year EUR midswap rate +3.20% (until June 5, 2047, final redemption date).
EUR 600 million dated subordinated debt On December 7, 2015, SCOR issued EUR 600 million in dated subordinated notes on the Euro market, redeemable by SCOR at each interest payment date, from June 8, 2026. The coupon has been set to 3% (until June 8, 2026, the first call date), and resets every 10 years at the prevailing 10-year EUR mid-swap rate +3.25% (until June 8, 2046, final redemption date).
Early repayment clauses Some provisions in the terms and conditions of notes allow for early redemption under certain conditions other than the liquidation of the issuer (e.g. tax, accounting and regulatory reasons). However, these early redemption cases are always (i) at the option of the issuer and no reimbursement can be imposed on the issuer by the noteholders; and (ii) subject to prior approval by the relevant supervisory authority.
Note•13.2 REAL ESTATE FINANCING Real estate financing relates to the acquisition of investment property financed by bank loans of EUR 517 million (December 31, 2018: EUR 510 million), including real estate financing related to MRM property for EUR 78 million (December 31, 2018: EUR 75 million). The Group’s head office in Paris has been financed through a real estate loan that has been refinanced in June 2018 for EUR 200 million for a term of 10 years at a fixed interest rate of 1.73%.
The other real estate financing is used to finance other property owned by the Group and bears fixed-rate interest or interest indexed to 3month Euribor covered by interest rate swaps and redeemable between 2020 and 2026. Interest rate swaps related to this financing have been accounted for as cash flow hedges (for further details, see Note 7 – Insurance business investments – Derivative instruments).
The majority of real estate financing contracts contain accelerated repayment clauses and other debt covenants. Such covenants define certain ratios to comply with, among which loan to value
(LTV) ratio, defined as the relation between the carrying amount of the financing and the market value of the real estate being financed, interest coverage rates (ICR), representing the percentage at which interest expenses are covered by rental income, and debt service coverage ratio (DSCR), representing the percentage at which debt amortization and interest expenses are covered by rental income. Under existing financing contracts, LTV ratio vary between 43.5% and 70% and ICR/DSCR between 130% and 300%. As at December 31, 2019, the Group is in compliance with the LTV and ICR/DSCR covenants with respect to its banking partners.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 210 SCOR Universal Registration Document 2019
As at December 31, 2019 As at December 31, 2018In EUR millions 2 4Deposits and guarantees 97 -Lease liabilities
At December 31, 2019, the amount of lease liabilities corresponds to the first application of the IFRS 16 standard on lease contracts. (Refer to the Note 1.3 – IFRS standards applies for the first time and IFRS standards published but not yet effective)
The decrease in other debts is due to the reclassification of a debt into real estate debt for an amount of EUR 36 million.
(44) (44)Interest on subordinated debt (44) (40)(52)(43)Interest on perpetual subordinated debt
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 211SCOR Universal Registration Document 2019
participants. These differences may result in variability of pension income or expenses recorded in future years. Actuarial gains and losses arising from experience adjustments and the effects of changes in actuarial assumptions are reflected in shareholders’ equity.
Defined contribution plans Defined contribution plans include plans whereby an employer makes periodic contributions to an external institution which manages all administrative and financial aspects. These institutions relieve the employer from all future obligations and manage the payment to employees of all amounts due (e.g. statutory pension scheme, complementary pension schemes (AGIRC/ARRCO in France), defined contribution retirement plans).
The amounts paid under defined contribution plans were EUR 28 million, for the year ended December 31, 2019 (2018: EUR 29 million; 2017: EUR 27 million). Contributions to these plans are recognized in the period to which they relate.
Discount rates are defined with reference to high quality long-term corporate bonds with maturities consistent with the duration of the obligations evaluated. Management considers “AAA” and “AA” rated bonds to be high quality.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 213SCOR Universal Registration Document 2019
Impact of increase in discount rate by 0.25 bp (15)(18) 19Impact of decrease in discount rate by 0.25 bp 16 * The result of change in discount rate is recorded with the offsetting impact in the other comprehensive income.
The average duration of plans by geographical area is disclosed in the table below: UKEuro Zone USSwitzerland GlobalCanada 8 yearsDuration as at December 31, 2019 13 years25 years 19 years9 years 15 years 13 years25 years 18 years9 years 14 years8 yearsDuration as at December 31, 2018
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 214 SCOR Universal Registration Document 2019
The following table reconciles movements in the balance sheet amounts for the years ended December 31, 2019, 2018 and 2017: North America
Fair value of assets as at December 31 174 24230 15957 30 15459266
Actuarial (gains)/losses immediately recognized in other comprehensive income (OCI) 113 (12)
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 216 SCOR Universal Registration Document 2019
Plan assets The following table includes the allocation of plan assets as at December 31, 2019 and 2018: EuropeTotal North AmericaSwitzerlandIn EUR millions 44%25%Equities 49%86 39%57%Debt securities 9%124 12 -34%Insurance contracts 8 %16 17%2%Other 13%126 47%59%Debt securities 16%- -26Property -40%Insurance contracts -12
As at December 31, 2019, employer contributions for the year ahead are expected to amount to EUR 51 million (2018: EUR 14 million).
Reinsurance reserves The Group maintains reserves to cover its estimated liability for future claims and benefit payments resulting from reinsurance treaties known and incurred but not reported (IBNR). Reserves are reviewed by management during the year, using new information as soon as it is available, and are adjusted if necessary. Management considers many factors when establishing reserves, including: • information from ceding companies; • historical developments, such as reserve patterns, claims payments, number of claims to be paid and product mix; • internal methods to analyze the Group’s experience; • most recent legal interpretations concerning coverage and commitments; • economic conditions; • biometric developments such as mortality, morbidity and longevity; and • socio-economic factors such as policyholder behavior.
Non-Life business In determining the amount of its reserves, the Group uses actuarial techniques that take into account quantitative loss experience data, together with qualitative factors, where appropriate. The reserves are also adjusted to reflect the volume of business underwritten, reinsurance treaty terms and conditions, and diversity in claims processing that may potentially affect the Group’s commitment over time.
Claim reserves for losses and claims settlement expenses are recognized for payment obligations from reinsurance losses that have occurred but have not yet been settled. They are recognized under reserves for reinsurance losses reported before the reporting date and reserves for IBNR claims.
Unearned premium reserves (Non-Life and Life business) Unearned premium reserves are related to written premiums receivable but allocated to future risk periods.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 218 SCOR Universal Registration Document 2019
As at December 31, 2018As at December 31, 2019 SCOR Global
GROSS CONTRACT LIABILITIES 19,1836,618Gross claim reserves 19,87113,253 12,8156,368 3,1582,980Unearned premium reserves 2,496165 2,661178 15,31116,233 30,91314,680Total gross insurance contract liabilities 29,93914,628 -323 314314Reserves for financial contracts 323-
An aging analysis of reinsurance assets is included in the Universal Registration Document, in Section 3.3.5 – Management of credit risks.
Note•15.1 SCOR GLOBAL P&C The first table of this section presents the net claims reserves, net unearned premiums reserves and net deferred acquisition costs with ten years of history, recorded at the exchange rates applicable at each corresponding reporting date.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 219SCOR Universal Registration Document 2019
Ceded claims reserves & estimates – end of year (1) 629 660634 10,46910,062 Net claims reserves & estimates – end of year 11,12411,1169,284 11,5328,683 11,14310,1679,837 11,953
DEFERRED ACQUISITION COSTS (DAC) 536441238 560Gross DAC – end of year 551325 735278 615379359 5 341 2587 1410- 9Ceded DAC – end of year 13 522431238 551Net DAC – end of year 538320 701277 590371352
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 220 SCOR Universal Registration Document 2019
The table below presents a reconciliation of the opening and closing liability for claims reserves and claims estimates of SCOR Global P&C for the years ended December 31, 2019 and 2018.
(3,633) (3,344)Total net claims payments 184 (1)-Other movements 11,953 11,532Net claim reserves and claims estimates as at December 31 (1,300) (1,283)Ceded claims reserves and claims estimates as at December 31 13,253 12,815GROSS CLAIMS RESERVES AND CLAIMS ESTIMATES AS AT DECEMBER 31
Gross reserves, including IBNR reserves (in EUR millions) 68 870 16 0.4%0.4% 0.1%0.0%% of Non-Life gross reserves 64 11Claims paid (in EUR millions)
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 221SCOR Universal Registration Document 2019
Liability adequacy test The liability adequacy test conducted at each closing date did not detect any deficiency for either SCOR Global P&C or SCOR Global Life.
Share of retrocessionaires contract liabilities 2,22738 6631 8Letters of credit - 16164- -89
The share-based payment plans are described below. There have been no cancellations or modifications to any of the plans during 2019.
Note•16.1 STOCK OPTION PLANS The Group grants its employees and Corporate Executive Officers stock purchase or subscription option plans under the following terms: Date of award by the BoardPlan
New shares issued subject to option plansOptions exercisable on Exercise price in EUR
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 223SCOR Universal Registration Document 2019
The terms and conditions of the stock option plans of March 7, 2019 and October 25, 2019, which are similar to those previously granted by SCOR, provide that the options allocated to Partners can be exercised at the earliest four years after the grant date, if the presence condition is met in addition to the satisfaction of certain performance conditions, which are based on the strict compliance with the Group's ethical principles as set out on the Group's code of conduct (the "Group Code of Conduct"), on the fulfilment of the corporate social responsibility (CSR) training obligation, on the solvency ratio and the SCOR Group’s ROE (in fiscal year 2019, 2020 and 2021 for the two last conditions).
27.104,466,743 24.20Outstanding options at January 1 5,467,076 576,140Options granted during the period 578,08838.26 37.06 18.191,278,077Options exercised during the period 19.46509,135 7,500Options expired during the period 13,00015.50 15.63 30.0245,163 32.06287,344Options forfeited during the period
The fair value of options is estimated by using the Black-Scholes method, which takes into account the terms and conditions under which the options were granted. The following table lists the characteristics used during 2019, 2018 and 2017: March 7, 2019 Plan
December 1, 2017 Plan 4,00Fair value at grant date (in EUR) 2.442.182.29 1.881.61 40.8138.66 34.75Exercise price (in EUR) 35.10 33.7837.11 4 years4 yearsExpected life 4 years 4 years4 years 4 years 0.017%-0.240% 0.276%Risk-free interest rate -0.193%-0.360%-0.604%
Note•16.2 FREE SHARE ALLOCATION PLANS The Group allocates free shares to its employees under the following terms: Number of shares originally grantedDate of vesting
All grants under the free share plans of February 19, 2019 and October 23, 2019 (except LTIP), to the Chairman and Chief Executive Officer, to the members of the Executive Committee, to the Executive Global Partners and to the Senior Global Partners and half of the allocation to the other beneficiaries (below Senior Global Partners), are subject to performance conditions which are based on the strict compliance with the Group's ethical principles as set out on the Group's code of conduct (the "Group Code of Conduct"), on the fulfilment of the corporate social responsibility (CSR) training obligation, on the solvency ratio and the SCOR Group’s ROE (in fiscal year 2019, 2020 and 2021 for the two last conditions). Furthermore, all grants under the free share plans of February 19, 2019 and October 23, 2019 (except LTIP) are subject to a 3-year presence condition.
The fair value of the free shares corresponds to the market value adjusted for dividends and non-transferability costs, estimated using a forward acquisition/disposal method. The following table lists the characteristics used in 2019, 2018 and 2017: October 23, 2019 Plan
February 19, 2019 Plan 31.76 32.9827.34Fair value (in EUR) 32.7028.39 32.70 6 years 3 years3 years 3 years3 yearsVesting period 6 years
28.3625.59 24.5828.23 29.5331.03Fair value (in EUR) 3 yearsVesting period 6 years3 years 3 years6 years 6 years
The current income tax expense is calculated on the basis of tax laws enacted or substantively enacted at the end of the reporting period in countries where the Group’s subsidiaries and branches operate and generate taxable income. Management periodically evaluates positions taken to prepare tax returns. Assessing the outcome of uncertain tax positions requires judgments to be made regarding the result of negotiations with, and enquiries from, tax authorities in a number of jurisdictions. An entity needs to consider whether an uncertain tax treatment will be accepted by the tax authorities. If acceptance is considered probable no provision is required. If acceptance is not considered probable, this uncertainty must be reflected by determining an expected value or the most likely amount. SCOR considered uncertain tax positions individually and by measuring the most likely amount. Provisions for tax contingencies require management to make judgments and estimates in relation to tax issues and exposures. Amounts provided are based on management’s interpretation of country specific tax law and the likelihood of a settlement. Tax benefits are recognized to the extent that it is probable that they can be sustained. In arriving at this position, management reviews each material tax benefit to assess whether a provision should be taken against full recognition of the benefit on the basis of potential settlement through negotiation and/or litigation.
The main temporary differences arise from tax losses carried forward and the revaluation of certain financial assets and liabilities including derivative contracts, certain insurance contract liabilities, provisions for pensions and other postretirement benefits. In addition, temporary differences arise on acquisitions due to the difference between the fair values of the net assets acquired and their tax base. Deferred tax liabilities are recognized on taxable temporary differences arising from investments in subsidiaries, associates and joint ventures, except where it is probable that the difference will not reverse in the foreseeable future.
AMOUNTS REPORTED IN THE CONSOLIDATED STATEMENT OF INCOME (157) (66)Current tax – current year (64)
(107) (56)Corporate income tax (expense)/benefit reported in statement of income (147) -Impact from US tax reform reported in statement of income - (68)
(175) (56)TOTAL INCOME TAX (EXPENSE)/BENEFIT REPORTED IN STATEMENT OF INCOME (147)
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 227SCOR Universal Registration Document 2019
Note•17.2 RECONCILIATION OF EXPECTED TO ACTUAL CORPORATE INCOME TAX EXPENSE A reconciliation of the income tax expense, obtained by applying the French tax rate of 34.43% for 2019 and 2018, and 44.43% for 2017 to income (loss) before corporate income taxes and excluding share in results of associates, to the actual corporate income tax expense recorded in the consolidated statement of income is presented in the table below. The effective tax rate in
(152)Theoretical income tax at 34.43% (for 2019), 34.43% (for 2018) and 44.43% (for 2017) (174)(196)
RECONCILING ITEMS TO ACTUAL INCOME TAX (EXPENSE)/BENEFIT 63Differences between French and local corporate income tax rates 6777 187 18Tax-exempt income Non-deductible expenses (29) (19)(16)
US corporate tax rate On December 22, 2017, the US Congress enacted the Tax Cuts and Jobs Act (the “TCJA”), reducing the statutory rate of US federal corporate income tax to 21% effective January 1, 2018. The TCJA also introduced a new minimum tax regime, referred to as the Base Erosion and Anti-Abuse Tax (“BEAT”) which acted almost as a 5% tax on all deductible payments to non-US related persons – and gross premiums specifically – starting in 2018. The BEAT increased to 10% for fiscal years beginning in 2019 and will further increase to 12.5% for taxable years beginning in 2026 or later. BEAT is payable if, calculated on a modified taxable income base, it is higher than the regular federal corporate tax in a given year.
In 2019, USD 25 million (EUR 22 million) BEAT expense was recognized as part of the current income tax.
Items that will not be reclassified subsequently to profit and loss (8)(31) 4(18)
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 229SCOR Universal Registration Document 2019
Unrealized revaluations and temporary differences on investments (56)15(35) -60 5-57 49
In accordance with IFRS deferred tax netting rules, the amount of deferred tax liabilities and deferred tax assets stated in the balance sheet are as follows: (in EUR millions) 20182019 2017 Deferred tax liabilities (207)(270) (338)
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 231SCOR Universal Registration Document 2019
2019 20172018In EUR millions 474 368Interest income on investments 435 30Dividends 2320 38Rental income from real estate 4842 (9)Other income (including from cash and cash equivalents) (16)(18)
Interest on deposits 177158 151 86 127Realized gains and losses on investments 268
(32)Change in investment impairment and amortization (29)(40) 3 (13)Currency gains (losses) (27)
Other (including from cash and cash equivalents), net of other investment expenses (28)(67) (43)
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 232 SCOR Universal Registration Document 2019
Other operating and administrative expenses include expenses incurred by the Group, excluding gross commissions, as follows: 2018 2017In EUR millions 2019 3% Taxes other than income taxes 26 20 13 893 858937OTHER OPERATING AND ADMINISTRATIVE EXPENSES
(1) Statutory audit and certification of local and consolidated financial statements. (2) Other specific audit assignments related to the statutory audit engagement. Additional audit fees incurred were due mainly to review of actuarial disclosures, review of CSR report, review of Solvency II reports as well as various mandatory procedures. (3) Other services, provided by the Auditors to the fully consolidated companies and due diligence. * Merger of SCOR SE with SCOR GLOBAL P&C SE and SCOR GLOBAL LIFE SE since January 1, 2019.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 233SCOR Universal Registration Document 2019
There is no shareholder (except key management personnel) meeting the criteria of a related party according to IAS 24 – Related Party Disclosures, for the years ended December 31,
Transactions with associates for the financial years ended December 31, 2019, 2018 and 2017 were carried out on an arm’s length basis and their volume is not material.
The total gross compensation of key management personnel, allocated or paid, which includes short-term employee benefits, post-employment benefits, other long-term benefits, termination benefits and share-based payments, for the years ended December 31, 2019, 2018, and 2017 is outlined below: 5,991,365 5,832,784 6,061,319Fixed cash compensation 4,603,272 6,272,821Variable cash compensation 5,061,445 15,832,066Share-based payments (1) 17,470,80024,398,653 -Termination benefits - -
(2) The total commitment of the Group for defined benefit retirement plans in France, Germany, the US and Switzerland for Executive Committee members (including the Chairman and Chief Executive Officer) as at December 31, 2019 amounts to EUR 41 million (EUR 57 million as at December 31, 2018 and EUR 58 million as at December 31, 2017), i.e. 8% of the total commitment of the Group for pension plans of EUR 503 million. This decrease is mainly due to the departure from the Executive Committee in 2019 of one of its members.
Rights and obligations, not recognized on the balance sheet, but which could modify the amount or the composition of the Group’s net assets are disclosed as commitments.
COMMITMENTS GIVEN 4,847 4,313Pledged assets 23 22Endorsements, sureties 258Investment commitments 113 4Other commitments given 2 4,450TOTAL COMMITMENTS GIVEN 5,132
In addition, SCOR pledges assets to the benefit of its consolidated subsidiaries as collateral for its internal retrocessions. As at December 2019, the amount of assets pledged internally is EUR 2,047 million (as at December 2018: EUR 2,432 million).
As at December 31, 2019, SCOR has an outstanding letter of credit capacity of EUR 161 million (as at December 31, 2018: EUR 51 million), recognized as a commitment received from banks. This outstanding capacity can be used to provide collateral on the forthcoming underwritten business.
Investment commitments SCOR is committed to grant loans and to invest in various investment funds for a total amount of EUR 258 million (2018: EUR 113 million). Those amounts do not include the commitments taken by SCOR on behalf of third parties as part of its asset management activity.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 236 SCOR Universal Registration Document 2019
Contingent liabilities Contingent liabilities are disclosed in Note 14.2 – Other provisions.
Note•24 INSURANCE AND FINANCIAL RISKS All of the following paragraphs form an integral part of the Group consolidated financial statements. They are disclosed in Section 3 – Risk factors and risk management mechanisms.
Note•24.1 INSURANCE RISKS Please see Section 3.1.2 – Underwriting risks related to the P&C and Life reinsurance businesses and Section 3.3.2 – Management of Underwriting risks related to the P&C and Life reinsurance businesses.
Legal actions against Thierry Derez, Covéa and Barclays As announced in SCOR’s press release dated January 29, 2019, the gravity of the facts brought to the attention of SCOR and its governance bodies relating to the misconduct committed to the detriment of SCOR, in the context of the preparation and submission by Covéa, on August 24, 2018, of its unsolicited takeover proposal for SCOR, compelled SCOR to initiate legal actions against Thierry Derez, Covéa SGAM, Covéa Coopérations and Barclays. These legal actions consist of: • a criminal action, by way of a direct prosecution (“citation directe”) before the Criminal Court of Paris (“Tribunal correctionnel de Paris”), against Thierry Derez, for breach of trust (“abus de confiance”); • a criminal action, by way of a direct prosecution (“citation directe”) before the Criminal Court of Paris (“Tribunal correctionnel de Paris”), against Covéa SGAM and Covéa Coopérations, for concealment of breach of trust (“recel d’abus de confiance”); • a civil action against Barclays before the High Court of Justice of London, for serious breach of confidence and trade secrets; • a civil action (“action en responsabilite civile”), before the Commercial Court of Paris (“Tribunal de commerce de Paris”), against Thierry Derez, for serious breach of his legal and fiduciary duties and obligations as a director of SCOR in his personal capacity (regarding in particular loyalty, conflicts of interest, and confidentiality) as well as SCOR’s trade secrets (“secret des affaires”); and
In the civil proceedings before the Commercial Court of Paris (“Tribunal de commerce de Paris”) against Thierry Derez, Covéa SGAM and Covéa Coopérations, the Commercial Court has refused, by judgment delivered on November 19, 2019, to order a stay of proceedings pending the outcome of the criminal proceedings. The next procedural hearing will be held on May 11, 2020, to fix the date of the pleadings on the merits of the case.
Notes to the consolidated financial statements CONSOLIDATED FINANCIAL STATEMENTS04 238 SCOR Universal Registration Document 2019
Date of the Shareholders’ Meeting called to approve the financial statements for the financial year ended December 31, 2019May 13, 1996 4.8.2. ALTERNATIVE AUDITORS
MAZARS Lionel Gotlib Tour Exaltis – 61, rue Henri Regnault 92075 La Défense Cedex, France CRCC of Versailles May 6, 2014
Olivier Drion Tour First – 1, place des Saisons 92037 Paris-La Défense cedex, France CRCC of Versailles
Date of the Shareholders’ Meeting called to approve the financial statements for the financial year ended December 31, 2019 4.8.3. RESIGNATION OR NON-RENEWAL OF AUDITORS Not applicable.
• The report of the Statutory Auditors on the consolidated financial statements for the financial year ended December 31, 2017 published on pages 234 to 239 of the Registration Document filed with the AMF on February 23, 2018 under Number D.18-0072 (and from pages 223 to 224 of the free translation into English of such Registration Document, such translation being available on SCOR’s website www.scor.com).
Opinion In compliance with the engagement entrusted to us by your Annual General Meeting, we have audited the accompanying consolidated financial statements of SCOR SE for the year ended December 31, 2019.
In our opinion, the consolidated financial statements give a true and fair view of the assets and liabilities and of the financial position of the Group as at December 31, 2019 consisting of the persons and entities included in the consolidation and of the results of its operations for the year then ended in accordance with IFRS accounting principles as adopted in the European Union.
Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report.
Independence We conducted our audit engagement in compliance with independence rules applicable to us, for the period from January 1, 2019 to the date of our report and specifically we did not provide any prohibited non-audit services referred to in Article 5(1) of Regulation (EU) No 537/ 2014 or in the French Code of ethics (Code de déontologie) for auditors.
Observation Without qualifying our opinion, we draw your attention to the matter set out in note 4.6.1.3. of the Appendix to the consolidated financial statements regarding the impacts of the first application of IFRS 16 "Leases" and IFRIC 23 "Uncertainty over income tax treatment”.
Measurement of technical reserves related to reinsurance contracts (Please refer to Notes 1 and 15 of the notes to the consolidated financial statements)
The gross and net insurance and investment contract liabilities amount to EUR 31,236 million and to EUR 29,009 million (net of share of retrocessionaires in insurance and investment contract liabilities) at 2019 year-end. These liabilities are established to cover the Group's commitments and the payment of benefits relating to reported events or events incurred but not yet reported.
Technical reserves related to Life business are estimated using actuarial methods based on the present value of projected future payments to cedents less the present value of projected future premiums to be paid by cedents. As stated in note 4, SCOR has changed the estimation method for certain US portfolios by harmonizing the assumptions used and the calculation models.
The calculation includes assumptions relating to expected future mortality, morbidity, longevity, disability, lapses, as well as expected future interest rates and expenses.
Assets and liabilities relating to reinsurance contract liabilities are subject each year to a liability adequacy test under IFRS 4.
To cover the risk on the measurement of technical reserves including the harmonization of Life technical reserves for certain US portfolios, our audit approach was the following: • we obtained an understanding of the report of the Group chief actuary on the global adequacy of reserves; • we updated our understanding of the procedures and methods of measurement used in determining the technical reserves; • we obtained an understanding of the internal controls framework and tested the efficiency of key controls established by management in order to assess the completeness and reliability of the data and of the implemented models; • we appreciated the actuarial methods and parameters used as well as the assumptions chosen for a selection of contracts; • we performed procedures to analyze differences between expected claims and occurred claims in order to control subsequently the quality of estimates produced by the management; • we performed, with our Non-Life actuarial specialists integrated in the audit team, a recalculation using our own assumptions and tools, of technical reserves for the most sensitive actuarial segments reserves; • for Non-Life business, we analyzed the documentation supporting measurement of reserves related to catastrophes, both manmade and natural; • as part of the life reserve harmonization, for certain US portfolios, we obtained an understanding of the internal control framework and governance set up. With our actuarial specialists and for a selection of contracts, we performed with our own tools a recalculation of technical provisions and analyzed the relevance of changes made in assumptions and models; • we included within our team members with specific skills in IT systems to perform procedures aiming at evaluating the internal control environment of the systems used by the management and test the functioning of several automated processes; • we examined the methodology and outputs of the liability adequacy tests carried out by management.
The reinsurance entities of the Group record accounts transmitted by ceding companies upon receipt. Accounts not yet received from ceding companies at the end of the 2019 financial year are estimated, in order to better reflect the Group’s reinsurance commitments in the financial statements.
The contracts assumed and retroceded by the Group are subject to different IFRS accounting rules depending on whether they fall within the scope of IFRS 4 – Insurance Contracts or IAS 39 – Financial instruments: Recognition and Measurement.
Auditing of historical consolidated financial information CONSOLIDATED FINANCIAL STATEMENTS04 242 SCOR Universal Registration Document 2019
As part of the yearly impairment testing on goodwill, the Group assesses whether the recoverable amount of cash generating units (CGU) to which the goodwill is allocated, is at least equal to their total carrying value, as stated in note 5 of the notes to the Consolidated financial statements. If it is determined that an impairment exists, the total carrying amount is adjusted to the recoverable value.
Value of Business Acquired (VoBA) represents the value of Life reinsurance portfolios acquired in a business combination. It corresponds to the present value of expected future cash flows for the assumed and the retroceded reinsurance business. As stated in note 6 of the notes to the Consolidated financial statements, VoBA is amortized over the lifetime of the underlying reinsurance portfolio based on schedules derived from the run-off patterns of expected profit. These projections are assessed and updated regularly.
Auditing of historical consolidated financial information CONSOLIDATED FINANCIAL STATEMENTS04 243SCOR Universal Registration Document 2019
Deferred tax: measurement of deferred tax assets on tax losses carried forward (Please refer to Note 17 of the notes to the consolidated financial statements)
An asset of EUR 532 million related to tax losses carried forward is recognized in the balance sheet of the Group at financial year ended 2019.
We consider deferred assets on losses carried forward to be a key audit matter, given the Management’s judgement related to their recognition in the balance sheet.
Specific verifications We have also performed, in accordance with professional standards applicable in France, the specific verifications required by French law regarding group related information, given in the management report of Board of Directors.
We certify that the consolidated declaration of extra-financial performance provided for in Article L. 225 102 1 of the French Commercial Code is included in the management report, it being specified that, in accordance with the provisions of article L. 823 10 of the Code, the information contained in this statement has not been the subject of verifications of fairness or consistency of our means with the consolidated financial statements and must be reported by an independent third party.
As at December 31 2019, MAZARS and ERNST & YOUNG Audit were in the 30th year and 24th year of total uninterrupted engagement.
Auditing of historical consolidated financial information CONSOLIDATED FINANCIAL STATEMENTS04 244 SCOR Universal Registration Document 2019
Our report to the Audit Committee includes the risks of material misstatement that, in our professional judgment, were of most significance in the audit of the consolidated financial statements of the current period and which are therefore the key audit matters that we are required to describe in this report.
Other information audited by the Statutory Auditors The Universal Registration Document as a whole is the subject of a completion letter sent by the Statutory Auditors to SCOR.
Notes 1, 2, 3, 4, 5 and 6 of this Universal Registration Document relate to the non-financial performance declaration. The information published in this section has been reviewed by one of the Statutory Auditors whose report is presented in section 6.
2525.1.6. Provisions that could delay, defer or prevent a change in control or in the shareholder structure 2535.1.7. Disclosure thresholds
Directors’ compensation Pursuant to Article 13 of the Company’s bylaws, the directors receive a remuneration, the maximum aggregate amount of which, determined by the shareholders acting at an annual Ordinary Shareholders’ Meeting, remains in effect until a new decision is made.
Dividends paid to non-residents are “in principle” subject to withholding tax.
Redemption of shares Under French law, the Board of Directors is entitled to redeem a set number of shares as authorized by the Extraordinary Shareholders’ Meeting for the purpose of a capital reduction not motivated by losses. In the case of such an authorization, the shares redeemed must be cancelled within one month after the end of the offer to purchase such shares from shareholders.
Share buy-back or conversion clause The bylaws do not contain any share buy-back or conversion clauses.
Pre-emptive subscription rights for securities of the same class Under current French regulations, and in particular Article L. 225132 of the French Commercial Code, any cash capital increase gives shareholders a pre-emptive right to subscribe to new shares proportionate to the amount of shares owned.
Jointly owned shares Subject to legal provisions concerning shareholders’ voting rights in General Meetings and their right to information, shares are not divisible with regard to the Company. This means that joint coowners must be represented by one of said co-owners or by a single agent, appointed by the Court in the event of a dispute.
Extraordinary Shareholders’ Meetings are required for approval of matters such as amendments to the Company’s bylaws, changes to shareholders’ rights, approval of mergers, increases or decreases in share capital, the creation of a new class of shares and authorization to issue securities giving access to capital, by conversion, exchange or otherwise. In particular, shareholder approval will be required for any merger in which the Company is not the surviving entity or in which it is the surviving entity, but which would involve issuing a portion of our share capital to shareholders of the acquired entity.
Each ordinary share confers on the shareholder one voting right. There is no provision in the bylaws for double or multiple voting rights for the Company’s shareholders. Under French company law, ordinary shares held by entities controlled directly or indirectly by the Company are not entitled to any voting rights.
The Shareholders’ Meeting’s decisions are taken by a majority (either a simple majority for Ordinary Shareholders’ Meetings or a two-thirds majority for Extraordinary Shareholders’ Meetings) of the votes validly cast. Abstentions by those present in person or by correspondence or represented by proxy is not deemed as a vote against the resolution submitted to a vote.
In addition to the above statutory requirements, the Company’s bylaws provide that any natural person or legal entity, acting alone or in concert, that comes to hold or ceases to hold, either directly or indirectly, a fraction of the share capital or of the voting rights of the Company equal to or greater than 2.5%, or 5%, or 10%, or 15%, must inform the Company by registered letter, return receipt requested, addressed to the registered office, within five trading days of the date of the crossing of such threshold, of the total number of shares and/or of securities giving access to share capital held either directly or indirectly or in concert by such natural person or legal entity. The failure to comply with this requirement is sanctioned, upon request of one or more shareholders holding at least 2.5% of our share capital, noted in the minutes of the Shareholders’ Meeting, by the suspension of voting rights from all shares in excess of the non-declared fraction for any Shareholders’ Meeting that may take place during a period of two years following the date notice is served.
(in EUR)Change in capital Stock option plans 12/31/2016 192,534,5691,516,589,467 3,046,040.94 3,752,180.22Exercise of subscription option 09/13/2007 17.58 386,702 Exercise of subscription option 05/22/2008 15.63 176,000 1,386,347.12 1,364,532.88 15.63 106,960 842,520.96 829,263.84Exercise of subscription option 09/10/2008 13,447,177.00Cancellation of treasury shares NA NA 554,112 4,364,725.00
Exercise of subscription option 03/18/2010 18.40 187,898 1,480,067.34 1,977,255.86 10/12/2010 17.79 500 3,938.49 4,956.51Exercise of subscription option 1,031,883.37 1,550,126.63Exercise of subscription option 03/22/2011 19.71 131,000 Exercise of subscription option 09/01/2011 15.71 47,000 370,217.70 368,152.30 20.17 135,500 1,067,329.75 1,665,705.25Exercise of subscription option 03/23/2012 1,408,556.71Exercise of subscription option 03/21/2013 22.25 98,000 771,943.29
Cancellation of treasury shares NA NA 1,692,602 13,332,579.00 36,330,992.00 18.40 287,737 2,266,496.00 3,027,864.00Exercise of subscription option 03/18/2010 16,852.00Exercise of subscription option 10/12/2010 17.79 1,700 13,391.00 Exercise of subscription option 19.7103/22/2011 112,500 886,159.00 1,331,216.00 86,163.00Exercise of subscription option 09/01/2011 15.71 11,000 86,647.00 148,500Exercise of subscription option 1,169,730.0003/23/2012 1,825,515.0020.17
For further details, see Section 4.6 – Notes to the consolidated financial statements, Note 12 – Information on share capital, capital management, regulatory framework and consolidated reserves and to Appendix C – 5.2.3 Notes to the corporate financial statements – Shareholders' equity.
6.2. 263SOCIAL IMPACT OF SCOR’S ACTIVITY Human capital as key success factor for the Group
6.3.1. 273Code of conduct and the compliance policy 2746.3.2. Data privacy and protection 2746.3.3. Anti-Bribery 2746.3.4. Sanctions and Embargoes
6.5.1. 282Accompanying the digitalization of the economy and reducing the protection gap
This consolidated non-financial performance declaration was prepared in accordance with the provisions set out in Article L. 225-102-1 of the French Commercial Code enacting Directive 2014/95/EU as regards the disclosure of non-financial and diversity information by certain large undertakings and groups.
Unless stated otherwise, this consolidated declaration covers SCOR SE and all its fully consolidated subsidiaries (1), hereinafter “SCOR” or “the Group”, other than the exceptions stipulated in the note on methodology in the appendix to this declaration.
6.1.1. BRIEF DESCRIPTION OF THE GROUP’S BUSINESS ACTIVITIES SCOR, the world’s fourth largest reinsurer, established in about 30 countries and providing its services to over 4,000 clients worldwide, is chiefly active via two reinsurance business units (Life and P&C) and a business unit specialized in proprietary investments and third-party asset management.
The Group is a three-engine group driven by SCOR Global Life, SCOR Global P&C and SCOR Global Investments. The Group’s organizational choices are guided by the principles of mobilization of skills and expertise, operating efficiency, structural simplicity, clear reporting lines and balance between teams from the Group’s different entities.
6.1.1.1. Reinsurance business The reinsurance industry has a specific feature that it does not share with other economic sectors, which tend to be marked by cycles and trends: the reinsurance industry is structurally exposed to shocks. Large risks, which make up the raw material of reinsurance, result into shocks with varying origins, sizes and consequences affecting economies and populations.
In this context, reinsurers create diversified risk portfolios. This is achieved through the aggregation of large risks that, as a reinsurer, SCOR mutualizes by business line and by geographical area. The Group thus builds a portfolio with a more regular and predictable risk profile. It also limits its exposure by transferring part of these risks through retrocession and insurance-linked securities.
Reinsurance is therefore a business that involves deliberately taking calculated risks. It enables the Group’s clients to cover their risks by transferring some of them, so that they can be pooled worldwide. In return for a premium that it invests to generate investment income , reinsurance absorbs the financial consequences of the major events to which it is exposed.
6.1.2. RESEARCH AND RISK MANAGEMENT Risk management is at the heart of the Group’s reinsurance and investment activities. It is underpinned by a risk appetite framework built around four concepts (2) : Risk Appetite, Risk Preferences, Risk Tolerances and “Footprint” scenarios.
In order to ensure that the Life business unit is continually up to date with biometric trends and scientific developments, the expertise of its dedicated Research & Development (R&D) Centers is used to assess the key factors inherent to mortality, longevity, morbidity and policyholder behavior. Biometric risks such as
Additional information about the R&D centers, the SCOR Corporate Foundation for Science, and other research activities is presented in Section 1.2.6 of the Group’s Universal Registration Document.
These initiatives provide a general reference framework and useful principles for addressing social and environmental issues, given that the Group conducts business in countries with legal and governance environments with varying degrees of maturity in these areas: • at cross-sector level, as part of its longstanding participation in the United Nations Global Compact, SCOR is pursuing a process of integrating the 10 principles set out therein, covering human rights, international labor standards, environmental protection, and the fight against corruption, in a framework tailored to its sphere of influence; • at the level of the (re)insurance sector, SCOR, as part of its (re)insurance activities, has been a founding member since 2012 of the Principles for Sustainable Insurance, and is a member of the Principles for Responsible Investment in its capacity as an institutional investor (2019) as well as via its asset management subsidiary, SCOR Investment Partners (2017). These initiatives provide a multi-stakeholder and partnership framework for the integration of risks and opportunities arising from environmental, social and societal issues, including the development of expertise and solutions to address issues relevant to the business activities under consideration.
This general reference framework is supplemented, where appropriate, by theme-specific local (e.g. disability-related) and global (e.g. Geneva Association’s Climate Risk Statement) charters.
Under the conditions defined by the Board’s internal regulations, four specialized committees of the Board of Directors provide regular supervision of the initiatives conducted by the Group’s management within the framework of its CSR policy and, in particular, in the management of the non-financial risks identified in this declaration: • the Corporate Social and Societal Responsibility and Environmental Sustainability Committee ensures that the Group’s CSR approach is consistent with its long-term development, and that the direct and indirect effects of its activities on the environment and society are incorporated into its strategy. As such, this committee oversees the execution of the CSR action plan, which puts the Group’s approach in this area into practice on an annual basis. This plan covers a range of relevant topics, such as relations with the Group’s stakeholders, integrating ESG into (re)insurance and investment activities, the Group’s environmental performance with regard to its operations, and the areas covered by the #WorkingWellTogether program described in Section 6.2.1.2. of this declaration. In addition, this committee is also responsible for making proposals to the Board of Directors on how to take social and environmental issues into account in the Group’s orientations. It also makes sure that executive officers implement a policy of non-discrimination and diversity, in particular with regard to the balanced representation of men and women on the executive bodies. In this regard, the Committee is kept regularly informed of the trends observed; • the Risk Committee examines, on the basis of risk and solvency assessments, the major risks facing the Group on both the assets and liabilities side of its balance sheet and ensures that the means to monitor and control these risks have been implemented insofar as possible. It examines strategic risks as well as the Group’s main technical and financial commitments, which consist of underwriting, reserving, market, concentration, counterparty, asset-liability management, liquidity and operating risks, as well as risks arising from changes in prudential regulations. In this regard, the Risk Committee is kept regularly informed of the major social and environmental issues that may influence the Group’s activities, including megatrends (e.g. climate change and damage to the environment, changing demographics and lifestyles, digitalization of the economy) and the associated emerging risks closely linked to these issues; • in addition to its accounting and financial remit, the Audit Committee has ethics-related, internal audit and compliance responsibilities. Accordingly, the Committee reviews the annual compliance plan and is kept informed about the Company’s activities in this area. The compliance plan addresses the main risks identified in Section 6.3. of this declaration. It sets out the activities of the compliance function, its annual priorities – defined on the basis of a prior risk analysis – and the procedures for detecting, preventing and responding to the most significant risks facing the Group; • the Compensation and Nomination Committee is charged with drawing up the rules used to calculate variable remuneration payments to executive corporate officers and ensuring that these rules are in line with the annual assessment of the performance of executive corporate officers, taking the Group’s strategy into account. The Committee is also responsible for examining the terms, amount and allocation of options and shares programs for all the Group’s employees. The Group’s environmental and social performance is one of the performance conditions associated with these compensation instruments, as specified in Section 6.1.3.5 of this declaration.
The composition of these committees, the combination of skills brought together within them, the preparatory work conducted by each of them ahead of Board meetings, and the regular interactions with senior management and the Executive Committee, are all factors providing a structured environment within the framework of this performance declaration for the analysis of social and environmental issues, from both a financial materiality angle and a social and environmental materiality angle.
The coordination and execution of the aforementioned action plan, which is shaped by this CSR approach, is entrusted to a crossfunctional internal committee that brings together representatives from the three business units mentioned in point 6.1.1.1 of this declaration, and Group functions (e.g. Risk Management, Human Resources, Compliance, Investor Relations, Communications, and Group Hub representatives). This Committee is led by the Group’s Head of CSR under the authority of the General Secretariat. Its operational role aims to favor a cross-functional approach to CSR and the management of non-financial risks, in order to harmonize the initiatives taken by the Group and ensure the consistency of the action plans drawn up by each business unit and Group function.
6.1.3.3. Integration of social and environmental issues in the Group’s strategy
The non-financial performance declaration provides a current view of the non-financial risks arising from the company’s business activities, based on the information categories referred to in III of Article 225-102-1 of the French Commercial Code.
The main risks identified as a result of this review are: • risks of diminished appeal to potential talent, in particular as a result of reputational and operational factors, which may arise through an inadequate compensation policy, a lack of support for the development of skills, or insufficient consideration of diversity; • risks associated with business ethics, particularly legal, reputational and financial risks which may arise from issues relating to economic sanctions programs, anti-corruption, antimoney -laundering and anti-terrorism regulations, personal data protection and security, and regulatory tax requirements, including tax evasion matters; • risks arising from society’s expectations of financial companies in terms of ESG integration and high-impact products and services, particularly with regard to reputation, and more particularly in this area, risks related to climate change, including operations-related emissions given the corresponding commitments made by the Group in this field, and expectations in terms of support for the energy transition; • risks associated with the digitalization of the economy, including legal, reputational, operational, financial risks, potentially caused by incidents linked to cybercrime, with possible ramifications for other non-financial risks mentioned above, such as the protection of personal data.
SCOR has incorporated social and environmental criteria into the compensation of its teams, based on arrangements appropriate for the relevant compensation mechanisms and the responsibilities held by staff within the organization: • part of the short-term variable remuneration paid to the Group’s executive corporate officer has since 2015 expressly been based on personal CSR objectives. These objectives, their achievement and their attainment levels, are set out in the report on corporate governance included in the Universal Registration Document for the 2019 financial year; • from 2020, part of the short-term variable remuneration of the members of the Group executive committee will also be based on CSR objectives; • all the beneficiaries of long-term compensation mechanisms (e.g. performance shares, stock options) must satisfy the CSRbased grant conditions, and in particular, since 2012, comply with ethical principles as provided for in the Code of Conduct, and since 2017 complete CSR training. In 2019, this CSR criterion consisted of completing two online training modules on combating harassment and discrimination; • finally, as part of its Annual Appraisal and Development Interviews, in 2019 SCOR introduced the option for managers and their employees to set specific CSR-related goals covering the principal headings of the CSR action plan (e.g. diversity, wellbeing at work, environmental performance, integration of ESG issues into the Group’s business activities).
6.2.1. HUMAN CAPITAL AS KEY SUCCESS FACTOR FOR THE GROUP Considering diversity and inclusion as a strong asset, the Group has implemented a global harmonized human capital management strategy, based on respect and dignity, where individual differences are valued, skills and knowledge are developed throughout the employees’ career.
Thanks to the many initiatives taken in the recruitment process and a strong employer brand, the Group identifies the best candidates available in the market and facilitates their integration. Once hired, new employees are supported throughout their SCOR career path. The Group pays particular attention to the recognition of the contribution of each individual's performance to the strategic objectives of the Group, thanks to a homogeneous and global remuneration structure, aligned with shareholders’ interests, with regulatory and prudential (e.g. Solvency II) requirements, and with the labor market practices prevailing in the reinsurance industry. The Group also offers employees the opportunity to develop their individual skills regarding the business needs and it encourages professional mobility.
Proposing an innovative and dynamic working environment, SCOR finally facilitates the transmission of knowledge and know-how through the implementation of dedicated programs (e.g. mentoring) and the definition of succession plans.
The Group's compensation policy is designed with the objective of aligning interests by discouraging excessive risk taking, while attracting and retaining employees and rewarding individual performance (1).
It is governed by the regulations specific to the insurance sector (e.g. Solvency II) and asset management (e.g. CRD IV and AIFMD), as well as by specific local requirements, and aligned to the Group Fit & Proper policy.
SCOR reviews base salaries on a yearly basis to reward individual performance as well as when new responsibilities are undertaken by the employee. An automatic adjustment to account for inflation is not applied as a general rule and is only granted in the few countries where it is legally required.
(1) SCOR Channel is currently not included in the Group compensation policy but applies the main principles including the ones described under, exceptions will be duly mentioned.
(2) SCOR Channel does not have a partnership scheme. A specific short-term incentive plan based upon individual and collective performance applies to all staff.
The Company has a formalized and carefully designed procedure for appointing and promoting Partners implemented every year during an Executive Committee meeting. Candidates for a nomination or a promotion within the partnership must have consistently demonstrated their skills, leadership and commitment in the past.
In 2019, SCOR Channel’s average compensation was EUR 136,522 composed of an average fixed remuneration of EUR 107,424 and of an average bonus of EUR 29,097 which includes the specific long-term incentive plan.
Aligned with the SCOR Group Code of Conduct, this commitment to provide a work environment free from discrimination was reaffirmed in 2019 at the highest level of the Group, i.e. the Board of Directors. Approved in 2019 and communicated to all employees, SCOR’s Diversity and Inclusion policy describes the Group’s commitment to comply with the respect of the principle of equal opportunities in all the aspects related to the employment conditions of its employees, in terms of recruitment, evaluation, compensation and talent management. To that end, this policy defines a global harmonized framework while defining roles and responsibilities of the various stakeholders regarding its enforcement and the eventual means of redress in the event of non-compliance to the principles enunciated.
(1) Excluding SCOR Channel and SCOR's executive corporate officer. Total compensation is calculated on the basis of 2,902 employees as at December 31, 2019. (2) Amount calculated by multiplying the number of shares granted by the fair value of each plan which is calculated in accordance with IFRS. (3) Average fixed compensation is based on the annual base salary paid to the employee, prorated to actual hours worked.
1st #WorkingWellTogether pillar: Diversity & Inclusion In this section, aspects related to the Group’s policy to achieve a balanced representation of men and women in senior positions are developed in a first section. The other dimensions included in the #WorkingWellTogether program are described in a second section.
Equal treatment policy between female and male employees, and balanced representation in senior positions SCOR’s policy regarding Diversity and Inclusion extends the commitments made in the past by the Group to achieve equal treatment between men and women, at first regarding its European perimeter, then since 2016, more globally through their formalization in a global charter. In addition to cultural development through the #WorkingWellTogether program, the Diversity and Inclusion policy, and the charter mentioned above lead to executing a road map which was presented in 2018 to the Corporate Social and Societal Responsibility and Environmental Sustainability Committee of SCOR’s Board of Directors. Following the missions established in the corresponding annex of the regulations of SCOR’s Board of Directors, this Committee aims to “ensure that the executive officers implement a policy of nondiscrimination and diversity, notably with regard to the balanced representation of men and women on the governing bodies” and it “reports to Board of Directors”.
This roadmap results from a collaborative construction between the SIGN (SCOR International Gender Network), a mixed and autonomous network of employees, and the teams tasked with carrying out the Diversity and Inclusion policy within the human resources department. It lists 24 actions that contribute to the development of a balanced and more mixed talent pool, leading to a more balanced representation within governing bodies and senior positions. This roadmap includes a set of actions in several areas such as training for women, development and visibility, the promotion of role models, the furthering of SIGN (SCOR International Gender Network) within the organization, work-life balance and other measures that support this policy.
2019 Achievements: As part of its Diversity and Inclusion policy and the associated roadmap, SCOR has continued to deploy supporting actions contributing to its human capital management, alongside an internal communication orchestrated with the #WorkingWellTogether brand: • Recruitment: SCOR conducted a comparative analysis of the hired profiles and their gender with recent graduates of a selection of academic institutions training them for positions in the fields of information technology and actuarial science. Based on this first analysis, the men and women distribution of the hired profiles of the Group in these positions corresponds to the one observed when they graduate from these schools or universities. In addition to this study, the Group has updated its guide regarding job interviews by making available online training in respect of (i) diversity and inclusion in the workplace, and (ii) unconscious biases.
(1) Without SCOR Channel. Calculated on the basis of the Group’s headcount at the end of the year. This figure includes the decisions taken during the 2020 Partners promotions and nominations process which took place at the end of 2019.
• Training: development towards high responsibility positions through the access to leadership training programs was also strengthened in 2019, with a special focus on a balanced representation of men and women with the Group’s three flagship programs, Global Leadership Program, SUL (Stepping Up to Leadership) and its regional version ASPIRE. In 2019, 35% of the participants of those three training programs were women. In addition, the Group has continued its efforts in terms of training and awareness of discrimination and harassment related issues, especially through concrete examples of unfair and reprehensible treatment between men and women. These modules, designed for all the Group’s employees, address inappropriate behavior with respect to gender, race, nationality, religion and other attributes, and contribute to create the conditions of an open culture, respectful of differences.
• Evaluating, nominating and promoting: based on the observation that the share of women within the Partners program was a necessary condition to increasing the share of women in higher responsibility positions, the Group focused on ensuring a balanced representation of the employees who accessed it in 2019. Beginning 2019, women represented 58% of the new nominations in this program, and 26% of the promotions. SCOR strives to maintain a female promotion rate in the Partners program that is at least equivalent to the observed representation of women within the partnership. In practice, from 2015 to 2019, the presence of women in the Partners program went from 26.6% to 29%.
• Mobilizing employees and promoting role models: in addition to the support from the Group and its direction to continue SIGN network activities at a global and local scale that includes now more than 300 employees, SCOR also involves its teams, especially through their contribution to promoting role models in positions and disciplines in which the female pool is traditionally underrepresented (Science, Technology, Engineering, Mathematics). The Group highlighted on its intranet female career paths, especially career testimonies as part of Women In Tech in order to fight against a number of stereotypes, and promote potential careers within this type of industry.
• Calibrating performances: the Group’s will to include its policy in a continuous improvement approach is also reflected in its involvement in associations working towards female progression in occupations in the financial industry, such as Financielles (France), the Women’s Insurance Network (London), or Advance (Zurich). In addition to the connection opportunities that those networks offer, SCOR, through these participations, is able to rate its performances regarding diversity and female representation in high responsibility positions by comparing them to their counterparts in their industry of belonging. Benchmarking of performances was also a great motivation in the Group’s decision to answer for the first time in 2019 to the survey realized by Bloomberg as part of the Gender Equality Index. SCOR also uses other sources for benchmarking, such as local obligations of transparency regarding equality between men and women. In this regard, pursuant to French law, SCOR's professional equality between men and women Index in France reached 83/100, a level above the local requirement. This index is calculated based on SCOR’s policy regarding compensation, promotion, processes of returning from maternity leave, and gender parity among the ten highest compensated employees.
Regarding generational diversity, the Group also implements nondiscriminatory measures for older employees; they may take the form of collective agreement in some countries, such as in France where an agreement on employees’ non-discrimination and equal treatment was renewed for the 2017-2019 period, recruitment and job retention, career planning, and skills management for older employees. Personal coaching and support for older employees, along with a pension scheme adaptable according to employees’ personal situation is also set up locally such as in Cologne.
Employees with declared disabilities account for 0.63% of SCOR’s workforce, or 19 employees. Over the last 5 years, this share has remained steady.
The Group’s absenteeism rate has decreased between 2018 (1) and 2019, from 4.55% to 4.10% (number of days of absence in 2019 including sick leave, divided by the total theoretical number of days worked in 2019). The share of sickness absence, that provides a fair indicator of health and wellbeing at work, followed the same trend going from 1.98% to 1.92% (number of days of absence in 2019 including sick leave, divided by the total theoretical number of days worked in 2019).
• Local specific events were organized to raise awareness on employees’ well-being and health: trainings, “well-being week”, professional health awareness initiatives, information meetings. To illustrate, the Breast Cancer prevention conference as part of the “Pink October” conducted by a medical officer of SCOR Global Life, the initiatives around “Movember” on male diseases, or even the benefits of meditation workshop, undertaken by Christophe André, a renowned specialist in that field, have mobilized numerous (about 200) SCOR employees in Paris. They represent key opportunities for employees to discuss the balance between private and professional life.
3rd #WorkingWellTogether pillar: Community engagement The commitment to benefit communities is #WorkingWellTogether’s third axis. In line with the CSR action plan, it aims to facilitate the commitment of SCOR employees towards communities. This approach, which is being developed, results from a broad consultation that SCOR launched towards its employees on a number of CSR related subjects and the way they could be even more integrated into the organization.
Finally, in Asia, a new system was set up that enables all employees of the region to benefit from spending 2 days, per year of their working time, in favor of non-governmental organizations of their choice. For example, they have been mobilized in 2019 for charities protecting the environment (tree planting, beaches cleanup), combating hunger (in partnership with the Willing Hearts association), fighting poverty and supporting people towards the end of their lives (Old Folk’s Home).
100% of employees took at least one training course in 2019 (83.4% excluding mandatory e-learning training modules).
3 – Identifying the Group’s strategic needs and skills and supporting and assisting each employee The Leadership and Organizational Reviews bring together the top management of each company department and the human resources department. These reviews (1) are organized by activity in four steps: review of the organizational structure and the business challenges, individual skills and career prospects analysis, definition of action plans (training, professional development, etc.), definition of succession plans.
• Implementation of new self-service e-learning modules: in compliance with the Group values and with the business requirements, SCOR University proposes a set of solutions to reduce the risk taken by the employees in their daily operational activities: digital training on Anti-harassment and Antidiscrimination, on the Code of Conduct, on the prevention of cyber-risks, on data-protection, and on reporting concerns. Additional trainings are also rolled out to reduce compliance risk, such as an e-learning on Anti-bribery.
• Structuring of the leadership programs: Global Leadership Program focused on Senior Global Partners, Stepping Up to Leadership program focused on Global Partners following a successful pilot in 2018, first-time roll out of the new ASPIRE program in all regions, focused on Associate Partners.
• Implementation of the Key Client Management program for underwriting teams.
As a Societas Europaea, SCOR has set up a European committee covering all its European subsidiaries and branches including the one located in Switzerland, corresponding to around 60% of worldwide workforce. The SCOR Common European Companies Committee is made up of employee representatives from all SCOR European subsidiaries, who meet to exchange information concerning the Group, and to maintain an on-going dialogue between employees and management.
2019 Achievements: • The Common European Companies Committee met 8 times in 2019, on January 18, February 22, April 26, 21 May 21, July 4, October 16, October 24, November 26.
(1) Excluding SCOR Channel as the “Partners” program is not implemented.
Female Male 1, 1, 1, 1, 1, 1, 2, 1, 2,
New hires “Grenelle II” Indicator: New hires (by contract type and by gender)
Employees on fixed-term contracts are considered as definitively leaving SCOR when their contracts expire. Employees who signed a permanent contract in 2019 at the end of their fixed-term contract are not included in the fixed term contract endings.
Average fixed compensation is calculated on the basis of the annual reference compensation paid to employees, prorated to actual hours worked. The average bonus includes the profit-sharing scheme for France and takes into account bonuses equal to zero for unsatisfactory performance. The average granted shares takes into account persons who have not been granted shares.
The length of absence includes sick leave, accident, maternity/ paternity leave, sabbatical leave and exceptional leave.
6.3.1. CODE OF CONDUCT AND THE COMPLIANCE POLICY The Group Code of Conduct establishes the key areas of compliance with legal and ethical obligations and the best practices in these areas. The Code addresses important compliance and business ethics issues, such as (without limitation), the rules applicable to business confidentiality, insider information, and the rules relating to the acceptance of gifts and invitations. Additionally, it underlines the importance of knowing stakeholders (“Know Your Customer – KYC”) to comply with anti-money laundering regulations and economic sanctions programs.
All employees are responsible for ensuring compliance with applicable laws, regulations and policies in their daily duties as well as for escalating any actual or suspected compliance breach, in conformity with the Group's guidelines on reporting concerns, which up until early 2019 provided two channels to raise concerns in a secure manner. In 2019, in order to make it easier for SCOR employees and third parties to raise any relevant concerns, SCOR added a third channel of communication, web based reporting.
This new web-based, anonymous reporting function has been publicized internally and has been further embedded in the Group through a mandatory e-learning module during the first half of 2019.
6.3.2. DATA PRIVACY AND PROTECTION The United Nations Global Compact, of which SCOR is a member, invites the Group to promote and respect the protection of international human rights law and to ensure that it is not a party to any human rights violations.
As part of the global training program for employees, Data Protection and the GDPR have been integrated in the legal and compliance training curriculums. These sessions are conducted regularly by the legal and compliance teams worldwide. During these sessions staff are trained on Data Protection obligations, the GDPR and any local obligations that may be applicable to the training audience. These trainings are practical and include case studies to help them to identify the issues that can appear during their activities and the good practices to resolve them.
6.3.3. ANTI-BRIBERY As mentioned in the Code of Conduct, SCOR has a zero-tolerance approach towards corruption, including bribery and influence trafficking. The Group Policy on Anti-Bribery clearly defines corrupt practices and provides guidance to the employees in recognizing, preventing and detecting corrupt practices.
In furtherance of the French “Sapin II” law (1), the Group conducts a thorough risk assessment annually to identify the countries, sectors and activities that, within the context of SCOR’s business, expose the Group to a particular risk of corrupt activity, as well as indications of corruption that may be present regardless of country, sector or activity.
In addition to training and reminders, SCOR has implemented popup reminders in the technical accounting system which provide a reminder of the “red-flags” of possible corrupt activity whenever a transaction is processed relating to a country that present an elevated risk as identified through the aforementioned risk mapping.
6.3.4. SANCTIONS AND EMBARGOES It is the policy of SCOR to comply with all applicable laws and regulations regarding economic financial and trade sanctions. In that respect, the Compliance function has developed and implemented a global framework to ensure the Group’s compliance with all applicable laws and regulations in this area. This framework includes: • a risk-based analysis – differentiated by Life and P&C business units – This analysis is updated regularly and guides employees (1) as to when there is a mandatory referral to the legal team, (2) on sectors subject to sanction such as military and nuclear goods; and (3) on screening requirements; • a risk-based Know-Your-Customer process for the evaluation of new business partners; • a risk-based sanctions screening protocol; • a clear definition of roles and responsibilities and a dedicated process for escalation, blocking and remediation in case the screening procedure results in an alert.
SCOR is currently conducting a project to automate many of the screening processes as in order to enhance them. SCOR already screens its main technical accounting system on a weekly basis and other databases on a monthly or quarterly basis depending on the nature of the database and the frequency with which it is updated.
SCOR has put in place a risk-based approach, described in Group's Guidelines on Anti-Money Laundering, Terrorism Financing and Know-Your-Customer which includes the identification of business risk indicators by the Group Compliance team and then an application of those indicators in a business risk assessment by each Hub.
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 establishes and provides notification to affected persons or during any period preceding an important event affecting SCOR and likely to influence the stock market price (the “blackout periods”). SCOR emphasises to the employees the necessity of abiding by the rules on insider trading through regular awareness campaigns and reminders contained in communications concerning blackout periods.
6.3.7. TAX When SCOR carries out its activities, the Group does not engage in any artificial structure that lacks business purpose or economic substance. The use of tax havens to avoid the payment of taxes due for activities that take place elsewhere is not a practice pursued by the Group. The Group ensures that the pricing of SCOR’s intragroup transactions complies with the OECD arm’s length principles as well as with local regulations. Accordingly, SCOR pays its taxes on the profit where the economic activities are performed.
Tax is an integral part of SCOR business principles. It is SCOR's group policy to comply with the applicable tax laws wherever it operates. The Group tax department ensures that the various entities of the group comply with the applicable tax laws and regulations wherever they operate. All key entities have a designated tax manager who ensures that the entity complies with its tax obligations. Tax compliance is managed by the business process owner in accordance with the principles governing the Group’s Internal control framework.
In line with the Group Code of Conduct, business owner shall not engage in tax planning or tax scheme which do not support genuine commercial activity. ICS processes ensure that a tax analysis is made and documented before entering into a transaction. The quarterly tax reporting process provides the Group with a complete analysis of the P&L tax expense as well as the tax balances in the financial statements of each entity of the Group for each quarter.
Lastly, other compulsory disclosure provide further transparency on the operations of the Group. The Country by Country Reporting provides an overall map of the profit, activities and tax paid by the Group worldwide. Further, the “DAC 6” Directive makes the disclosure of potential aggressive tax schemes compulsory, beginning with transactions which occurred after June 2018.
6.4. CONSIDERATIONS OF ENVIRONMENTAL AND SOCIAL ISSUES IN THE GROUP’S ACTIVITIES
In this context, the Group continues to develop several initiatives in the field of ESG risk management, as well as opportunities arising from social and environmental issues. These initiatives focus on: • Institutional commitment, support for scientific research and cooperation with several of the Group's stakeholders, particularly with regard to the modeling of natural events and a framework for the development of sustainable finance; • the development of guidelines to provide a framework for the Group's activities in business sectors with high ESG stakes, particularly in carbon-intensive industries such as those involving the mining and use of thermal coal. In addition to these guidelines, the Group is developing tools to monitor the ESG quality of its investment and underwriting activities in the field of specialty insurance; • the design of insurance, reinsurance and investment products that respond to the issues identified as most relevant to the Group’s activities, such as issues relating to climate change mitigation and adaptation, health and, to ensure inclusion, access to insurance.
These initiatives are described separately for investment activities (Section 6.4.1) and for insurance and reinsurance activities (Section 6.4.2). They are supported by companion programs such as #WorkingWellTogether (diversity, wellbeing and engagement), support for the knowledge society (SCOR Foundation for Science, dissemination of risk knowledge, etc.), as described in the previous sections of this declaration, and GreenSCOR (Section 6.4.3), which concerns the Group's internal environmental performance.
As emphasized in its ESG Report on Investments (2), SCOR’s investment philosophy is driven by capital allocation in a regulated Solvency II environment, underpinned by an internal model developed by the Group. The objective of asset management is to optimize the recurrent financial contribution to the Group’s results, while protecting asset values. Accordingly, SCOR is prudent in the management of its investment portfolio, focusing on fairly liquid, high-quality fixed-income assets in order to ensure Group solvency in the event of major losses impacting its liabilities. Asset and Liability Management is a critical factor in the selection of assets used to cover SCOR’s technical liabilities. In addition, the Group manages assets under the congruence principle, and places great importance on asset allocation, not only in terms of the major asset classes but also in terms of concentration.
(1) This section describes the Group's sustainable investment initiatives, in accordance with the disclosure requirements set forth in the decree implementing Article 173 VI of Law No. 2015-992 of August 17, 2015 relating to the Energy Transition for Green Growth.
(2) 2018 ESG Report on Investments “Striving for Sustainable and Socially Responsible Investment”, available on the Group’s website.
representatives from the teams of SCOR Investment Partners, the Group’s principal asset manager, regularly analyze SCOR Investment Partners’ portfolio positions at a more operational and granular level. This committee discusses strategic choices in light of the Group’s ESG criteria. In addition to its role of monitoring the compliance of all investment decisions with the various risk limits set by the Group (e.g. risk appetite and tolerance), the IRSG is also responsible for developing the ESG strategy for investments, which is submitted to the Group Executive Committee. In addition, the IRSG risk management team integrates the ESG rating, exclusion lists and operational monitoring of the CSR action plan into the monitoring of the portfolio.
Climate change risks The Group naturally draws on its expertise in the understanding of climate change risks to better grasp their impact on its investment portfolio, while at the same time exploring various methods of assessing the impact of its portfolio's performance on the environment: • firstly, the identification and assessment of climate change risks that could affect the value of the assets held in the portfolio is subject to various analyses, some of which are still at an experimental stage. SCOR therefore analyzes the "acute" physical risks that could affect its portfolio of real estate debt, infrastructure debt and direct real estate, as well as looking at transition risk through a mapping of the sectors most exposed to transition risk (1). Carried out in 2018, this initial study (2) was extended by a new analysis in 2019, with the constant aim of better understanding the risks that could affect the investment portfolio. SCOR used the scenarios provided by the report of the 2° Investing Initiative (2°ii) (3) to measure the exposure of its assets to transition risk in 2025 and to physical risk in 2060. While this type of analysis is useful for a more detailed understanding of the potential risk factors, and for raising the awareness of the Group's governance bodies, the uncertainties surrounding the robustness of the results make it impossible at this stage to establish an investment strategy based on this type of analysis. Additional information on the results of this work is provided in the Group's climate report, to be published at a later date; • secondly, the impact of SCOR’s investment portfolio on the climate is based on two main metrics: the carbon footprint and the alignment of the asset portfolio with the 2°C Scenario. However, the methodologies used by the service providers in charge of these calculations are not yet standardized, which limits the significance of the results. Moreover, the carbon footprint is only an indicator at a given time. It provides little information on the approach or commitment of issuers with regard to climate risk, or on how SCOR can efficiently manage its assets with regard to risks related to greenhouse gas emissions. The ratio of total CO2 emissions to the amount of investments made by SCOR (tons of CO2 equivalent per EUR million invested) reflects the impact of SCOR’s portfolio on the environment and depends directly on the investment strategy pursued. The carbon intensity per million euros invested was 308 tons at the end of 2019, up by 8% compared to the end of 2018. The calculation covers 85% of the Group’s portfolio at the end of 2019. Moreover, SCOR analyzes the alignment of its investment portfolio with the 2°C Scenario defined by the International Energy Agency; (1) Drawing on the work of Moody's Investor Service, SCOR has identified the sectors most exposed to transition risk according to different investment horizons and quantified the risk according to the maturity of the securities held.
With this in mind, the Group takes a proactive approach to the environmental certification of its real estate investment portfolio. In addition to office buildings acquired for SCOR’s own use (see below), the real estate portfolio contains assets purchased solely for investment purposes, most of which are undergoing renovation works with the aim of obtaining environmental or energy efficiency certification. In addition to its tertiary real estate business, the Group invests in real estate debt funds and infrastructure debt funds, most of which aim to provide funding for the transition to a low-carbon economy and energy efficient buildings. These assets, together with investments in green bonds, represented 6.9% of invested assets at the end of 2019, a percentage significantly higher than the recommendation of Christina Figueres, one of the main contributors to COP 21, to devote at least 1% of investments to green finance.
6.4.1.6. Helping to raising awareness of climate issues by participating in public debate and collective initiatives
The Group's institutional commitment to considering the impact of climate change naturally leads it to participate in collective thinking, by involving its experts in the work undertaken by a number of institutions.
In the field of investments, the Group is active in several forums: • the European Commission's Technical Expert Group on Sustainable Finance, in which SCOR's experts participate. They have been involved in the revision of the non-binding guidelines on non-financial reporting and have contributed to the reflection on a taxonomy for sustainable activities; • the European Lab Project Task Force on Climate-Related Reporting of the Financial Reporting Advisory Group (EFRAG), which is chaired by SCOR experts; • the Climate and Sustainable Finance Commission of the Autorité des marchés financiers in France, which supports its regulatory and supervisory work on sustainable finance.
In addition to its adherence to the Principles for Responsible Investment, the Group is involved in numerous professional associations that are leading discussions on climate issues and investments, such as the French Insurance Federation, the French Association of Institutional Investors, and others.
This institutional commitment to climate change adaptation is backed at the highest level of the Group. SCOR’s Chairman and Chief Executive Officer has co-chaired the Geneva Association’s Extreme Events and Climate Risks working group since May 2015 and also is a member of the steering committee of the Insurance Development Forum, an institution that brings the United Nations, the World Bank and several other international bodies together with the (re)insurance industry. SCOR is also a member of InsuResilience (The InsuResilience Global Partnership for Climate and Disaster Risk Finance and Insurance Solutions), an initiative more specifically designed to bring insurance solutions to the most economically vulnerable populations.
Moreover, SCOR is one of the earliest supporters of OASIS, a British non-profit organization developing an open source platform for the modeling of climate events. The Group has also partnered with Climate-KIC, one of the largest public-private partnerships designed to combat climate change. The Group has also joined the European Insurance and Occupational Pensions Authority's working group to discuss how the trends observed can be integrated into current natural disaster modeling techniques.
In addition, the natural catastrophe modeling teams within the Group’s P&C business unit try to factor the latest usable scientific knowledge into the models they use. The natural catastrophe modeling tools used by the P&C business unit to assess insurance risks take account of climate risk both implicitly (e.g. claims activity is used as the basis for calibrating models) and explicitly (e.g. using current estimates of the increase in sea levels to assess the risk of coastal flooding rather than long-term averages). In this way, current changes in the frequency and severity of the natural risks that SCOR underwrites, whether or not they are related to climate change, are taken into account in the pricing of contracts.
The Group's ability to integrate the latest scientific knowledge into its models is illustrated, for example, by (i) the implementation of an explicit pricing approach for forest fires in 2018, which was updated in 2019, (ii) the development of a new forest fire model, which is due to be released next year, and (iii) the studies conducted by its R&D teams to better understand how climate change could affect the most significant perils for the Group.
Over the past few years, SCOR has undertaken several initiatives aimed at further integrating ESG issues into the insurance activities developed by SCOR Business Solutions (SBS).
Furthermore, in order to submit all other projects to a reinforced selection process, this Group’s P&C business unit has adopted an environmental, social and governance practices internal assessment procedure for operations closely related to coal. This is based on a specific scoring grid for each activity subject to this assessment.
In addition to the implementation of sectoral guidelines for industries with high coal exposure, the Group integrates other ESG dimensions into the SBS underwriting policy. In 2018, the Group thus confirmed its commitment to exclude the tobacco industry from its activities on both on the asset and liabilities side. In addition, the Group associated itself with the PSI/WWF/UNESCO declaration on the protection of the world heritage sites.
As illustrated by the strategic orientations set out in its “Quantum Leap” plan, exclusion policies are not the only way in which SCOR strives to take social and environmental issues into consideration in its core business, in both Non-Life and Life reinsurance.
P&C reinsurance activities In the field of P&C reinsurance, the Group's strategic plan focuses on issues relating to climate change mitigation through support for the energy transition and adaptation to climate risks. These orientations capitalize on the Group's expertise accumulated in its analysis, modeling and risk transfer activities: • supporting the energy transition: SCOR has strengthened its underwriting team in the field of renewable energy and has identified strategic markets in which it plans to develop as part of the plan. This orientation stems from the reflections undertaken in this area in 2018. In addition, the P&C business unit has developed a strategic partnership with Energetic, a start-up that has developed credit insurance to protect developers of renewable energy projects against payment default; • development of solutions contributing to climate risk adaptation: long involved in multiple government insurance pools covering climate catastrophes, the Group is developing partnerships with development finance institutions that have climate change adaptation objectives. SCOR, alongside several other (re)insurers associated with the Insurance Development Forum, has thus committed to supporting the resilience of developing countries in partnership with the United Nations Development Program, and with the German and British governments. Collaborations with the World Bank to provide parametric insurance against climate-related natural disasters in the Philippines, and with the World Food Program in the development of livestock insurance for Ethiopian pastoralists, are other recent examples of the Group's engagement with development finance institutions to provide solutions that contribute to resilience. Through these programs, the Group is helping to increase insurance penetration and to improve the adaptability of insurance beneficiaries. In developing countries, there may be a significant protection gap (1) and insufficient data to develop compensatory insurance schemes. Parametric insurance schemes, developed in partnership with development finance institutions, offer a solution in terms of providing financial protection for post-event reconstruction.
In addition to these two orientations, the Group has also developed strong expertise in the underwriting of Environmental Impairment Liability (EIL) insurance through its Lloyd’s syndicate. SCOR Channel has developed a proprietary rating tool made up of 16 environmental indicators, which informs underwriters about the discipline of the company seeking EIL coverage. This direct insurance product not only incentivizes insureds to better manage risks by offering reduced premiums to companies with good grades, it is also a source of capital that helps to restore the environment when it has been damaged by an insured’s activities.
6.4.3. GROUP’S OPERATIONS Although reinsurance is not an industrial activity with a significant impact on the environment, SCOR strives to manage the environmental impact stemming from its operational processes, among which are office management, business travel and to a far lesser extent office equipment.
SCOR conducts its operations from office buildings of varying size that it either owns or rents in around thirty countries.
Data 2019 Data 2018Coverage (1) Coverage (1)Indicator Unit 147,496 69%Sorted and recycled paper waste Kg 149,205 80%
Aligned with the Group's commercial strategy, SCOR's IT strategy focuses on the security of information systems and data protection, and revolves around: • a strengthened security/data protection enterprise-wide governance; • the implementation of “security and privacy by design” principles; • the development of a proactive cyber approach to enhance preventive security means.
The Group Information and Cyber security framework sets SCOR’s Information Security Governance and related Security Services and solutions implemented at SCOR.
The SCOR Security framework details how to detect, log, contain, recover, eradicate and prevent recurrence of IT related incidents. It covers the 20 identified areas of cyber risk, such as: malware defense, controlled access, incident response and management, data protection and data recovery etc.
Moreover, to ensure continuity and security of IT Services, SCOR hosts its applications on secured data centers, certified as SOC2 Type 2 for the most sensitive ones, generally based on a dual site architecture with real time data replication enabling recovery of its applications in an effective manner in case of any major event. In addition, as part of SCOR security assessment, intrusion tests are conducted.
6.5.3. SUPPORTING THE DIGITAL TRANSFORMATION AMONGST EMPLOYEES SCOR invests in the development of its employees and their expertise to ensure that the Group is able to seize new opportunities in a sustainable way. In this respect, drawing on the success of its SCOR University concept, the Group focuses on enhancing employees’ knowledge on digital topics, with three objectives: to leverage the capabilities provided by collaborative and mobility tools in terms of increasing productivity, to develop the digital culture linked to emerging trends, new methodologies and their impact on the wider-society and the insurance industry, and to acquire digital expertise and new skills.
This support is particularly focused on the use of collaborative tools, through a set of face-to-face and digital training courses led by internal experts, and by digitizing the training offer. With the deployment of LinkedIn e-learning modules, a new digital learning solution is offered to Group employees, who have unlimited access to 13,000 online courses given by experts and 5,000 video tutorials covering technical subjects, business expertise, and professional efficiency.
6.6.1. SCOPE AND CORRESPONDENCE TABLE This consolidated non-financial performance declaration was prepared in accordance with the provisions set out in Article L. 225-102-1 of the French Commercial Code enacting Directive 2014/95/EU as regards the disclosure of non-financial and diversity information by certain large undertakings and groups.
Unless stated otherwise, this consolidated declaration covers SCOR SE and all its fully-consolidated subsidiaries, hereinafter “SCOR” or “the Group”, other than the exceptions of Groupe
Correspondence table with the provisions laid down in article L. 225-102-1 of the French commercial code
Business model description Section 6.1.1 – Brief description of the Group’s business activities
Section 6.2.1 – The human capital as key success factor for the Group Section 6.2.2 – Compliance policy Section 6.2.3 – Climate policy and sustainable investment policy Section 6.2.4 – IT security policy
Section 6.2.1.1 – Turn-over rate Section 6.2.1.3 – Employee trainings Section 6.2.2 – Compliance system – existence of compliance plan Section 6.4.3.3 – CO2 emissions/employee
6.6.2. SOCIAL DATA: METHODOLOGY See Section 6.2.2. – Social indicators and methodological note.
A table has been included in Section 6.4.3.3 – Group’s operations, providing an overview of the rate of coverage for a selection of indicators.
Lastly, sites surveyed include other tenants’ energy and water consumption and to a lesser extent waste production. Therefore, the environmental impact of the Group is overestimated. Other tenants’ employees hosted by these sites account for 11.3% of the employees of the legal entities fully consolidated in the financial statements.
6.6.3.3. Methodology Energy consumption is expressed in kWh/m2, water consumption in m3/employee, and paper consumption in kg/employee. For some data, the ratio takes into account the service providers and other tenants located in the premises occupied by the staff managed by the Group.
In addition, the Group consolidates these indicators and presents them expressed in tons of CO2 equivalent. This conversion of the different energy sources into greenhouse gas emissions is performed centrally on the basis of the conversion factors taken from the “Base Carbone®” produced by the French “Environment and Energy Management Agency” (Ademe), the Department for Environment, Food and Rural Affairs (DEFRA) database regarding air transportation emissions and extrapolated from the data effectively collected in each Hub. The emissions calculated by the Group cover the following scope of the “Green House Gas Protocol”: • “Scope 1”: direct emissions from the combustion of fossil fuel. Depending on the site, these emissions are generated by the consumption of fuel (heating and backup generator) and the use of fleets of vehicles.
• “Scope 2”: indirect emissions induced by electricity consumption, steam and cooling systems. For most of the sites surveyed, most of these emissions are induced by electricity procurement and for some sites, such as Paris, from urban cooling systems. For the calculation of the greenhouse emissions SCOR does not use a discounted factor for renewable energy if a certificate with the discounted rate to be applied is not provided by the energy supplier. Indeed, as the sources of renewable energy purchased are not always known, SCOR adopts a precautionary approach, using the emission factor resulting from the energy mix of a given country. Hence this approach tends to slightly overestimate the measured carbon footprint of the Group.
• “Scope 3”: other indirect emissions. This Scope usually includes emissions from the use of offices (so-called depreciation), commuting, business air travel, waste and so on. In this Scope, SCOR focuses on air travel (the most important source of emissions) as well as rail travel and paper purchases.
With regards to the source of emissions (to be distinguished from the volume of emissions) within each Scope, the rate of coverage is estimated at around 100% for Scope 1 (within this scope refrigerant fluid may be a significant source of greenhouse gas emissions; volumes are not estimated) and at 100% for Scope 2. The rate of coverage for Scope 3 is limited to approximately 10% of emitting sources linked to the management of operational processes since the Group has adopted a pragmatic approach with a clear focus on business transportation which has an important environmental footprint. Within this Scope, the main sources linked to the management of operational processes and excluded are commuting as well as the so-called depreciation of equipment, property and some services, such as outsourced data center.
The variation in the intensity ratio presented in Section 6.4.3.3 covers scope 1 and 2 described above and concerns the management of the Group's operational processes.
The main sources of greenhouse gas emissions of the Group may also include emissions stemming from investment. In this regard, SCOR measures the carbon footprint of its invested assets. For each investment, the data provider, ISS, collects emissions data from several different sources (e.g. CDP, World Bank). When the data are not available, ISS provides an estimate of the carbon footprint based on a proprietary methodology. Data used cover the scope 1 and 2, excluding sovereign bonds for which scope 1, 2 and 3 are covered. Then ISS calculates the financed emissions of the portfolio by taking into account SCOR’s share in the value of the company, the sovereign debt, or a real estate project or an infrastructure. After computing the amount of financed emissions, this value is divided by the market value of considered assets in order to calculate the carbon intensity in millions of euros invested.
6.7. REPORT BY THE INDEPENDENT THIRD PARTY, ON THE EXTRA-FINANCIAL PERFORMANCE DECLARATION INCLUDED IN THE MANAGEMENT REPORT
This is a free English translation of the independent third party’s report issued in French and is provided solely for the convenience of Englishspeaking readers. This report should be read in conjunction with, and construed in accordance with, French law and professional standards applicable in France.
The Declaration was established in accordance with the protocols used by SCOR (hereinafter the "Guidelines"), which its significant elements are presented in the Declaration (and available on request at the company head office.
Nature and scope of our work Our work described hereinafter was performed in accordance with the provisions of article A.225-1 et seq. of the Commercial Code defining the conditions under which the independent third party performs its engagement and in accordance with the professional doctrine from the National Body of the auditors (Compagnie nationale des commissaires aux comptes) relating to this intervention with the international standards ISAE 3000 – Assurance engagements other than audits or reviews of historical financial information.
• we checked the process of selection and validation of the main risks; • we verified existence of internal control and risk management procedures; • we appreciated consistency of the results and key performance indicators selected regarding the main risks and policies presented; • we verified that the Declaration covers the scope of consolidation, i.e. the companies included in the scope of consolidation pursuant the article L. 233-16 with the limits specified in the Declaration; • we appreciated the data collection process implemented by the entity aiming at the exhaustivity and reliability of the Information; • we implement for key performance indicators and the other quantitative results which we considered the most important (1): — Analytical review to verify the correct consolidation of the collected data along with the consistency of their evolutions, — Detailed tests based on sampling to verify the correct application of the definition and procedures and to reconciliate the data with supporting documents. These works were conducted alongside some contributor entities (2) and cover between 27% and 53% of the consolidated data of the key performance indicators and results selected for these tests; • we consulted documentary sources and lead interviews to corroborate the qualitative information (actions and results) which we considered the most important (3); • we appreciated the overall consistency of the Declaration relatively to our knowledge of SCOR.
We believe that our works based on our professional judgement, are sufficient to provide a basis for our limited assurance conclusion; a higher level of assurance would have required us to carry out more extensive procedures.
Resources Our works mobilised skills of 5 people and were realized between November 2019 and January 2020.
(1) Social information: Headcount at December 31; Turnover; Total compensation; Average fixed remuneration; Average bonus; Number of meetings with staff representatives; Number of European Committee meetings; Number of collective agreements signed; Number of training hours.
Environmental information: Volume of sorted and recycled paper waste; Energy consumption; Greenhouse gas emissions related to operationnal processes; CO2 emission/employee.
IT Security information: Number of false phishing attempts. (2) Sites: New York, Singapour, Zurich, Charlotte, Paris. (3) Social information: Measures to promote equality between women and men.
Report by the independent third party, on the extra-financial performance declaration included in the management report NON-FINANCIAL PERFORMANCE DECLARATION
The risk management system covers the following components: 1. defining the internal environment; 2. objective setting; 3. performing a risk identification; 4. performing a risk evaluation; 5. defining a risk response; 6. documenting and formalizing control activities; 7. presenting the information and communication process; 8. ensuring monitoring of the risk management and internal control systems.
• Business Performance - Business Acceptance (including Pricing) - Finance (including Corporate Actuarial)
Finance Human Resources Information Systems Business Continuity Legal & Compliance 291SCOR Universal Registration Document 2019
Within this environment, control responsibilities are exercised as follows: • SCOR SE’s Board of Directors relies on several dedicated committees, including, but not limited to, the Audit Committee and the Risk Committee to exercise its control responsibility over the objectives it has set for the Company. These two committees are both chaired by independent directors; • SCOR SE’s Board of Directors, following a recommendation made by the Compensation and Nomination Committee, decided that several independent directors of SCOR SE should be members of the Boards of some of the main subsidiaries in various countries with a view to enhancing the Group’s oversight of local operations; • the Group’s Executive Committee is chaired by the Chairman and Chief Executive Officer of SCOR SE and meets on a weekly basis. The Executive Committee defines the procedures for implementing the strategy approved by SCOR SE’s Board of Directors in line with the principles set out in Group policies, approved by the Board of Directors, for its main areas of activity (e.g. investment, finance, risk management) and for certain topics, such as the underwriting plan and the allocation and management of resources. The Executive Committee also supervises the functioning of the Group and the Hubs by monitoring, on a quarterly basis, the bodies contributing to the sound administration of the Group. In addition to the Chairman and Chief Executive Officer, the Executive Committee is currently made up of: — the Group Chief Financial Officer (CFO), — the Group Chief Risk Officer (CRO), — the Group Chief Operating Officer (COO), — the SCOR Global P&C Chief Executive Officer (CEO) and his deputy, — the SCOR Global Life Chief Executive Officer (CEO) and his deputy, — the SCOR Global Investments Chief Executive Officer (CEO); • the Group Risk Committee meets quarterly and is comprised of the members of the Group Executive Committee. Other risk management and control functions of the business units and the Head of Group Internal Audit are regularly invited to the meetings. The main missions of the Group Risk Committee are to steer the Group’s risk profile, maintain an effective ERM Framework and spread an appropriate Risk Culture throughout the Group; • monitoring of the internal control procedures falls under the remit of the Group’s Executive Management. The Group departments and functional or transversal departments of SCOR Global P&C, SCOR Global Life and SCOR Global Investments with a control responsibility have the task of defining and controlling the implementation of rules pertaining to the areas of their responsibility and applicable to all of the Group’s entities. These rules, and the participants, are described in detail in the paragraph 1.3 of this report on control activities; • the three business units, the group functions, as well as the Hubs’ support departments must apply the rules defined above. They carry out all controls related to business management and ensure compliance with regulatory, accounting and fiscal laws, at both local and Group levels; • the Head of Group Internal Audit reports directly to the Chairman and Chief Executive Officer of SCOR SE and functionally to the Chairman of the Audit Committee of the Board of Directors of SCOR SE. This positioning gives the Head of Group Internal Audit the necessary independence and objectivity, and allows for the largest possible room for investigation. Group Internal Audit checks independently the effectiveness and relevance of the governance, risk management and internal control procedures for the Group’s entities following a methodical risk based approach, as promoted by the “International Standards for the Professional Practice of Internal Auditing” set out by the Institute of Internal Auditors and the Institute’s Code of Ethics. The Internal Audit Charter, approved by the Audit Committee, defines the position within the organization, the role and areas of activity, the principles and main operating procedures of Group Internal Audit.
SCOR reviews Group policies for accuracy, completeness and reliability on a regular basis.
For several years, SCOR has implemented and formalized threeyear strategic plans. On September 4, 2019, SCOR publicly presented “Quantum Leap”, its latest strategic plan (mid-2019 to year-end 2021). “Quantum Leap” builds on the success of SCOR’s previous strategic plan, “Vision in Action” and sets the Group’s new core objectives of: • a return on equity (ROE) above 800 basis points over the 5-year risk-free rate over the cycle (1); and
A Identification and assessment of risks INTERNAL CONTROL AND RISK MANAGEMENT PROCEDURES
• SCOR’s ORSA (Own Risk Solvency Assessment), which provides the Group’s Board and those of the legal entities, the Group Executive Committee and senior management of legal entities, with forward-looking information on SCOR’s risks and capital position; • SCOR’s internal model, which is deeply embedded in SCOR’s risk management system and contributes to the assessment of risks. SCOR uses its internal model for determining economic capital. Its results are used to implement SCOR’s underwriting and asset management policies and guidelines.
This section summarizes the principal activities and participants of risk control for the following important areas: • group functions; • activities related to reinsurance; • asset management; • accounting management.
The Group’s functions are organized into three departments led by the Chief Operating Officer, Chief Financial Officer and Chief Risk Officers respectively. The Operations area comprises Information Technology, Human Resources, the General Secretariat (including the Compliance and Legal departments), the Group Project Office, Cost Control and Budgeting, and Corporate Communications. The Finance area comprises Treasury, Budget and Forecasting, and other functions relating to consolidation, reporting, accounting, financial communications and tax issues. The Risk Management area comprises the actuarial function, the risk management function, various risk and actuarial modeling teams and the Prudential and Regulatory Affairs Department. Further information is presented below, excluding the financial reporting and financial communication functions dealt with in Sections 5 and 7 hereafter.
Group IT Department at two complementary levels: specific IT processes and business processes all covered by IT solutions. For specific IT processes, a special unit of the Group IT Department deals with all issues of information system security. Periodic audits of information security applications and procedures are conducted. SCOR continually improves its control procedures based on the COBIT (Control objectives for information and technology) guidelines covering the risks listed in its major processes, in particular relating to the development, advancement and use of all solutions, and access to systems and databases. In the context of the business continuity plan, the IT disaster recovery plan is constantly reinforced using the latest technology. In addition, employees can be temporarily moved to any other Group Hub office, or even work from home with their laptop or personal computer.
• The General Secretariat contributes to the management of the following functions: — legal and functional governance of the Group, — compliance, with the Group Chief Compliance Officer reporting to the General Secretariat (special attention is given to anti-trust/competition law, anti-money laundering and terrorism financing, sanctions and embargoes, antibribery, anti-fraud, data protection and privacy, insider trading and conflicts of interest),
• The Human Resources Department controls all processes related to the management of human capital.
• The Group tax function sets the Group tax policy with the purpose of ensuring that the various entities of SCOR meet their tax obligations and promote the use of best practices in this domain.
• The Consolidation, Investment accounting and Solvency II reporting departments play a major role in both internal management reporting and external reporting, and the analysis thereof.
• The Prudential & Regulatory Affairs Department advises the Group on prudential regulations. It ensures the Group actively positions itself in relation to the different jurisdictions and requirements to which it is exposed, or could be exposed and continuously develops and promotes SCOR’s leading risk management expertise through regular dialogue with internal and external stakeholders, including our staff, clients, supervisors, the (re)insurance industry, academia and the public. Prudential and Regulatory Affairs also provides specialist expertise to SCOR colleagues via the Solvency II Centre of Excellence and prepares the Group for the adoption of major new prudential regulations.
• The Financial Modeling and Risk Analysis Department manages and operates SCOR’s Internal Model and provides a detailed quantitative analysis on the modelled range of changes in economic value. It provides reports to management on risk assessment and actively assists the Company in its various uses of the Internal Model.
The Group invests in assets through its business unit SCOR Global Investments, composed of an asset management company regulated by the French Autorité des marchés financiers (SCOR Investment Partners SE) and of two services: Investment Business Performance and Group Investment Risk & Sustainability.
Investment strategy The investment strategy at SCOR is risk based and the portfolio’s positioning is derived from the risk appetite and risk tolerance allocated by the Group to invested assets.
The primary investment objective of SCOR is to generate recurring investment income in accordance with the risk limits of the Group, and to ensure that the Group: • is able to meet its claims and expense payment obligations at all times; and
Reporting and risk monitoring Group Investment Risk & Sustainability monitors, on an ex ante and ex post basis, the compliance of the portfolio positioning with regard to the Group risk appetite and investment guidelines. Breaches are escalated to the Group Investment Committee as well as to the Group and Board Risk Committees. Investments falling outside of the scope of the Group Investment Guidelines are subject to special referral procedures managed by the Group Risk Management Department. Investment Business Performance is responsible for monitoring processes related to financial performance and reporting regarding invested assets.
SCOR also operates an “Internal Control System Competence Center” (ICS-CC) which reports to the Group Risk Management Department. The core objective of this competence center is to pool the ICS expertise in order to foster a consistent ICS approach and application of ICS standards across the Group. The ICS-CC consists of experts, who are dedicated to coordinating the internal control formalization activities within the Group, its business units and entities, and supporting the business process owners where necessary. The ICS standards are applied based on the principle of proportionality. ICS processes have been documented accordingly, focusing on those considered the most critical. The ICS documentation is being maintained across the Group and regularly reviewed for continuous improvement.
the matter has not been resolved, he/she must communicate the matter to the Audit Committee.
Group Internal Audit develops a multi-year internal audit plan (revised at least annually) in a risk-based manner, taking the organization’s risk management framework and including risk appetite levels set by management for the different activities, or parts of the organization, into account. The expectations of senior management and the Audit Committee are considered in this process. Once reviewed and approved by the Audit Committee, it is communicated internally, and summaries are published on the SCOR intranet.
The Chief Financial Officer relies on the accounting departments of operating companies, which provide him with quarterly consolidation packages, as well as on the accounting departments of SCOR Global P&C, SCOR Global Life and SCOR Global Investments which assist him in coordinating aspects relative to the processes, methods and reporting.
General accounting for SCOR subsidiaries is supported by two main auxiliary accounting systems, namely (1) a system for technical reinsurance accounting; and (2) a system for investments.
The processes for reinsurance accounting and the calculation of underwriting reserves, which are predominantly within the single technical information system (OMEGA), are applied by Group entities.
Concerning reinsurance accounting, numerous regular controls are conducted directly (automatic and systematic, or for consistency or by testing) by the technical accounting teams located in the subsidiaries. Technical results are analyzed quarterly by the finance departments of SCOR Global P&C and SCOR Global Life, and the Group Chief Actuary regularly performs an actuarial review of the Group technical reserves.
SCOR Global P&C The calculation of underwriting reserves (including IBNR – Incurred But Not Reported) which have a significant impact on the balance sheet and income statement, is largely based on contractual and accounting data provided by ceding companies, the relevance of which is verified upstream. This calculation of underwriting reserves is subject to the following successive controls: • by the actuaries in charge of reserves through control reports for which the proper implementation is verified by the Actuarial Department of the business unit and of the Group; • by the Chief Actuary, particularly for methods, tools and results.
SCOR Global Life The recognition and measurement of underwriting reserves (in particular mathematical reserves) and related intangible assets (including deferred acquisition costs and value of acquired portfolio) are based on contractual and settlement data and subject to the following controls: • the reinsurance treaties are either reviewed individually or are pooled within an affiliation treaty based on certain criteria defined in advance; • the treaties are then subject to reserving estimates, which are reviewed at each quarterly closing either by the actuaries or at meetings attended by underwriters, technical assistants and actuaries.
SCOR believes that its risk management and internal control systems are appropriate and adapted to its activities and is engaged in an ongoing process to improve its internal control standards and their implementation. In 2019, SCOR continued its efforts on compliance issues, as briefly summarized in this Section, by releasing new Group policies, and by improving existing policies to align them with the Group’s developments.
• I declare having taken all reasonable care to ensure that such is the case, that the information contained in this Universal Registration Document is, to the best of my knowledge, in accordance with the facts and contains no omission likely to affect its import.
Registration Document, accurately reflects the evolution of the business, the results and the financial position of the Company and of all businesses and firms included within the scope of the consolidated group, and describes the main risks and contingencies which they are faced with.
Pursuant to Article 28 of Regulation (EC) No. 809/2004 of the European Commission, the following information is included by reference in this Universal Registration Document: • (i) the corporate financial statements for the year ended December 31, 2018 and the Statutory Auditors’ report pertaining thereto published on pages 280 to 310 and 311 to 315, respectively, of the Registration Document filed with the AMF on February 4, 2019 under number D.19-0092 and from pages 280 to 310 and from pages 311 to 315, respectively, of the free translation into English of the Registration Document filed with the AMF with such translation being available on SCOR's website www.scor.com; • (ii) the corporate financial statements for the year ended December 31, 2017 and the Statutory Auditors’ report pertaining thereto published on pages 264 to 294 and 295 to 299, respectively, of the Registration Document filed with the AMF on February 23, 2018 under number D.18-0072 and from pages 264 to 294 and from pages 295 to 299, respectively, of the free translation into English of the Registration Document filed with the AMF with such translation being available on SCOR's website www.scor.com; SCOR SE’s corporate financial statements for the financial year ended December 31, 2019 are presented below: 1. SIGNIFICANT EVENTS OF THE YEAR
In 2019, SCOR SE carried out the following significant transactions: Mergers between SCOR SE (“the Company”) and its wholly-owned subsidiaries SCOR Global Life SE, SCOR Global P&C SE and SCOR Holding (Switzerland) AG. Mergers between SCOR SE (“the Company”) and its wholly-owned subsidiaries SCOR Global Life SE and SCOR Global P&C SE On March 31, 2019, SCOR SE merged with its wholly-owned subsidiaries SCOR Global P&C SE (“SGP&C SE”) and SCOR Global Life SE (“SGL SE”) with retroactive effect from January 1, 2019.
The financial statements used as a basis for the merger agreement and the calculation of the merger profit are the annual financial statements for the year ended December 31, 2018 of SCOR SE, SGL SE and SGP&C SE.
Merger between SCOR SE (“the Company”) and its wholly-owned subsidiary SCOR Holding (Switzerland) AG As part of an internal restructuring to simplify and streamline the Group structure, SCOR Holding (Switzerland) AG (“SHS”) has contributed all of its assets and liabilities to SCOR SE on September 30, 2019. SCOR SE now holds directly the interests in SCOR Services Switzerland AG, SCOR Switzerland AG and SCOR Switzerland Asset Services AG.
The difference between the net equity interest of EUR 1,969 million hold by SCOR SE in SHS and the net assets contributed by SHS of EUR 2,011 million results is a merger profit of EUR 42 million, recorded in financial result.
The comparative income statement for the year ended December 31, 2018 does not include the Life and Non-Life activities of SGL SE and SGP&C SE.
While the accounting rules relating to mergers and related transactions do not require the absorbing company (beneficiary of contributions), here SCOR SE, to establish pro forma accounts for previous years presented, it is recommended to indicate the effect of the contributions on the income statement (income, personnel expenses, depreciation and amortization, etc.), i.e. in this context the 2019 income statement.
CSignificant events of the year UNCONSOLIDATED CORPORATE FINANCIAL STATEMENTS OF SCOR SE
Capital increase in SCOR Global Life Americas Holding SCOR SE has increased its capital into SCOR Global Life Americas Holding by USD 423 million (EUR 371 million) through the conversion into equity of the loan and the treasury advance granted to its subsidiary.
New participation in SCOR Realty Singapore SCOR SE proceeded with a capital injection in SCOR Realty Singapore for SGD 10 million (EUR 6.5 million).
Dividends received During 2019, SCOR SE received EUR 166 million in dividends from its affiliates (EUR 602 million in 2018, of which EUR 250 million from SCOR Global P&C SE and EUR 100 million from SCOR Global Life SE).
These new notes are assimilated and form a single series with the existing USD 625 million perpetual subordinated notes, bearing the same terms and conditions as the original notes.
-5,9585,958Cash deposited with ceding companies 5,783- -5.2.1 ---Investments representing unit-linked contracts - -5.2.9 5953,2103,210Share of retrocessionaires in underwriting reserves 2,810 126- 17373Reinsurance reserves (Life)
(1) Mergers contributions from SGL SE, SGPC SE and SHS in 2019 (after eliminations of internal operations).
20182019In EUR millions 2019 of which mergers contributions * 1,140Shareholders' equity and reserves (1) 5.2.3 3,6004,055 1,473 -Share capital 1,521 83Additional paid-in capital 786678 - -Revaluation reserve 74 -Legal reserve 74 57 -Other reserves 57 - -Capitalization reserve 646820 -Retained earnings 1,029Net income for the year 499908 45 28Regulated reserves 17 2,2772,841Subordinated liabilities 4305.2.4 3,437 3,351Reinsurance reserves (Life) 2 876 2,229Loss reserves (Life) 1, 552 784Unearned premiums reserves (Non-Life) 639 9,932 6,266Loss reserves (Non-Life) 2,361 1,951 1,761Other underwriting reserves (Non-Life) 6 39Equalization reserves (Non-Life) 522
(330)Earned premiums 1,8822,212 339 -Investment revenues 6060 - -2 -Other investment income 2
357Life reinsurance reserves (72) (55) (127) Unit-linked contract reserves -- -Other underwriting reserves -- --
-Internal and external investment management expenses and interest expenses (24) - (24)
Non-Life underwriting income/(loss) 480 272 (72)Life underwriting income/(loss) (301) 787Investment revenues 1,621
499NET INCOME FOR THE YEAR 908 2.58NET EARNINGS PER SHARE (In EUR) 4.85 307SCOR Universal Registration Document 2019
ACCOUNTING POLICIES 3105.1. Intangible assets 3105.1.1. Investments5.1.2. 310 Property, plant and equipment5.1.3. 311 311Accounts receivable5.1.4. 3115.1.5. Retirement commitments and similar benefits Financial liabilities and subordinated liabilities 3115.1.6.
3145.1.14. Catastrophe bond – reinsurance contract 5.1.15. 314Quota share retrocession agreement