Certain statements contained in this Registration Document may relate to objectives of SCOR SE (“SCOR SE” or the “Company”) or of the SCOR Group (the “Group”) or to forward-looking information, specifically statements announcing or corresponding to future events, trends, plans, or objectives, based on certain assumptions. These statements are typically identified by words or phrases indicating an anticipation, assumption, belief, continuation, estimate, expectation, forecast, intention, and possibility of increase or fluctuation and similar expressions or by future or conditional verbs. This information is not historical data and must not be interpreted as a guarantee that the stated facts and data will occur or that the objectives will be met. Undue reliance should not be placed on such statements, because, by nature, they are subject to known and unknown risks, uncertainties, and other factors, which may cause actual results, performance, achievements or prospects of SCOR SE to differ from any future results, performance, achievements or prospects explicitly or implicitly set forth in the Registration Document. In addition, such forward-looking statements bear no relation to “profit forecasts” in the sense of Article 2 of Regulation (EC) 809/2004.
This document is a free translation in English for information purposes only of the “Document de Référence” drafted in French and filed with the AMF on 3 March 2010 under number D.10-0085.
This registration document was filed on 3 March 2010 under number D.10-0085 with the French Autorité des Marchés Financiers (AMF) in accordance with Article 212-13 of the AMF general regulation. It can be used as a support document for a financial transaction only if presented together with a securities information note (note d’opération) approved by the AMF.
Pursuant to Article 28 of Regulation (EC) 809/2004 of 29 April 2004 of the European Commission implementing the Directive 2003/71/CE (the “Regulation (EC) 809/2004”), the following information is included by reference in this registration document (the “Registration Document”): SCOR SE’s corporate and consolidated financial statements for the financial year ended 31 December 2008 and the report of the statutory auditors regarding said financial statements as presented in SCOR SE’s registration document filed with the AMF on 5 March 2009 under number D.09-0099.
1 Person responsible 5 1.1 Name and title of person responsible 7 1.2 Declaration by person responsible 7 2 Statutory Auditors 8 2.1 Auditors 10 2.1.1 Principal Auditors 10 2.1.2 Alternative Auditors 10 2.2 Resignation or non renewal of Auditors 10 3 Selected financial information 13 3.1 Group key figures (under current consolidation scope) 13 4 Risk factors 14 4.1 Risk related to the business environment 17 4.1.1 The Group is exposed to diverse risk factors in the Non-Life and Life reinsurance businesses 17 4.1.2 We are exposed to losses from catastrophic events 22 4.1.3 We could be subject to losses as a result of our exposure to terrorism 23 4.1.4 We could be subject to losses related to deteriorating results in lines in where we are no longer actively writing business 24 4.1.5 If our reserves prove to be inadequate, our net income, cash flow and financial position may be adversely affected 25 4.1.6 We may be adversely affected if our cedants, retrocessionaires, insurers or members of pools in which we participate do not respect their obligations 27 4.1.7 We operate in a highly competitive sector 27 4.1.8 Financial ratings play an important role in our business 27 4.1.9 A significant portion of our contracts contain provisions relating to financial strength which could have an adverse effect on our portfolio of contracts and our financial position 28 4.1.10 Operational risks, including human errors or computer system failure, are inherent in our business 28 4.1.11 We are exposed to risks related to the recent acquisitions 29 4.1.12 We are exposed to credit risks 30 4.1.13 We are exposed to the risk of no longer being able to retrocede liabilities on acceptable terms and conditions 32 4.2 Market risk 33 4.2.1 We face risks related to our fixed income investment portfolio 33 4.2.2 We face risks related to our equity-based portfolio 33 4.2.3 We are exposed to other risks arising from our financial instruments 34 4.2.4 We are exposed to currency risk 34 4.2.5 Our shareholders’ equity and net income are sensitive to the valuation of our intangible assets and deferred tax assets 35 4.3 Liquidity risk 36 4.3.1 We face liquidity requirements in the short to medium term in order to cover, for example, claims payments, operational expenses and debt redemptions. In the case of catastrophe claims, in particular, we may need to settle amounts which exceed the amount of available liquidity 36 4.4 Legal risk 37 4.4.1 We are exposed to risks related to legislative and regulatory changes and political, legislative, regulatory or professional initiatives concerning the insurance and reinsurance sector, which could have adverse consequences for our business and our sector 37 4.4.2 We are exposed to certain litigation matters 37 4.4.3 Our positions on tax accounts are subject to audit and approval by tax authorities 38 4.5 Insurance of specific operational risks (excluding reinsurance activity) 38 4.6 Risks and litigation: Reserving methods 38 5 Information about the issuer 39 5.1 History and development of the issuer 41 5.1.1 Legal name and commercial name of issuer 41 5.1.2 Place and registration number of issuer 41 5.1.3 Date of incorporation and length of life of issuer 41 5.1.4 Domicile and legal form of issuer, legislation governing its activities, country of incorporation, address and telephone number of its registered office 41 5.1.5 Important events in the development of the issuer’s business 42 5.2 Investments 45 5.2.1 Principal investments made over the past three financial years 45 5.2.2 Principal investments in progress 47 5.2.3 Principal future investments 47
Administrative, Management and Supervisory bodies 271 21.2.3 Rights, privileges and restrictions attached to existing shares 271 21.2.4 Actions required to modify shareholders’ rights 272 21.2.5 Conditions for calling annual shareholders’ meetings and extraordinary shareholders’ meetings
(articles 8 and 19 of the Bylaws) 273 21.2.6 Provisions that could delay, defer or prevent a change in control 273 21.2.7 Declaration thresholds 273 21.2.8 Conditions governing modifications to the share capital (other than legal provisions) 273 23 Third-party information and statements by experts and declarations of any interest 277 23.1 Expert’s report 279 23.2 Information from third parties 279 24 Documents on display 280 25 Information on holdings 282 26 Non financial information 284 27 Fees paid by the Group to the Auditors 286 28 Published information 288 28.1 Information published on the Autorité des Marchés Financiers (AMF) website (www.amf-france.org) 290 28.2 Information published in the Bulletin des Annonces Légales Obligatoires (BALO) [Bulletin of required legal notices publications] (www.journal-officiel.gouv.fr/balo/index.php) 291 28.3 Information published on SCOR’s company website (www.scor.com) 292 28.4 Information published on NYSE-Euronext’s website (www.euronext.com) 293 28.5 Information published on the Info-Financières website (www.info-financière.fr/search.php.com) 293
1.1 page 7 Name and title of person responsible 1.2 page 7 Declaration by person responsible
1.1 Name and title of person responsible Mr. Denis Kessler, Chairman of the Board of Directors and Chief Executive Officer of SCOR SE.
1.2 Declaration by person responsible I declare that, having taken all reasonable care to ensure that such is the case, the information contained in this
Registration Document is, to the best of my knowledge, in accordance with the facts and contains no omission likely to affect its import.
I have obtained an audit completion letter from the statutory auditors, in which they indicate that they have verified the information concerning the financial situation and the accounts provided in this Registration Document, and have read the entire Registration Document.
On the date of the Shareholder’s Meeting called to approve the financial statements of the financial year ending 31
In March 2009, Standard and Poor’s raised SCOR SE and its core guaranteed subsidiaries long-term credit and insurer financial strength ratings from "A-" to "A" with a stable outlook.
Investment income (gross of expenses) 503 467 727 Investment yield (net of expenses) (4) 2.4% 2.3% 4.3%
Basic earnings per share (in EUR) (6) 2.06 1.76 2.78 Book value per share (in EUR) 21.80 19.01 20.11 Share price (in EUR) 17.50 16.37 17.50
The consolidated financial statements of the Group that appear in Section 20.1 - Historical financial information: consolidated financial statements and in particular Note 27 - Insurance and financial risk.
To return excess capital to shareholders by various means and b) The Group’s Risk Appetite (Capital Shield Policy)
The level of retrocession is selected to ensure that the Group’s retained risk profile respects the following Group Risk Tolerance limits, which are designed to ensure that the Group achieves its return on capital and solvency objectives: the amount of retained exposure for about 40 Lines of Business (LOBs) and Asset Classes is limited to ensure that an annual loss from any one of these (measured as 95%TVaR) does not exceed 5% (7.5% for CAT business) of the Group’s available capital. These limits are intended to avoid concentration of risk in specific LOBs or asset classes.
the amount of retained exposure of the Group to very extreme scenarios (with a probability of higher or equal to 1 in 250 years ) is limited to a loss of 15% of the Group’s available capital. These limits are designed to limit the impact of extreme scenarios on the shareholders’ capital.
The level of Buffer Capital is chosen according to the following risk/reward strategy: satisfying the objective of a return on shareholders’ equity of 900bps above the risk free rate over the cycle reducing the probability of sustaining a reduction in economic value in excess of the Buffer Capital to below an acceptable level (with the current risk profile, the probability to suffer such an economic loss is approximately 10%).
SCOR’s Board and Executive Management team regularly review the Group’s Risk Profile to ensure that the Group’s Risk Appetite remains aligned with the Group’s strategy.
SCOR uses various mechanisms within its comprehensive ERM Framework to manage the Group's retained risk profile. These mechanisms enable SCOR to identify, assess and control specific risks and: Take mitigation actions to reduce the Group’s retained exposure to specific risks so that the Risk Tolerance limits defined above are not breached
The outlook for the world economy in 2010 and beyond is sensitive and uncertain which makes it impossible to predict all possible future outcomes, some of which may have a significant negative impact on the Group. In particular, SCOR’s results could be significantly affected if some sectors of the economy are subject to extremely high inflation. SCOR is managing this risk in two ways: firstly by prudent management of reserves and secondly by a strategy of hedging against inflation using Indexed-Linked Government Bonds for instance.
The Group will continue to use all available risk management tools to manage the downside risks and also take advantage of opportunities that offer high returns in relation to risk.
4.1 Risk related to the business environment 4.1.1 THE GROUP IS EXPOSED TO DIVERSE RISK FACTORS IN THE NON-LIFE AND LIFE REINSURANCE BUSINESSES
The Property business underwritten by SCOR Global P&C is exposed to multiple insured losses arising from a single or multiple events, which can be catastrophic, being either caused by nature (e.g. hurricane, windstorm, flood, hail, severe winter storm, earthquake, etc.) or by the intervention of a man-made cause (e.g. explosion, fire at a major industrial facility, act of terrorism, etc.). Any such catastrophic event can generate insured losses in one or several of SCOR's lines of business.
For Casualty business, the frequency and severity of claims and the related indemnification payment amounts can be affected by several factors. The most significant factors are the changing legal and regulatory environment, including changes in civil liability law. Additionally, due to the length of amicable, arbitral and court procedures, the Casualty business is exposed to inflation risks regarding the assessment of claim amounts. Additional exposure could arise from so-called emerging risks, which are risks considered to be new or subject to constant evolution such as EMF (Electromagnetic Fields) or Nanotechnology.
The primary consequences of these structural factors are to reduce the volume of Non-Life reinsurance premiums on the market, to make the reinsurance market more competitive, and also to favour the operators who are most attentive to the specific needs of the cedants.
Catastrophe management is split into four sections in a matrix structure under SCOR Global P&C. Descriptive guidelines are available for each one of them; ‘data quality & modelling’, ‘accumulation control’, ‘catastrophe methodologies’ and ‘system & processes’. A system of cat referrals has been introduced in excess of a given threshold for peak cat territories.
Underwriting cross-reviews are initiated by SCOR Global P&C Risk Management Department to evaluate the quality of underwriting of particular underwriting units or certain lines of business, to identify risks, to assess the appropriateness and effectiveness of controls and to propose risk-management actions, including mitigating actions.
Claims are processed and monitored within each SCOR Global P&C entity. Their claims activities are supported and controlled by the central SCOR Global P&C Claims Department which is also responsible for the direct management of large, contentious, serial and/or latent claims. Audits are conducted on ceding companies' claims management procedures.
Furthermore SCOR has developed a global CAT data warehouse and reporting system to capture key input modelling parameters at country, cresta, city or latitude/longitude coordinates. This system will enable SCOR to test systematically for catastrophe data quality and assess sensitivity in the risk modelling process from very large complex and detailed portfolios to very small aggregated ones, enabling these sets to be merged and reported for underwriting cat business or dynamic accumulation control.
The assessment of biometric risks is at the centre of underwriting risk in life reinsurance. These are risks which result from adverse developments in mortality, morbidity, longevity or epidemic/pandemic claims for direct insurers and reinsurers. These risks are evaluated by SCOR Global Life's actuaries and medical underwriters, who analyse and use information from SCOR Global Life's own portfolio experience, from the ceding companies as well as relevant information available in the public domain, such as mortality or disability studies and tables produced by various statistical organisations.
Products such as critical illness, short-term and long-term disability or long term care, which all contain morbidity risk, are subject to, among others, the risk of negative trends in health (e.g., due to obesity, pollution, stress) as well as improved medical diagnoses capabilities which increase the number of claims that otherwise would possibly have remained undetected. Products providing cover for medical expenses are subject to higher than anticipated incidence rates and medical inflation.
SCOR Global Life is also exposed to risks related to policyholder behaviour. This includes risks such as lapsation, antiselection at policy issue detrimental to the insurer, unexpected number of exercises of options by the policyholder, fraudulent applications.
Lapses refer to either non payment of premium by the policyholder or to policies which are terminated by the assured before the maturity date of the policy. Depending on the product design, higher or lower policyholder lapses may reduce SCOR Global Life's expected future income. Lapses may differ from expected due to a changing economic environment or other reasons, such as changes in tax incentives for the reinsured policies, tarnished reputation of the cedant or from the introduction of more attractive products in the market. SCOR studies and closely monitors this risk.
Anti-selection refers to the problem of asymmetry of information between the insured and the insurer. An individual applying for life or health insurance cover usually has better knowledge about his or her own state of health than the insurer. The risk to the (re)insurer is of policyholders deliberately deciding to: take out a policy in the knowledge that either their chances of claiming is high or higher than average; terminate a policy in the knowledge that their chances of claiming are low or lower than average; or choose and exercise a policy option which allows to increase the policyholder's expected benefit.
As previously indicated, unexpected natural or man-made catastrophic events can provoke very significant material damage affecting the Non-Life activities of the Group. In addition, such events could cause multiple deaths and serious injuries which could potentially seriously impact the Life activities of SCOR, particularly in instances of contracts covering groups of employees working for the same employer at the same location.
Certain life insurance products include guarantees, most frequently with respect to premium rates, insurance benefits, and surrender or maturity values, or guarantees with regard to interest accrued on reserves or policyholder funds. Other guarantees may exist, for example with regard to automatic adjustments of benefits or options applied in deferred annuity policies.
Mandates for underwriting Life reinsurance business are assigned to the market units on a mutually exclusive basis. Life reinsurance treaties are underwritten by Life reinsurance experts familiar with the specific features of their markets. The Life business is underwritten in line with market specific underwriting and pricing guidelines. In particular, these guidelines specify the type and the terms and conditions under which business is considered as acceptable. Furthermore, they set out the retention of SCOR Global Life for various risks and types of covers. Deviations from guidelines are subject to review by SCOR Global Life's Central Actuarial and Risk Management areas in order to ensure that the business respects defined risk-adjusted return criteria and risk tolerance limits.
In order to ensure that SCOR Global Life is continually kept up-to-date with biometric trends and scientific developments SCOR Global Life has created four dedicated technical research centres within the Life Central Actuarial and Underwriting Department to analyse and assess the key factors underlying mortality/longevity, Long-Term Care and disability risks. The SCOR Global Life Research Centres provide recommendations for the implementation of the research results into the pricing, underwriting control and determination of exposure limits. In order to reduce potential behavioural risk, SCOR Global Life carries out a thorough assessment of the client, the client's target clientele, the market and the design of the insurance product.
Unforeseen events, such as natural catastrophes or terrorist attacks, can cause significant damage. These types of risk primarily affect the Non-Life operations. However, in cases where we face a large number of casualties, the possibility of the losses also affecting Life reinsurance as well cannot be excluded. This mostly applies to Group reinsurance treaties covering people who work for the same employer at the same location.
SCOR takes into account the effect of the diversification between the two markets (Life and Non-Life) in its internal model, by setting parameters for the interdependence of the various lines of business.
SCOR's ability to grow its portfolios in the Life and Non-Life reinsurance segments may be subject to correlated external factors, such as economic and political risks.
Peak mortality, disability and critical illness risks are covered either by surplus per life retrocession programs, or, in some cases, by excess of loss per life or per event. In 2008, SCOR Global life entered into a fully collateralised Mortality Swap arrangement with JP Morgan. The Mortality Swap reduces SCOR's exposure to major mortality shock events. In 2009, SCOR Global Life extended its protection by arranging an additional tranche of the Mortality Swap with a lower attachment point. Both tranches are fully collateralised. Nevertheless, no guarantee that the Group is protected from unexpected changes in Life or Non-Life claims frequency or severity shall be implied from the measures detailed above in the sections Risk control, Risk assessment and Risk mitigation.
Like all other reinsurance companies, SCOR may be exposed to multiple insured losses to property or to the person arising from a single occurrence, whether a natural catastrophe such as a hurricane, windstorm, flood, hail, severe winter storm, earthquake, or a man-made catastrophe such as an explosion, fire at a major industrial facility or an act of terrorism. Any such catastrophic event may generate insured losses in one or more of SCOR's lines of business.
The frequency and severity of such catastrophic events, particularly natural hazards, are by their nature unpredictable. The inherent unpredictability of these events makes forecasts and risk evaluations uncertain for any given year. As a result, our claims experience may vary significantly from one year to the next, which can have a significant impact on our profitability, and financial position. In addition, depending on the frequency and nature of losses, the speed with which claims are made and the terms of the policies affected, we may be required to make large claim payments within a short period. We may be forced to fund those obligations by liquidating investments in distressed market conditions, or by raising funds at unfavourable conditions.
We manage our exposure to catastrophes through selective underwriting practices, especially by limiting our exposure to certain events in certain geographic zones (as for example hurricanes which are now frequent in the Gulf of Mexico), by monitoring risk accumulation on a geographical basis and by retroceding a portion of those risks to other reinsurers (retrocessionaires) selectively chosen based on the information publicly available confirming their solid financial strength. We evaluate our natural catastrophe exposure by means of catastrophe modelling software.
The models used depend very much on the underlying parameters. Any future deviations in these parameters will produce varying results depending on the sensitivity of the model to each parameter. Furthermore, the models can only be applied to certain areas and must respect certain conditions. Catastrophic events could occur in areas not covered by the models and could therefore generate losses which exceed those predicted by the models. Reality is always more complex than that reflected by the models and this represents a risk for reinsurers. The risks for SCOR are mitigated, to some extent, by the use of proprietary market models (World Cat Enterprise (EQECAT), RiskLink (RMS) and Catrader (AIR)).Nevertheless there remains the possibility of incorrect choice of parameters or inappropriate use of the model in certain areas, particularly if models are used in areas for which no market models exist.
In Life Reinsurance, maximum underwriting capacities are defined to limit the exposure of SCOR Global Life on the various types of treaties underwritten, proportional and non-proportional, covering individual or Group policies. These capacities are revised each year, taking account of the capacities obtained by the retrocession coverage purchased by the Group. Amongst these limits are found: maximum commitment per life accumulated for all SCOR exposures, maximum annual commitments for non-proportional cover per life or per event, maximum commitment per country for non-proportional exposures by event, a restrictive approach as regards terrorist or nuclear risks. Exposures by risk or by event, for the portfolio as a whole, are measured by aggregating SCOR's retention and by taking into account the capacity obtained through retrocession programs.
Nevertheless, no guarantee that the Group is protected against material catastrophic losses, or that retrocession will continue to be available in the future at commercially acceptable rates shall be implied from the measures detailed above, including those relating to the management of risks on a geographical basis or retrocessions. Although we attempt to limit our exposure to acceptable levels, it is possible that multiple concurrent catastrophic events could have a material adverse effect on our current and future revenues, net income, cash flow and financial position.
We also seek to reduce our dependence on traditional retrocession by using alternative retrocession agreements. Accordingly, on 21 December 2006, we signed a multi-year catastrophe Property retrocession agreement with Atlas III, a dedicated vehicle (SPRV, Special Purpose Reinsurance Vehicle) organised pursuant to the laws of Ireland and financed by the issuance of a Cat Bond, the purpose of which is to provide EUR 120 million in additional retrocession coverage for SCOR and its subsidiaries in the context of a second or subsequent event such as Europe Storm or Japan Earthquake, the losses of which are determined by a model over a period running from 1 January 2007 to 31 December 2009. Continuing this strategy to diversify retrocession sources, SCOR issued two similar Cat Bonds, Atlas IV on 29 November 2007 for a term of three years and one month, providing EUR 160 million in additional retrocession coverage for SCOR and its subsidiaries for a first event such as Europe Storm or Japan Earthquake and Atlas V on 19 February 2009 for a term of three years providing USD 200 million in additional retrocession coverage for SCOR and its subsidiaries for an event such as U.S. and Puerto Rico Earthquake or Hurricane. Finally on 10th December 2009, Atlas VI was issued to ensure continued protection in view of the imminent expiry of Atlas III, Atlas VI is a more “working” cover than Atlas III providing EUR 75 million coverage against the risk of one or several earthquakes in Japan or windstorms in Europe.
In the context of our business, we may be exposed to claims arising from the consequences of terrorist acts. These risks, the potential significance of which can be illustrated by the 11 September 2001 attack on the World Trade Center ("WTC") in the United States, can affect both individuals and property.
4.1.4 WE COULD BE SUBJECT TO LOSSES RELATED TO DETERIORATING RESULTS IN LINES WHERE WE ARE NO LONGER ACTIVELY WRITING BUSINESS
Nonetheless, due to the changing legal environment, including changes in tort law and case-law, in the U.S. in particular, and equally with respect to scientific and medical progress the evaluation of the final cost of our exposure to asbestos related and environmental claims may be increasing in uncertain proportions. Diverse factors could increase our exposure to the consequences of asbestos-related risks, such as an increase in the number of claims filed or in the number of persons likely to be exposed to these risks. Evaluation of these exposures is all the more difficult since claims related are of a long tail nature. SCOR therefore relies on market assessments of survival ratios for funding our reserves although data currently available for the American market relates to old underwriting years for which we do not have any substantial exposure.
There are some risks which are specific to the GMDB portfolio. Due to the nature of the product the remaining liability is influenced by developments on the financial markets, in particular changes in the price of equities, bonds, interest rates as well as the implied volatility on equity options. The liability is also dependent on policyholder behaviour, particularly on the exercise of partial withdrawal options, but also on other aspects, such as lapse behaviour and the use of options to choose the underlying funds. As a retrocessionaire, SCOR Global Life is exposed to uncertainties concerning data received from its retrocedants and the original ceding companies and also due to the inherent reporting lag. SCOR Global Life is also exposed to risks inherent to the model used or the assessment of the liability under its portfolio.
In January 2003, the operations of Commercial Risk Partners (“CRP”), the Bermudan entity, were placed into run-off in conformity with the “Back on Track” strategic plan and we withdrew from certain lines of business in the U.S. Since 2004, these operations known as “Discontinued Business” (DB) and the run-off portfolio of CRP have been ring fenced and actively managed by a specialised team whose principal objective has been to pro-actively manage and commute contracts and / or portfolios. For CRP this policy has enabled the remaining exposures to be significantly reduced. In December 2009, activities in Bermuda and Vermont were stopped and transferred into GSNIC, a reinsurance company registered in New-York state. This company manages most of SCOR’s run-off business in the U.S.A..
4.1.5 IF OUR RESERVES PROVE TO BE INADEQUATE, OUR NET INCOME, CASH FLOW AND FINANCIAL POSITION MAY BE ADVERSELY AFFECTED
We are required to maintain reserves to cover our estimated ultimate liability for losses and loss adjustment expenses with respect to reported and unreported claims, incurred as at the end of each accounting period, net of estimated related recoveries. Our reserves are established both on the basis of information we receive from our cedant insurance companies, particularly their own reserving levels, as well as on the basis of our knowledge of the risks, the studies we conduct and the trends we observe on a regular basis. As part of the reserving process we review, with the concerned insurers and co-insurers, available historical data and try to anticipate the impact of various factors such as change in laws and regulations and judicial decisions that may tend to affect potential losses from claims, changes in social and political attitudes that may increase exposure to losses and trends in mortality and morbidity, or evolution in general economic conditions.
As is the case for all other reinsurers, the inherent uncertainties in estimating our reserves are compounded by the significant periods of time that often elapse between the occurrence of an insured loss, the reporting of the loss to the primary insurer and ultimately to the reinsurer, and taking also into account the delay between the payment of a loss by the primary insurer and the indemnification by the reinsurer. In addition, reserving practices may differ among ceding companies.
Another factor of uncertainty resides in the fact that some of our activities are “long-tail” in nature, in particular workers compensation, general liability, medical malpractice or those linked to environmental pollution or asbestos. For these types of claims, it has, in the past, been necessary to revise our estimated potential loss exposure and, therefore, the related loss reserves.
Other factors of uncertainty, some of which have been mentioned above, are linked to changes in the law, regulations, case law and legal doctrine, as well as developments in class action litigation, particularly in the United States.
SCOR regularly reviews and updates its methods for determining IBNR Reserves. However, it is difficult to accurately value the amount of reserves required, especially in view of changes in the legal environment, which could affect the reserve development.
In determining the amount of its reserves, the Group generally uses actuarial techniques that take into account quantitative loss experience data, together with qualitative factors, where appropriate. The reserves are also adjusted to reflect reinsurance treaty terms and conditions, the variety of claims processing that may potentially affect the Group's commitment over time. With the exception of the reserves for worker’s compensation in the USA and most of the reserves of Commercial Risk Partners ("CRP"), the now silent Bermudan entity of the Group, which are discounted pursuant to American and Bermudan regulations, the Group does not discount Non-Life reserves. A table showing changes in reserves for Non-Life claims is provided in Section 20.1.6 - Notes to the consolidated financial statements, Note 16 - Contract liabilities.
The Group pursued in 2009 the active commutations policy of its portfolios initiated in 2003, the main goals being to reduce the volatility of claims reserves, to reduce the administrative costs particularly the oldest, and to allow the reallocation of capital. This policy will be continued in 2010, by focusing efforts on the U.S. run-off activities, business exposed to Asbestos and Pollution risks, and some treaties written by the former Converium company acquired by SCOR.
For our Life business, we are required to maintain adequate reserves for future policy benefits that take into account expected investment yields and mortality, morbidity, lapsation rates, exercise of options and other assumptions.
4.1.6 WE MAY BE ADVERSELY AFFECTED IF OUR CEDANTS, RETROCESSIONAIRES, INSURERS OR MEMBERS OF POOLS IN WHICH WE PARTICIPATE DO NOT RESPECT THEIR OBLIGATIONS
We are subject to a risk of possible non-respect of payment of premiums due by the cedants and/or to the possible nonrespect by one or several SCOR’s partners, of their commitments to the Group. We transfer a part of our exposure to certain risks to other reinsurers through retrocession arrangements. Under these arrangements, other reinsurers assume a portion of our losses and expenses associated with losses in exchange for a portion of premiums received. When we obtain retrocession, we remain liable to our cedants for that part of the risk that is subsequently transferred to the retrocessionaire and must meet our obligation even if the retrocessionaire does not meet its obligations to us.
Therefore, we remain exposed to the risk of losing our competitive advantage.
Furthermore, SCOR’s reputation can be affected by adverse events concerning competitors. For example competitors’ bad results could have a significant impact on SCOR’s share price.
The timing of any review of our financial ratings by the rating agencies is also very important to our business since our Non-Life contracts and treaties are renewed at various set times throughout the year.
Many of our reinsurance treaties, notably in the United States and in Asia, and also increasingly in Europe, contain clauses concerning our financial strength, and provide for the possibility of early termination for our cedants if our rating is downgraded, or when our net financial position falls below a certain threshold, or if we carry out a reduction in share capital. Accordingly, such events could allow some of our cedants to terminate their contract commitments, which could have a material adverse effect on our revenues, net income, cash flow and financial position.
In the same way, many of our reinsurance treaties contain a requirement for SCOR to put in place letters of credit ("LOC") provisions whereby in the circumstances described in the previous Sections, the cedant has the right to draw down on a LOC issued by a bank in SCOR's name.
Banks providing such facilities usually ask SCOR to post collateral whose value is at maximum equal to the amount of the LOC facility. In the case of a LOC being drawn down by a cedant, the bank has the right to request a cash payment from this collateral, up to the amount drawn down by the cedant. It enforces by offsetting the collaterals posted by SCOR.
In the case of a large number of LOCs being drawn down simultaneously, SCOR could encounter difficulties in providing the total amount of required cash, i.e. SCOR is also exposed to a liquidity risk.
For more details about our lines of credit, refer to Section 22 - Important Contracts.
Operational risks are inherent in all businesses including our own. Their causes are multiple and include, but are not limited to, poor management, employee fraud or errors, failure to document a transaction as required, failure to obtain required internal authorisations, non-compliance with regulatory or contractual obligations, IT system flaws, poor commercial performance or external events. We are also exposed to risks relating to the integration of the underlying data of newly acquired companies into our operating and financial accounting IT systems.
We also use certain licensed systems and data from third parties. We cannot be certain that our technology or applications owned or licensed will continue to operate as intended, or that they will continue to be compatible with each other, or that we will have access in the future to these or comparable licensors or service providers.
On 21 November 2006 SCOR completed the acquisition of Revios. On 8 August 2007, SCOR acquired the majority of the outstanding share capital of Converium Holding AG ("Converium") and its effective control. During 2007 and 2008, SCOR acquired the remaining shares still in circulation and on 5 June 2008, SCOR became the sole shareholder of Converium (which became SCOR Holding (Switzerland) AG). For more information on this acquisition, please see Sections 5.2.1.1 - Public offer upon the Converium shares and 5.2.1.2 – Cancellation of the shares of SCOR (Holding) Switzerland. The total consideration and the fair value of acquired net assets are detailed in Section 20.1.6 - Notes to the consolidated financial statements, Note 3 – Acquisitions in the 2008 Reference Document.
For more information on these acquisitions see Paragraph 20.1.6 – Notes to the Consolidated Financial Statements - Note 3 - Acquisitions.
Due notably to the size and complexities of recent acquisitions and despite pre-acquisition due diligence work carried out (SCOR not having always been granted a complete access to exhaustive data) and the integration work performed to date, there is a risk that all financial elements may not have been fully and or correctly evaluated or unknown or unexpected financial risks emerge, which may inter alia have significant consequences on the initially estimated impact of the relevant acquisition on the combined Group.
We are also exposed to risks relating to the integration of the underlying data of newly acquired companies into our operating and financial accounting systems.
SCOR has inherited and assumes the burden of the litigation matters of acquired companies or relating to those acquisitions. The costs of these litigation matters could have an adverse effect on the Group's future operating income and an unfavourable outcome to one or more of these litigation matters could have a material adverse effect on the Group's revenues, net income, cash flow and financial position. For further details, refer to Section 20.1.6 - Notes to the consolidated financial statements, Note 28 – Litigations and to Section 5.2.1.1 – Public offer upon the Converium shares.
In general, the tactical allocation of the global portfolio is defined by the Group Investment Committee which meets each quarter. It is chaired by the Group’s Chief Executive Officer and is composed of the Group Chief Financial Officer, the Group Chief Risk Officer, the Chief Economist, the Chief Investment Officer, the Chief Executive Officer of SCOR Global P&C and the Chief Executive Officer of SCOR Global Life.
The Group transfers part of its risks to retrocessionaires via retrocession programs. The retrocessionaires then assume, in exchange for the payment of premiums by SCOR, the losses related to claims covered by the retrocession contracts. So, in the event of default by the retrocessionaire, we would be liable to lose the coverage provided by our retrocessionaires whereas the Group would retain liability to the cedant for the payment of all claims covered under the reinsurance contract.
The policy for the management of retrocessionaire credit risk is entrusted to the Security Committee who is responsible for analysing the financial security of each retrocessionaire and defining the terms and conditions and limits of amounts ceded per retrocessionaire, per rating and per geographical area. The Security Committee meets regularly and pays more particular attention to the retrocessionnaires’ default risk in the treaty renewal period.
Several actions are taken to quantify the risk: the analysis of the financial ratings of the retrocessionaires; the analysis of external studies prepared by the security departments of the main reinsurance brokers; in this regard SCOR meets the security departments of two large reinsurance brokers at least twice a year to analyse the security of its retrocessionaires
The Group's retrocession department regularly monitors its exposure to retrocessionaires by taking into account all relevant accounting balances (estimated and actual claims, premiums, reserves and deposits, pledges and security deposits).
The risk of non-performance of retrocessionaire undertakings is set out in Section 4.1.6 - We may be adversely affected if our cedants, retrocessionaires, insurers or members of pools in which we participate do not respect their obligations.
The retrocessionaires’ part in the technical reserves split by retrocessionaire’s financial rating is included in the paragraph Section 20.1.6 - Notes to the consolidated financial statements, Note 16 – Contract Liabilities.
SCOR reduces concentration risk by defining counterparty exposure limits. Furthermore the Group selects bank counterparties according to their rating and quality of their credit. The Group may also benefit from protections (e.g. loans, guarantees of deposits, nationalisations) provided by governments to their banks during the financial crisis.
The main risk for SCOR at the moment is the significant concentration of deposits in a small number of banks. This risk is a direct result of the selection of the most stable banks.
For further details, refer to Section 4.1.3 - We could be subject to losses as a result of our exposure to Terrorism.
In addition to the credit risks mentioned above, we could be confronted with a systemic credit risk which could affect many counterparties simultaneously.
Some capacities offered by SCOR are not achievable solely with the Group’s current available capital. These capacities (mainly Catastrophic and Large Risks) rely on retrocession whereby SCOR purchases, mainly on a one year basis, additional resources (retrocession) that will allow the Group to provide capacity to our clients. SCOR tries to reduce its dependence vis-à-vis the traditional reinsurance market by entering into alternative reinsurance solutions. Today, roughly one third of SCOR’s catastrophic capacity is purchased from alternative markets (Capital Markets) as Cat Bonds which have a risk period of mainly 3 years.
Interest rate risk is managed within the Group primarily at two levels. At the level of each entity, we take into account the asset-liability matching policy and congruence rules, as well as local regulatory accounting and tax constraints. At the central level, we conduct operations to consolidate all portfolios in order to identify the overall level of risk and return. The Group uses analytical tools which guide both its strategic allocation and local distribution of assets.
The sensitivity to changes in interest rates is generally analysed on a monthly basis. The Group analyses the impact of a major change in interest rates on each of its portfolios and at the global level. Here, the Group identifies the unrealised capital loss that would result from a rise in interest rates. The instantaneous unrealised capital loss is measured for a uniform increase of 100 basis points in rates or in the event of a distortion of the structure of the yield curve. Portfolio sensitivity analysis to interest rate changes is an important risk measurement and management tool which may lead to decisions for reallocation or hedging.
However, there can be no assurance that such measures, including the two-levels of interest rate risk management and sensitivity analysis will be sufficient to protect the Group against all the risks related to variations in interest rates.
For information on the maturities of financial assets and liabilities, related interest rates and sensitivities to interest rate fluctuations as well as the allocation of the bond portfolio by rating of the issuer, see Section 20.1.6 - Notes to the consolidated financial statements, Note 27 - Insurance and financial risk.
Equity prices are likely to be affected by risks which affect all of the market (uncertainty on economic conditions in general, such as changes in GDP, inflation, interest rates etc.) and/or by risks which influence a single asset or a small number of assets (specific or idiosyncratic risk).
The equity risk is also controlled by the definition of maximum exposures per stock or mutual fund and is reviewed regularly (exposure to large-cap stocks will generally be greater than exposure to mid-cap stocks). The control ratios on mutual funds are also reviewed regularly, based on the mutual fund's holdings.
The impact of a uniform drop of 10% in equity markets is included in 20.1.6 - Notes to the consolidated financial statements, Note 27 - Insurance and financial risk.
In spite of the above, we are nevertheless exposed to a risk of capital losses on the shares we hold which – if it were to occur – could adversely impact our net income, cash flow and financial position.
The financial markets are undergoing a particularly severe crisis and the unprecedented volatility of assets exposes SCOR to significant financial risks linked to changes in interest rates, credit spreads, equity markets, exchange rates and real estate securities but also to changes in the models used by the rating agencies. Due to the current economic and financial environment, SCOR may also be faced with the deterioration of the financial strength or rating of some issuers due to the current economic and financial environment.
Fluctuations in exchange rates can have consequences on our reported net income because of the conversion results of transactions expressed in foreign currencies, the settlement of balances denominated in foreign currencies and the lack of matching between monetary assets and liabilities in foreign currencies.
Due to cost considerations and the fact that net transaction cash flow is difficult to predict, particularly for SCOR Global P&C business, SCOR does not in principle hedge the risk that transactions expressed in foreign currencies change due to fluctuations in foreign exchange rates. Nevertheless, it does monitor this and report certain key metrics excluding this impact using constant exchange rates.
The risk of a material impact to reported net income arising from the settlement of balances denominated in foreign currencies is mitigated by maintaining liquid positions including bank balances in the main settlement currencies and generally settling balances in the same currency in which they are booked. If a need for material sales of one currency to another arises this is monitored and controlled centrally. Similarly to reduce the need for currency transactions, pooling arrangements exist in the case where a particular entity has an unexpected short-term need in a particular currency.
SCOR has a balance sheet hedging approach whereby there is an objective to match monetary assets and liabilities in each foreign currency so that the fluctuation in the exchange rate has no material impact to the reported net income. The policy is to closely monitor the net monetary currency positions and, where appropriate, execute either cash arbitrages or forward hedges. Forward sales and purchases of currencies are included in Section 20.1.6 - Notes to the consolidated financial statements, Note 8 – Derivatives instruments.
As a result, changes in the exchange rates used to convert foreign currencies into Euros, particularly the fluctuation of the U.S. dollar against the Euro, have had and may have in the future, an adverse effect on our consolidated shareholders' equity. The Group does not fully hedge its exposure to this risk. The impact of the fluctuation in the exchange rates used to translate foreign currencies into Euros on the consolidated shareholders' equity of the Group is described in Section 20.1.5 – Consolidated statements of changes in shareholders’ equity.
For the consolidated net position of assets and liabilities by currency, and for an analysis of sensitivity to exchange rates, refer to Section 20.1.6 - Notes to the consolidated financial statements, Note 27 – Insurance and financial risk 4.2.5 OUR SHAREHOLDERS EQUITY AND NET INCOME ARE SENSITIVE TO THE VALUATION OF OUR INTANGIBLE ASSETS AND DEFERRED TAX ASSETS
A significant portion of our assets consists of intangible assets the value of which depends on our expected future profitability and cash flow. The valuation of intangible assets also assumes that we are making subjective and complex judgments concerning items that are uncertain by nature. If a change were to occur in the assumptions underlying the valuation of our intangible assets (including goodwill, VOBA and DAC), we might be forced to reduce their value, in whole or in part, thereby reducing shareholders’ equity.
Additionally at each reporting date SCOR assesses if there is any indication that an intangible asset may be impaired and if such indication exists SCOR completes an estimate of the recoverable amount which may or may not result in an impairment charge. The assessment of the existence of an indication of impairment includes numerous internal and external sources of information in accordance with IAS 36.
Recognition of the deferred tax assets i.e. the likelihood of recovering these taxes in the future, depends on applicable tax laws and accounting methods as well as the performance of each entity concerned. Due to the losses incurred, we were forced to impair, in 2003, all deferred tax assets of SCOR U.S. Corporation, a portion of this impairment was reversed in 2007 and 2008 and the balance in 2009 (Refer to Section 20.1.6 - Notes to the consolidated financial
statements, Note 19 - Tax for details). The deferred taxes generated by the Group's other entities were maintained. Nevertheless, the occurrence of other events, such as changes in tax legislation or accounting methods, operational earnings lower than currently projected or losses continuing over a longer period than originally planned could lead to the loss of other deferred tax assets. All of these developments or each of them separately could have a significant adverse effect on our net income and financial position.
Our operations generate substantial cash flows because most premiums are received prior to the date at which claims must be paid out.
These positive operating cash flows, together with the portion of the investment portfolio held directly in cash or highly liquid securities, have always enabled us to meet the cash demands generated by our operating activities.
In the current financial market environment, SCOR has decided to pursue a high liquidity policy.
Some of our stand-by letter of credit facilities require a 100% collateral in case of non-respect of financial covenants or level of rating. Significant changes in SCOR’s solvency could force the Group to collateralise these facilities at 100%, which would thus deteriorate SCOR’s liquidity level.
Redemption of OCEANE bonds by SCOR on 1 January 2010. Refer to Section 20.1.6 - Notes to consolidated financial statements, Note 14 - Financial debt for more details about OCEANE.
As of this date, we are subject to comprehensive and detailed regulations and to the supervision of the insurance and reinsurance regulatory authorities in all countries in which we operate. Changes in existing laws and regulations may affect the way in which we conduct our business and the products we may offer or the amount of reserves to be posted, including on claims already declared. Insurance and reinsurance supervisory authorities have broad administrative power over many aspects of the reinsurance industry and we cannot predict the timing or form of any future regulatory initiatives. Furthermore, these authorities are concerned primarily with the protection of policyholders and policy beneficiaries, rather than shareholders or creditors. The diversity of the regulations to which we are subject has been substantially reduced by the implementation into French law of Directive n. 2005/68/EC dated 16 November 2005 by ordinance n. 2008-556 of 13 June 2008 and application decrees n. 2008-711 of 17 July 2008 and n. 2008-1154 of 7 November 2008 as well as a regulation (arrêté) of 7 November 2008. This Directive prescribes the application of a "single passport" and confers the supervision of EU reinsurance companies upon the supervisory authorities of the headquarters of the company. This should simplify and clarify the supervisory conditions applicable to our Group, in the European Union at least. Moreover this Directive, implemented into national law, establishes regulations relating to technical reserves and to the Life and Non-Life solvency margins applicable to the Group as of 2008 in France and in all European countries. The Directive defines minimal conditions common to all member States of the European Union, and gives national legislators the option to set more stringent requirements. The national provisions adopted for the implementation of this Directive and their interpretations, as well as other legislative or regulatory changes, increase the harmonisation of regulations governing reinsurers with the regulations governing insurers. These new regulations may increase our solvency margin obligations, thereby restricting our underwriting capacity.
SCOR's legal department is systematically informed of any potential or proven risk of litigation by the two operating divisions SCOR Global P&C and SCOR Global Life and, at Group level, by the senior management, by the Group Executive Committee, or by the hub legal departments located respectively in Paris, London, New-York, Cologne and Zurich. Consequently, the Group Legal Department centralises and monitors all the litigation matters of the Group, except for claims litigations which are managed by the specialised lawyers in the Claims & Commutations Division at SCOR Global P&C and the operational entities. The procedures for reporting disputes and monitoring litigation matters are described in greater detail in Appendix B - Report of the Chairman of the Board of Directors on the terms and conditions for preparing and organising the work of the Board of Directors and on internal procedures.
An unfavourable outcome in one or more of the court or arbitration proceedings described above could have a material adverse impact on the revenues, net income, cash flow and financial position of the Group.
1 Generally speaking, the amounts of insurance mentioned in this Section 4.5 are for purposes of illustrating the policy of transferring certain risks by the SCOR Group, subject to other provisions of corresponding policies or policy, specifically those regarding possible lower limits of coverage, particular deductibles, geographic coverage and/or particular exclusions.
Incorporated: 16 August 1855 under the name Compagnie Impériale des Voitures de Paris; name changed to SCOR S.A. on 16 October 1989, to SCOR on 13 May 1996, then to SCOR S.E. on 25 June 2007.
The conversion had no impact upon the rights of the Company’s shareholders or bondholders who automatically became shareholders and bondholders of SCOR SE without any action being required on their part. They remain shareholders and bondholders in proportion to their rights acquired prior to the completion of the conversion. Thus, the financial liability of each shareholder of SCOR SE is limited to the amount of his subscription prior to the conversion. The proportion of the voting rights held by each shareholder in the Company has not been affected by the conversion into a European Company.
The prudential control authority is authorised to address prevention measures and to issue warnings to the monitored company or its executives.
In the United States, the Group’s reinsurance and insurance subsidiaries are regulated primarily by the insurance regulators in the state in which they are domiciled, but they are also subject to regulations in each state in which they are authorised or licensed. SCOR Reinsurance Company, the Group’s main Non-Life subsidiary in the United States, is domiciled in the State of New York and SCOR Global Life U.S. Re Insurance Company, the Group’s main Life insurance subsidiary in the United States, is domiciled in Texas. The Group’s other subsidiaries in the United States are currently domiciled in Arizona, Delaware and Texas.
In July 1996, SCOR SE acquired the reinsurance portfolio of the American insurer Allstate Insurance Company, doubling the share of its U.S. business in the Group’s total Group turnover.
While maintaining an active local presence in major markets and building up new units in fast-growing emerging countries, SCOR SE continued in the following years to streamline its structure and its organisation.
In 2000, SCOR SE acquired Partner Re Life in the United States, thus providing it with a platform to expand its Life reinsurance business on the U.S. market.
That same year, SCOR SE and a group of international investors formed a reinsurance company in Dublin, named Irish Reinsurance Partners Ltd (“IRP”), which has since become SCOR Global P&C Ireland Ltd, with a paid-up capital of EUR 300 million in order to strengthen the Group’s total equity and increase its underwriting capacity to take advantage of the upturn in the reinsurance cycle. IRP has been principally used for the retrocession in quota share of 25% of the part of the Non-Life business underwritten or renewed by the Group during financial years 2002, 2003 and 2004.
In 2003, the Group reorganised its Life reinsurance business. The companies of the Group transferred to SCOR VIE and its subsidiaries all of the Group’s Life reinsurance business throughout the world. SCOR VIE, whose corporate name was changed in 2006 to SCOR Global Life, and which became a European Company in 2007, along with its subsidiaries, are all directly or indirectly wholly owned by SCOR SE.
On 16 May 2006, SCOR SE transferred all of its Non-Life reinsurance business in Europe, including Property & Casualty Treaties (including Credit & Surety business), Large Corporate Accounts and Construction reinsurance to a company of the Group, Société Putéolienne de Participations, whose corporate name was changed to SCOR Global P&C, a French subsidiary wholly owned by SCOR SE, effective retroactively to 1 January 2006. In 2007, SCOR Global P&C adopted the European Company statute via a merger by absorption of SCOR Deutschland Rückversicherungs AG and SCOR Italia Riassicurazioni SpA. On 21 November 2006, the Group completed the acquisition of Revios Rückversicherung AG (“Revios”), allowing it to create a top worldwide Life reinsurer. Based in Cologne, Revios was the former Life reinsurance unit of Gerling Global Re Group, and had successfully developed autonomously since 2002. Revios had since become one of the leading European reinsurers specialising in Life reinsurance, with offices in 17 countries. The combination of Revios and SCOR VIE created SCOR Global Life SE, an operating entity with an annual volume of gross written premiums of EUR 3,118 million at 31 December 2009.
On 22 August 2007, SCOR Global Life SE announced that it held 98.67 % of the share capital of ReMark, now part of the Market Unit 1 of SCOR Global Life SE. Established in 1984, ReMark is an important player of the direct global marketing of Life insurance products business. On 8 August 2007, SCOR Global Life SE acquired 100% of Alfinanz Asia, another entity specialised in the direct marketing of products similar to those of ReMark. Since 2009, SCOR Global Life SE holds 100% of the share capital of ReMark.
Since 30 August 2007, SCOR SE has acquired control of Converium (which became SCOR Holding (Switzerland)) further to the market purchases of Converium shares, to the acquisition of blocks of Converium shares and to the Offer
Following the acquisition of SCOR Holding (Switzerland) (formerly Converium Holding) shares on the market, SCOR SE held, on 22 October 2007, more than 98 % of SCOR Holding (Switzerland), enabling SCOR SE to seek, on 25 October 2007, a court-ordered procedure for the cancellation of the shares of SCOR Holding (Switzerland) not yet held by the Group.
The Hubs have been progressively put in place: on 5 May 2008 for the Cologne Hub; on 20 May 2008 for the London Hub; on 16 June 2008 for the Asia Pacific Hub; on 18 June 2008 for the America Hub; on 27 January 2009 for the Zurich Hub; on 24 February 2009 for the Paris Hub.
The Group created, on 21 April 2008, a representative office in South Africa, bound to operate Non-Life activities. On 30 June 2009, the Group announced that he South African regulatory body for the insurance sector, the FSB, has granted SCOR SE a licence to conduct Life and Non-Life reinsurance business. The Group’s Non-Life representative office in Johannesburg has thus become a fully-fledged composite subsidiary of SCOR SE, called SCOR Africa Limited. This subsidiary’s activities will cover Africa’s English and Portuguese speaking markets as well as Mauritius.
On 31 July 2008, SCOR SE entered into an agreement with the Malakoff Médéric Group, the leading Group in the French social protection market, in order to acquire 100% of the share capital and voting rights of Prévoyance et Réassurance and its Life and health reinsurance subsidiary Prévoyance Ré. This agreement also includes the signature of a 5-year commercial agreement between SCOR and Malakoff Médéric. The transaction was signed on 24 October 2008 and gave rise to the contribution to the Malakoff Médéric Group of SCOR treasury shares. In carrying out this acquisition, SCOR accentuates its leading role in the French Life and Health reinsurance market and the social protection field. The acquisition of Prévoyance Ré is described in more details in Section 5.2.1.3 - Acquisition of all the shares of Prévoyance Ré.
On 21 November 2008, SCOR announced its decision to incorporate a reinsurance subsidiary in Russia (Moscow) in order to develop both its Life and Non-Life business. This company, held by SCOR SE, was incorporated on 24 December 2008 under the corporate name SCOR Perestrakhovaniye.
Refer to Section 20.1.6 – Notes to the consolidated financial statements - Note 27 - Insurance and financial risk for the detailed ranking by maturity of fixed-term investments in the Group’s portfolio as at 31 December 2009.
Refer to Section 4.2.1 -We face risks related to our fixed maturity portfolio - and 4.2.2 - We face risks related to our equity based portfolio, for a description of risk management connected with our investments in debt instruments and equity securities.
Under the terms of the Contribution Treaties, Patinex and Alecta have committed to contribute to the Company 23,216,280 and 5,680,000 Converium shares respectively, i.e. a total of 28,896,280 Converium shares (the “Contributions”). A description of the contributions can be found in the document drawn up by SCOR SE, filed with the AMF on 10 April 2007 under number E. 07-032 and in an additional document filed with the AMF on 23 April 2007 under number E. 07-039 (the “Document E”), for the purpose of the company’s General Shareholders’ Meeting, held on 26 April 2007, called to approve the contributions and to vote on issuance of new shares as compensation for the contributions (the “Contributed Shares”).
92,969,353 Converium shares were presented for acceptance of the Offer opened from 12 June to 9 July 2007, with a supplementary acceptance period opened from 13 to 26 July 2007. The settlement/delivery of the Offer was executed according to the procedures appearing in the Offer Prospectus and SCOR proceeded to issue 46,484,676 new shares on 8 August 2007, with a unit price of EUR 18.79, including EUR 10.9130277 in issue premium and 7.8769723 Euro of face value; SCOR SE paid the Converium shareholders who contributed their shares to the Offer, a total amount of 511,331,441.50 Swiss francs as payment of 5.50 Swiss francs per Converium share contributed, and a total amount of EUR 37,187,741.20 as payment of 0.40 Euro per Converium share contributed, i.e. 61,400,679.50 Swiss francs after conversion into Swiss francs on the basis of the Euro/Swiss franc exchange in effect on the date the Offer was executed.
On 22 October 2007, SCOR announced that it held more than 98% of the voting rights of SCOR Holding (Switzerland) (formerly Converium) and thus that the Group met the conditions necessary for the filing of a cancellation action with respect to the remaining shares of SCOR Holding (Switzerland) not owned by the Group, in order for the Group to become the sole shareholder of SCOR Holding (Switzerland). Such cancellation procedure is a court procedure initiated in compliance with Swiss laws before a Swiss Court pursuant to which a shareholder holding more than 98% of the voting rights of a company may request the cancellation of the shares held by the minority shareholders in consideration for a counterpart strictly identical to that offered in the context of a previous public offer. Immediately after the cancellation of the shares, the same amount of shares is issued to the benefit of the majority shareholder.
The order of the Commercial Court of Zurich was issued on 15 May 2008 and became effective on 20 May 2008; On 5 June 2008, the Board of Directors of SCOR SE decided, as a consideration for the 2,840,816 shares of SCOR Holding (Switzerland), to (i) issue 1,420,408 SCOR SE shares and (ii) to pay CHF 15,624,488 and (iii) EUR 1,136,326.40 corresponding to the dividend paid by SCOR for 2007 to be paid in Swiss francs at the exchange rate applicable on the day preceding the cancellation of the remaining shares, 5 June 2008 (i.e., EUR 1 = CHF 1.61630) (such amount being financed out of SCOR’s own total equity).
On 23 December 2008, the Federal Administrative Court (Bundesverwaltungsgericht) decided upon the appeal filed by SCOR against the decision rendered by the Swiss Federal Banking Commission on 13 July 2007. Pursuant to this decision, the Swiss Federal Banking Commission confirmed the position expressed by the Swiss Takeover Board in its Recommendation IV dated 9 June 2007, according to which Mr. Martin Ebner, Patinex and BZ Bank AG had acted in concert with SCOR in connection with the Offer. SCOR refutes this characterisation and reaffirms that such physical person and legal entities did not act in concert with SCOR in connection with the Offer. With its decision of 23 December 2008, TAF decided that it did not have to decide in the merits, as the Offer had been consummated and the period for the application of the best price rule had expired on 26 January 2008. In its report dated 22 April 2008 (with supplement dated 13 May 2008), the independent review body Ernst & Young had confirmed that SCOR had complied with all its obligations in connection with the Offer even if Martin Ebner and the persons directly or indirectly controlled by him had been deemed to be acting in concert with SCOR. Accordingly, the appeal was written off without judgment on the merits due to the interests in the appeal having fallen away during the procedure and the appeal therefore having become abstract. None of the parties filed an appeal against this decision of the Federal Administrative Court.
2,673,173 SCOR treasury shares to Médéric Prévoyance; 257,701 SCOR treasury shares to the Institution Nationale de Prévoyance des Représentants; and 528,201 SCOR treasury shares to the URRPIMMEC (Union des Régimes de Retraites et de Prestations en cas d’invalidité et de maladie des Industries Métallurgiques, Mécaniques, Electriques et Connexes).
6.1 page 52 Primary activities 6.2 page 57 Principal markets 6.3 page 57 Extraordinary events influencing the principal business and markets 6.4 page 58 Dependency of the issuer with respect to patents or licenses, industrial, commercial or financial contracts and new manufacturing processes 6.5 page 58 Information on SCOR’s competitive position
At the end of 2002, SCOR reassessed its new “Back on track” strategic plan. This plan was implemented in order to shift the Property and Casualty underwritings towards: short-tail lines, which give a better forward-looking view of the activities, that do not involve the same level of risk on future results and which avoid the difficulty of calculating future results and the related required reserves for long-tail activities exposed to disputes and to claims inflation; and non-proportional activities, for which the prices are defined by SCOR underwriters and actuaries; these activities, which are independent of the prices given by ceding companies to their clients, are less sensitive to the negative effects that can result from the underwriting and rates of the ceding companies.
In 2004, the Company’s Board of Directors adopted a new strategic plan “SCOR Moving Forward” for the period 20052007. The “SCOR Moving Forward” plan sets forth the means and methods to achieve a profitability goal of Return on Equity (“ROE”) of 10% through an underwriting policy focused on profitability, by optimum allocation of capital throughout the business cycle, and by maintaining SCOR’s customer base in Europe, Asia, North America and in the emerging countries.
SCOR VIE’s acquisition of Revios on 21 November 2006 resulted in the creation of SCOR Global Life. This combination was part of the Group’s strategy to balance out Life and Non-Life businesses. This “business mix” enabled the Group to improve its risk profile through diversification of its portfolio, to reduce the volatility of its result and to optimise the use of its capital depending on the divergent developments of Life and Non-Life reinsurance markets. The combination between SCOR and Revios allowed collaboration between highly complementary entities in northern and southern Europe and in Asia.
Throughout 2007, SCOR finalised the implementation of the “SCOR Moving Forward” plan, which was aiming to regain market shares lost due to the lowering of its rating. Taking advantage of a still relatively buoyant market in terms of price where, despite the reorientation of reinsurance transfer policies, development opportunities and the technical quality of risks made it possible to meet the written premium targets. Additionally, the business formerly underwritten by Converium contributed to achieve a sustained successful level of written premium.
The “SCOR Moving Forward” plan was followed by the strategic “Dynamic Lift” plan for the period 2007-2010, in which the Group set its three-year objectives, as approved on 3 April 2007 by the SCOR Board of Directors, based on balanced and profitable growth, centred around Europe and Asia.
On 10 May 2007, in the context of the amicable agreement reached by SCOR and Converium regarding the Offer, SCOR announced that the Converium and SCOR underwriting teams were preparing a common underwriting plan for the 2008 renewal campaign. SCOR took control of Converium on 30 August 2007. This acquisition allowed the creation of the "new" SCOR, one of the 5 largest multi-line reinsurance companies, on the basis of two business engines: Life and Non-Life. For more information on this acquisition, see Sections 5.2.1.1 – Public offer upon the Converium shares.
The second version of the strategic plan, "Dynamic Lift V2”, was presented on 4 September 2007 and is based on the results of the analyses of Converium’s portfolios made possible since 8 August 2007. The acquisition and integration of Converium aimed to deliver the following objectives over the following 3 years: to secure a ROE of 900 bps above risk free rate over the cycle; to provide an "A+" level of security to clients by 2010; to self-finance the current business plan of the Group; to return excess capital to shareholders through various means.
Throughout 2009, the Group continued to deliver on its 3-year “Dynamic Lift V2” plan. The renewals throughout the year demonstrated the strength of SCOR’s franchise, based on a well diversified and balanced set up between the Life and Non-Life entities.
ReMark, the wholly-owned subsidiary of SCOR Global Life SE, completed the acquisition of ESG Direct Marketing in Asia on 19 May 2009. The acquisition further strengthens the world-leading provider of direct insurance distribution solutions in Malaysia, Thailand, Indonesia, Hong Kong and China.
SCOR Global Life officially launched SCOR Telemed, a dedicated tele-underwriting company, on 18 November 2009. The company uses the latest IT software to conduct tele-interviews, with a specialised automated underwriting system to deal with cases ranging from the standard to the most complex ones.
In addition, reinsurers also provide advisory services to ceding companies by: (a) defining their reinsurance needs and devising the most effective reinsurance program to better plan their capital needs and solvency margin; (b) supplying a wide array of support services, specifically in terms of technical training, organisation, accounting and information technology; (c) providing expertise in certain highly specialised areas such as the analysis of complex risks and risk pricing; (d) enabling ceding companies to build up their business even if they are temporarily under capitalised, particularly in order to launch new products requiring heavy investment.
In facultative reinsurance, the ceding company cedes and the reinsurer assumes all or part of the risk covered by a single specific insurance policy. Facultative reinsurance is negotiated separately for each insurance contract that is reinsured. Facultative reinsurance normally is purchased by ceding companies for individual risks not covered by their
The reinsurance of credit insurance, surety commitments and political risk is managed by teams primarily based in Europe. Under credit insurance, the insurer covers the risk of losses from the non-payment of commercial debts. Surety insurance is a contract under which a guarantor makes a commitment to a beneficiary to perform the obligation to ensure payment by or to pay the debt of the secured debtor. Political risk insurance covers the risk of losses due to measures taken by a government or similar entity which endangers the existence of a sales contract or commitment made by a public or private citizen of the country in which the covered operations are performed. These risks are underwritten through quota share (proportional and non-proportional) treaties as well as facultative.
According to French, Italian, Spanish laws as well as laws in other jurisdictions, ten-year inherent defects insurance covers major structural defects and the collapse of a building for ten years after completion. These risks are underwritten by proportional and non-proportional treaties as well as by facultative reinsurance.
Facultative and reinsurance treaties underwriting in the space sectors cover the launch preparation, the launch, and the orbital operation of satellites. This applies primarily to commercial telecommunication and earth observation satellites.
Insurance for shipping risks includes insurance for general property and liability for the ships and shipped merchandise as well as for ship construction.
The Business Solutions (facultatives) business covers all insurable risks during construction and operation of industrial groups and service companies. It primarily consists of facultative reinsurance underwriting performed by specialised teams organised in an international network around two main business segments, “Natural Resources” and “Industrial & Commercial Risks” covering respectively: (i) onshore (main business sectors being oil and gas, refining and petrochemicals, power generation, mining), offshore (exploration and production, offshore construction) and shipbuilding, (2) manufacturing & heavy industries (automotive, pulp & paper, aeronautics / defence, high tech) and finance & services (infrastructures, intellectual services, general contractors, distribution and trading) completed by two “Market Units” responsible for facultative reinsurance for the Group's insurance company treaty clients and alternative solutions for the transfer and financing of risks for the Business Solutions (facultative) clients, respectively. Business Solutions (facultative) is aimed at professional buyers seeking global risk financing solutions. The risks shared with the ceding and/or captive companies are high-value industrially or technically complex risks insured for Property and Casualty such as Property Damage & Business Interruption, Construction All Risks, Erection All Risks, Comprehensive General Liability, Product Liability or Professional Indemnity.
Reinsurance for individuals, commonly known as Life Reinsurance, includes life, health and medical insurance and personal insurance, such as accidents, disability, illness or incapacity.
The SCOR Global Life portfolio is a traditional portfolio with more than 50% of mortality reinsurance business.
Health represents a small proportion of SCOR Global Life’s portfolio. It is written predominantly in the Middle East with a book inherited from Converium, and small volumes in markets such as France and Canada. The SCOR Global Life approach is selective, with a careful market entry strategy.
SCOR Global Life is present on the fixed annuity market in the US, as a reinsurer of IIC a member of the Group (IMSA certificate). The products provide either the performance of an index (often the S&P 500) with a zero percent floor or a fixed interest rate which are credited to the policyholder’s account value.
Personal accident is a cover provided by SCOR Global Life. A main source of business is ReMark, a subsidiary of SCOR, which provides direct distribution solutions to insurers, financial institutions and affinity partners. ReMark designs and executes direct marketing programs.
By business segment Non-Life 3,261 51% 3,106 53% 2,329 49% Life reinsurance 3,118 49% 2,701 47% 2,432 51% TOTAL 6,379 100% 5,807 100% 4,762 100%
Life reinsurance Life 1,408 45% 1,405 52% 1,313 54% Financing 531 17% 486 18% 535 22% Critical illness 119 4% 81 3% 97 4% Disability 223 7% 189 7% 170 7% Long term care 132 4% 108 4% 73 3% Annuities 414 13% 108 4% 73 3% Health 245 8% 189 7% 73 3% Personal accident 46 2% 135 5% 97 4% TOTAL LIFE 3,118 100% 2,701 100% 2,432 100% (*) Published turnover, i.e., including Converium, prorated beginning on 8 August 2007 (**) According to the new organisation of the SCOR Global P&C division 6.2.2 DISTRIBUTION BY GEOGRAPHIC AREA
The following table shows the breakdown by gross volume of Life and Non-Life premiums written by geographic area based on the country in which the ceding company operates: Total Life Non-Life In EUR million 2009 2008 2007* 2009 2008 2007* 2009 2008 2007*
Europe 3,551 3,510 2,940 1,656 1,667 1,571 1,895 1,843 1,369 Americas 1,760 1,366 1,195 1,063 742 703 697 624 492 Asia-Pacific - Rest of World 1,069 931 626 399 292 158 669 639 468 TOTAL 6,379 5,807 4,762 3,118 2,701 2,432 3,261 3,106 2,329 (*) Adjusted for the completion of the initial acquisition accounting of the Converium and ReMark acquisitions.
6.3 Extraordinary events influencing the principal business and markets Both in Life reinsurance and Non-Life reinsurance, the Group benefited from S&P’s decision on 13 March 2009 to upgrade SCOR SE’s and its core guaranteed subsidiaries long-term credit and insurer financial strength ratings to "A" from "A-" with a stable outlook.
On 4 September 2009, A.M. Best raised SCOR SE’s and its rated subsidiaries rating outlook from “stable" to “positive". According to A.M. Best the change in outlook reflects A.M. Best’s expectation that SCOR will continue to demonstrate strong resilience to the impact of the financial crisis and global economic downturn, its sound enterprise risk
On 4 September 2009, Standard & Poor's has raised SCOR’s Enterprise Risk Management (ERM) from “adequate" to “strong". According to Standard & Poor’s the ERM ratings upgrade reflects the Group’s excellent risk management culture, excellent emerging risk management, strong strategic risk management and strong or at least adequate risk controls for the Group’s major risks.
After the completion of the Converium integration (acquisition finalised in August 2007), SCOR benefited from strengthened portfolio base on all renewal campaigns throughout 2008 and 2009. The compatibility of policies and underwriting and the complementarity of the portfolios have been proven as anticipated through renewals at the end of 2007.
6.4 Dependency of the issuer with respect to patents or licenses, industrial, commercial or financial contracts and new manufacturing processes Please refer to Section 4.1.6 – We may be adversely affected if our cedants, retrocessionaires, insurers or members of pools in which we participate do not respect their obligations, 4.1.10 - Operational risks, including human errors or computer system failure, are inherent in our business, 4.2.1 – We face risks related to our fixed income portfolio, 4.2.2 – We face risks related to our equity-based portfolio, 4.1.9 – A significant portion of our contracts contains provisions relating to financial strength which could have an adverse effect on our portfolio of contracts and our financial position, 4.3 – Liquidity risks, 4.5 – Insurance of specific operational risks (excluding reinsurance activity).
(ii) The geographic diversification of its business by operating in a large number of countries, both mature and emerging, and by maintaining its policy of positioning itself on strong-growth markets (opening of a representative office in India, opening of a branch in China, applying for an extension of the Non-Life Re-takaful license in Malaysia; opening an office in South Africa and establishing an underwriting presence in Australia, operating as admitted reinsurer in Brazil following the deregulation of the market, opening a Life branch office in the Netherlands); (iii) The diversification of underwritten risks (product lines): longevity, mortality, dependence, major illnesses in Life reinsurance; Property & Casualty (P&C) Treaties, Specialty treaties and facultative, large corporate Facultative risks and Joint Ventures and Partnerships in Non-Life reinsurance. In this respect, the Converium acquisition is a significant additional diversification factor by enlarging the Non-Life offer and portfolio of the Group to specialty lines of business in which the Group was not or barely not offering.
The SCOR Group as a whole is the world’s 5th largest reinsurer as ranked by “S&P Global Reinsurance Highlights 2009.” With the acquisition of Converium, the Group reached a new scale of operations, as one of the most diversified in its peer group, combining balance between its Life and Non-Life activities and the overall geographic distribution of risks
On 11 February 2009, SCOR recorded strong 2009 Non-Life renewals and optimised its portfolio with a view to greater profitability and predictability by maintaining an extremely strict policy on profitable technical underwriting. The annual negotiations with its clients enabled SCOR to optimise its portfolio and pursue diversification, whilst ensuring that its capital was allocated as profitably as possible, thereby demonstrating the Group’s strength and confirming the success of the combination of the SCOR and Converium portfolios that was achieved in 2008. These renewals results demonstrate once more the anti-cyclical nature of the reinsurance industry in difficult economic and financial environments.
Robust July P&C renewals underlined further the Group’s strong competitive position. With price increases of 5.9% and premium increase of 20% at July renewals, SCOR Global P&C demonstrated again its capacity to benefit from positive reinsurance market conditions, and to leverage from its improved competitive position.
In October 2009, a Life branch office is established in the Netherlands to further strengthen its presence and position in the market and fully seize business opportunities. The Dutch insurance market is currently representing EUR 76 billion in premium income, of which EUR 26 billion comes from Life insurance.
In the Americas SCOR Global Life has further strengthened its position in the U.S. mortality business and also has a seasoned portfolio of Fixed and Indexed-Linked Annuities. SCOR Global Life has been expanding in Canada, at an average 10% growth over the last few years. In South America, SCOR Global Life is continuously building on its longlasting local presence in key markets such as Chile, Peru and Mexico. With the opening of the Brazilian reinsurance market early in 2008, SCOR Global Life has established a local team in Sao Paulo as an authorised reinsurer offering its expertise and services to this growing market. Furthermore, SCOR Global Life is expanding its distribution platforms to gain share in middle-sized markets across the Americas, ReMark supporting the implementation of this strategy.
In Asia, SCOR Global Life showed notable developments and reinforced its market positions. The Group established a partnership with China Life Re, and sizeably grew its reinsurance revenue in this market. SCOR Global Life is building on its strong and long-standing presence in Asia with a network of seven offices. Robust growth has been achieved, through product innovation for the region, e.g. Long-Term Care, non selective whole life, preferred individual life, and by the close cooperation with ReMark. With the completion of the acquisition of ESG Direct Marketing, ReMark further strengthens its position as a world-leading provider of direct insurance distribution solutions in Malaysia, Thailand, Indonesia, Hong Kong and China.
SCOR Global Life’s network of offices has increased with the opening of various entities in the world. SCOR SE has been granted a licence to conduct Life and Non-Life operations in South Africa. SCOR Africa Limited, located in Johannesburg thus became a subsidiary and covers Africa’s English and Portuguese speaking markets as well as Mauritius.
Furthermore SCOR Global Life officially launched SCOR Telemed, a dedicated tele-underwriting company, in November 2009. The company uses the latest IT software to conduct tele-interviews and has a specialised automated underwriting system to deal with cases ranging from the standard to the most complicated ones.
7.1 page 66 Brief description of the Group and of the position of the issuer 7.2 page 69 List of issuer’s significant subsidiaries
Branches of SCOR Global P&C SE: Spain, Italy, Germany, United Kingdom, Switzerland
Branches of SCOR Re. AsiaPacific Pte Ltd: Australia, Malaysia, South Korea
The Group is a twin engine group driven by SCOR Global Life SE and SCOR Global P&C SE. Mobilisation of skills and expertise, a balance among teams from different entities of the Group, operating efficiency, simplicity of structures, and clarity of reporting lines were the principles that guided the Group's organisational choices.
The corporate functions of SCOR Global Life SE, SCOR Global P&C SE and of the Group in Paris define the underwriting policies and monitor its standard application, control the changes in natural catastrophe risk accumulation and control claims.
On 29 October 2008, SCOR announced the creation of SCOR Global Investments SE, which is contemplated to manage, directly or indirectly, the global investment portfolio of all the Group’s legal entities. SCOR Global Investments SE has been approved by the AMF as a portfolio management company as from 15 May 2009.
Appendix A – Notes to the Financial Statements – Note 4: Transactions with subsidiaries and affiliates.
The adoption of the European Company statute by SCOR SE, SCOR Global P&C SE and SCOR Global Life SE, occurred respectively on 25 June, 3 August and 25 July 2007, the registration dates for each company as a Societas Europaea with the Nanterre Trade and Company Register. This registration occurred after: (i) the completion of the negotiations on the involvement of the employees in the various European companies, as stipulated by the legislation governing a European company, with the special negotiation group (“SNG”) formed for this purpose in July 2006, and representing the employees of the Group; an agreement on the involvement of the employees within SCOR SE and SCOR Global P&C SE was signed with the SNG on 14 May 2007; and (ii) the approval by the Extraordinary Shareholders’ Meeting of each of the companies of the adoption of the Societas Europaea statute.
Following the acquisition of Revios by SCOR VIE on 21 November 2006, SCOR began restructuring the Life Reinsurance entities of SCOR VIE (whose corporate name was changed to SCOR Global Life) in the United States, at the same time as it merged the Revios and SCOR VIE offices in Asia and Europe. This restructuring was completed in November 2007 for the North American activities of SCOR Global Life, now regrouped in Dallas (Texas), in Delaware and in Florida, and Montreal (Canada).
The Group’s decision to opt for a “Hub" company structure follows the successful consolidation of Revios and Converium.
The acquisition of Converium in August 2007 led the Group's companies to launch a significant restructuring effort, the effects of which continued in 2008 and in 2009, including: the creation of a single structure for all the common support functions to the branches of the two operating companies SCOR Global Life and SCOR Global P&C in Cologne, Germany, in the form of a SCOR services branch; the creation of a SCOR services branch in London, in May 2008, which combines the personnel of SCOR Global Life and SCOR Global P&C based in London, branches of the Life and Non-Life reinsurance and direct insurance companies, the latter being subsidiaries of SCOR Global P&C. The reinsurance entities will become branches of SCOR Global P&C and of SCOR Global Life in the framework of the corporate form of Societas Europaea; the transfer of portfolios and the network rationalisation, in particular in Asia-Pacific and in Latin-America.
8.1 page 72 Major existing or planned properties, plants and equipment 8.2 page 72 Environmental issues that may affect the utilisation of properties, plants and equipment
The Group owns offices in Milan (Italy), Singapore, and now in Madrid (Spain), where its local entities and subsidiaries have their corporate offices, and the remainder of the space is leased to third parties as part of its investment management business The Group leases office space for its other business locations. SCOR believes that the Group’s offices are adequate for its current needs but, as a result of the integration of Revios and Converium, went on combining under one roof its various local entities in each of the countries in which the Group is present. In 2009, London’s hub activities have all been gathered in the 10 Lime Street building and the Group’s entities in Madrid moved into offices purchased with this aim on the Paseo de Castellana. In 2009, SCOR also concluded a future of about 6,000 m²-building which will be the Cologne hub head office at the end of 2011.
SCOR also holds property investments as part of its asset management related to its reinsurance operations. For more information on the Group’s real estate investments, refer to Appendix A – Notes to the Corporate Financial Statements, Notes 2.1 - Changes in investments and 2.2 - Schedule of investments, and Section 20.1.6 – Notes to the Consolidated Financial Statements, Note 5 – Tangible assets and real-estate investments.
SCOR benefited from upgrades to its financial ratings in 2009. Refer to Section 4.1.8. - Financial ratings play an important role in our business, for a summary of the current financial strength ratings of the SCOR Group.
SCOR’s shareholders’ equity increased by 14% to EUR 4,065 million at 31 December 2009, before the impact of foreign exchange rates and dividends. After dividend payments and the impact of changes in currency rates, shareholders’ equity increased from EUR 3,416 million at 31 December 2008 to EUR 3,901 million at 31 December 2009 (consolidated shareholders’ equity was EUR 3,648 million at 31 December 2007).
Positive operating cash flow amounted to EUR 851 million in 2009, with strong contributions from both Life and P&C operations. Operating cash flows in 2008 of EUR 779 million included a settlement received of EUR 240 million relating to an agreement reached with GROUPAMA regarding the definitive amount of a guarantee which was granted in the context of the acquisition of SOREMA by SCOR in 2001. Operating cash flows in 2007 of EUR 611 million allowed the Group to finance the cash component of the Converium Offer.
Net invested assets including cash and cash equivalents, amounted to EUR 20.0 billion at 31 December 2009 as compared to EUR 18.8 billion and EUR 19.0 billion at 31 December 2008 and 2007, respectively.
Gross written premium for the year ended 31 December 2009 amounted to EUR 6,379 million, an increase of 9.8% as compared to EUR 5,807 million for the same period in 2008. The overall increase in gross written premium of EUR 572 million in 2009 is to due an increase for SCOR Global P&C of EUR 156 million and EUR 416 million for SCOR Global Life.
Gross written premium in 2008 were EUR 5,807 million as compared to EUR 4,762 in 2007. The overall increase in gross written premium of EUR 1,045 million in 2008 is to due an increase for SCOR Global P&C of EUR 776 million and EUR 269 million for SCOR Global Life.
Net earned premium for the year ended 31 December 2009 amounted to EUR 5,764 million as compared to EUR 5,281 million and EUR 4,331 million for the years ended 31 December 2008 and 2007, respectively. The overall increase in net earned premium of EUR 483 million from 2008 to 2009 is consistent with the increase in written premiums. The net earned premium in 2008 included for the first time the full year impact of the ex-Converium Group, acquired on 8 August 2007.
The financial market turmoil affected the performance of SCOR’s investment portfolio. The Group had average investments of EUR 19.4 billion in 2009 as compared to EUR 18.8 billion in 2008. The investment yield in 2009 on average assets was 2.4% compared to 2.3% in 2008. The return on net invested assets excluding funds withheld by ceding companies was 2.7% and 2.1% in 2009 and 2008, respectively. Of this ratio, net capital gains and losses on investments, net of write-downs was 1.5% in 2009 as compared to 0.7% in 2008. The adverse developments in the financial markets in 2009 led to impairments of EUR (247) million (2008: EUR (283) million). Net revenues of EUR 19 million (2008: EUR (45) million) were recorded from investments recorded fair value through income. SCOR did not change its accounting policy to take advantage of the IASB revisions to IAS 39 in the final quarter of 2008.
Gross benefits and claims paid were EUR (4,674) million EUR (4,101) million and EUR (4,035) million in 2009, 2008 and 2007, respectively.
However, the impact of alternative retrocession coverage, Atlas V, Atlas VI (SCOR Global P&C) and the mortality swaps (SCOR Global Life) are not included in the net cost of retrocession as the products are accounted for as derivatives. The total expense recorded in 2009 relating to Atlas V and Atlas VI amounted to EUR 16.7 million, excluding one time issuance costs totalling EUR 4.6 million included as financing expenses. The 2009 expense relating to the mortality swaps and included in investment income amounted to EUR 5.5 million.
Operating income for the year ended 31 December 2009 amounted to EUR 372 million as compared to EUR 348 million in 2008. The 2009 operating income has been positively affected by the provision of liquidity to the Group’s outstanding subordinated debts through the acquisition of a total of EUR 99 million at an average price of 46.5% to par value (mostly in the first half of 2009). At the same time, 2009 was affected by impairments of EUR (247) million (2008: EUR (283) million), mainly in the first half of 2009, only partially offset by higher realised investment gains of EUR 177 million (2008: EUR 87 million).
The successful turnaround of SCOR Global P&C’s US operations leads to the reactivation of EUR 100 million in deferred tax assets in 2009.
Return on equity was 10.2%, 9.0% and 14.0% for the years ended 31 December 2009, 2008 and 2007 respectively. Basic earnings per share were EUR 2.06, EUR 1.76 and EUR 2.79 for the same three periods, respectively.
In 2008, SCOR Global P&C successfully integrated Ex-Converium operations, and successfully completed the renewals throughout the year for P&C and Specialty Treaty business, with minimal attrition. In 2009, the P&C Division successfully completed the integration of the Ex-Converium operations by transferring the reserves portfolio in order to align the overall management of the activity with the current location of the underwriting.
The additional costs resulting from the full coverage of two distinct events are estimated to EUR 39 million after tax and retrocession. This brings closure to a legacy matter which originated in 2001.
The following table highlights losses due to catastrophes for the years 2009, 2008, and 2007: At 31 December 2009 2008 2007 Number of catastrophes occurred during the financial year (1) 11(6) 10 (3) 2 (2) In EUR million Losses and claim management expenses due to catastrophes, gross 153 214 53 Losses due to catastrophes, net of retrocession (5) 153 189 53 Group net loss ratio6F(4) 68.0%(7) 70.5% 68.0% Group ratio of losses excluding catastrophes 62.9%(7) 63.9% 65.5% (1) SCOR defines a catastrophe as an event involving several risks and causing pre-tax losses, net of retrocession, totalling EUR 3 million or more. (2) Storms Kyrill and Gonu (3) Storm Emma, China Snowstorm, Australian Floods, China Earthquake, Maiunwetter Storm Germany, Indiana and Iowa Floods, Hurricanes Ike and Gustav, and Hail Storm Spain. (4) Loss ratios are calculated on the basis of Non-Life claims, expressed as a percentage of Non-Life premiums earned. (5) Net of recoveries and reinstatement premiums (assumed and retrocession) and immaterial development on prior year (6) Wind storm Klaus, earthquake in Costa Rica, forest fire in Australia, earthquake in Aquila, Italy, hailstorm Felix, Eastern European floods, earthquake in South Africa, hail storm in Austria and Switzerland, typhoon Morakot in Taiwan, floods in Turkey and earthquake in Japan (7) Excluding exceptional impact of the arbitration results with Allianz relating to the World Trade Center
Hurricane Ike hit the South East United States in September 2008. The original estimated loss net of retrocession and reinstatement premiums was USD 95 million (EUR 62.2 million). As at 31 December 2008 the revised estimated impact was USD 119 million (EUR 81.7 million). As at 31 December 2009, the revised impact is USD 120 million (EUR 82.6 million).
Heavy snowstorms affected China during February 2008 and as at 31 December 2008 the estimated loss is EUR 26.2 million. The revised estimated loss at 31 December 2009 is EUR 24.9 million.
The Indiana Floods occurred in the United States in June 2008. As at 31 December 2008 the estimated loss is EUR 10.3 million. The revised estimated loss at 31 December 2009 is EUR 13.1 million.
In 2007, SCOR recorded estimated losses greater than EUR 10 million. The largest losses were caused by Kyrill and Gonu and exclude losses incurred by Converium prior to 8 August 2007, the date of acquisition. As at 31 December 2009, there have been no further material developments in these losses.
SCOR Global Life offers a broad range of reinsurance for individual and Group life insurance, long-term care, substandard risks, critical illness (United Kingdom and Asia) and financing products.
Life operating margin during 2009 was 5.8% compared to 6.0% in 2008. In 2009, technical components of the operating margin, driven by high share of European mortality business, remained strong, strengthened by positive effects in the investment income. The operating margin was also enhanced by a recapture and novation transaction in critical illness and mortality business in UK and Ireland, and considerably influenced by the Equity Indexed Annuity business growth in the U.S., which results in low margins while meeting internal profitability targets thanks to low capital needs. Excluding the Equity Indexed Annuity business written in the U.S., the operating margin for 2009 is 6.9% compared to 5.9% in 2008.
In 2009, the Group successfully renewed its retrocession programs. Furthermore, SCOR reopened the market for catastrophe bonds, setting new innovative standard with its USD 200 million cat cover closed early February 2009.
10.1 Capital Refer to Section 20.1.5 – Consolidated statement of changes in shareholders’ equity and Section 20.1.6 – Notes to the consolidated financial statements, Note 13 – Information on share capital, shareholders’ equity and capital management.
A EUR 0.2 billion OCEANE has come to maturity on 4th of January 2010.
impact on the solvency of Converium and any intra-Group transaction or any transaction affecting the capital resources of Converium that exceed certain limits be submitted to the FOPI for approval. The reviewing of this disposal which came to its term 2 years after the acquisition of Converium is currently being discussed with the FINMA.
11.1 Research and development activities Biometric risks such as mortality, longevity, disability and long term care are at the centre of underwriting in life insurance and reinsurance. Since these risks are subject to uncertain trends, SCOR Global Life closely monitors their current developments in four Research & Development Centres. SCOR Global Life’s centres are: CERDALM (R&D Centre for Longevity and Mortality Insurance): providing support in pricing assumptions for new products and mortality studies on life and annuity portfolios.
CERDI (R&D Centre for Disability and Critical Illness Insurance): dedicated to the analysis of disability and critical illness risks, two complex risks due to the various and multiple definitions, cover types and socio-economic environments.
The R&D Centres are part of SCOR Global Life’s range of services: analyses and risk projections produced by the Centres are used by SCOR Global Life’s teams to advise their clients on the design and follow-up of their life and health insurance products.
The Centres provide input at the product development stage, giving advice on the definition, the underwriting standards, as well as on the pricing and reserving. They contribute to the risk follow-up by carrying out experience studies on portfolio data and risk projections.
The R&D Centres report to the Chief Actuary of SCOR Global Life. They assist all countries, at the request of the local teams in charge of business development and client relationships.
SCOR is also a member of two conventions with the following partners: Risk Fondation, in collaboration with the universities of Toulouse and Paris Dauphine, is dedicated to risks market and value creation. For SCOR, it implies a cost of EUR 2.3 million allocated on 5 years.
11.2 Information technologies SCOR was the first reinsurer to implement a uniform international information system. This policy has more than ever been reaffirmed when decided, after our two last acquisitions, to launch a comprehensive integration program over two years, for the reinsurance back-office applications in 2008, and for the front-office ones in 2009. The objective is a rapid return to a single global system. Besides reinsurance, the accounting consolidation is entirely done in SAP Magnitude as from 2008, and the general ledger harmonisation in SAP is one of our main projects. This systems integration implies the parallel adoption by all business teams of common rules for administration, accounting and result analysis in reinsurance. A training and change management program has already been started for this purpose.
The importance that SCOR places on risk control and on strategic planning has clearly been confirmed.
Since the last two years, SCOR has also launched a number of projects for asset management, with the implementation of the market software package SimCorp Dimension. After Paris accounting, in IFRS and French GAAP, the solution worldwide extension to all entities has been started in 2009 and will be completed in 2010. Already, the centralisation of all investments portfolios of the Group, is now performed in SimCorp Dimension. This same solution is being deployed for front-office functions in parallel.
The Group is promoting a paperless environment. Internally, global document-sharing procedures have been set up for the P&C activity, before planned extension to Life. With its clients, the Group is able to process automatically reinsurance accounts and claims received electronically in the ACORD standards, without having to re-input them.
The SCOR technical environment is based on a new international secured network. Corporate technical standards have been implemented in all locations, both on PCs and servers. The Group has also implemented an ambitious security plan based on stronger physical and logic access controls, protection against unauthorised access, and restarts in the event of a disaster. Tests of disaster recovery have again been conducted in 2009, including a live exercise simulating a confinement of populations, which could potentially occur in case of a pandemic for example.
Finally, the study of SCOR's IT strategy for 2013, aligned with the Group's growth objectives, is already largely known, and will be completed mid-2010, to prepare for a medium-term transition to a new information system. Additionally SCOR uses its expertise to develop expert IT solutions for its clients (including in the field of medical selection). Different solutions (sar@, GEM, scout) are already in place and widely used by ceding companies. Other initiatives are engaged in this field in order to reinforce the alignment of our services with market expectations.
12.1 page 92 Most significant trends in production, sales, inventory, costs, and selling prices since the end of the last financial year 12.2 page 94 Known trends, uncertainties, demands, commitments and events reasonably likely to have a material effect on the issuer’s prospects
SCOR reaps the benefits of its focus on technical profitability and its improved position in the reinsurance industry, combining premium growth and improved underwriting profitability with overall positive price changes, achieving further diversification and ensuring that its capital is optimally deployed. In a generally balanced market, it has managed to pursue active portfolio management, cancelling and more than adequately replacing contracts not meeting the required profitability targets.
The total volume of premiums renewed at 1 January 2010 increases by 3% to EUR 1,315 million, against EUR 1,275 million up for renewal (76% of Treaty P&C annual volume). Approximately 8% (EUR 106 million) of Treaty P&C premiums up for renewal were cancelled, with a further 2% restructured, demonstrating our active policy of portfolio management.
SCOR Global P&C has compensated for this with new business acquired from existing and new clients (EUR 66 million and EUR 34 million respectively) and with increased shares on renewed business (EUR 38 million).
SCOR records a stable business volume in the EMEA zone (Europe, Middle-East and Africa); with written premiums of EUR 1,020 million compared to EUR 1,021 million in 2009. There are, however, significant differences between markets due to local conditions and measures taken by SCOR to ensure that internal profitability targets are achieved.
(b) Continued shift towards more non-proportional business in the Treaty P&C portfolio
Proportional reinsurance shows a slight increase from EUR 835 million to EUR 842 million, while non-proportional increases more significantly from EUR 440 million to EUR 472 million. SCOR Global P&C reduces the volume of proportional business in certain markets and lines (e.g. Germany Property and Motor), whilst increasing the nonproportional business volume (e.g. Germany, France and Benelux), applying a disciplined underwriting policy in accordance with its profitability objectives.
In a competitive large corporate segment facing price reductions driven by over-capacity, following a year of very low claims activity, Business Solutions maintains the volume of its business (EUR 123 million for the fourth quarter 2009 and January 2010 renewals compared to EUR 120 million for the same period twelve months earlier).
The financial crisis that began in 2008, which led to recession for developed economies, affected the Life insurance markets in 2009 and will continue to weigh on business in 2010, presenting a number of different challenges to Life reinsurance players such as SCOR.
In France, savings inflows in 2009 were up compared to 2008, reverting to 2007 levels, and loan repayment insurance held out well against the crisis.
In Germany, unit-linked products fell, but the deferred annuities market expanded.
In the United Kingdom, the savings and mortgage market declined very sharply. However the protection insurance market held up strongly.
The Asian markets, carried by growing economies, continued to display vigorous development in the principal savings and loans segments. Moreover, the development of long-term care insurance indicates a good outlook.
Growth in the Middle Eastern markets was carried by Health insurance.
SCOR is watching the opportunities in the current market environment. Due to significant decreases in their investment portfolios, insurers have seen a non-negligible deterioration in their solvency ratios. Faced with the financial markets, reinsurance offers an attractive alternative to capital raising, which has led to an increased demand for financial reinsurance solutions.
14.1 page 99 Information on the members of the Board of Directors and Senior Managers 14.2 Page 123 Administrative, management, and supervisory bodies and Senior Management conflicts of interest
According to the bylaws, Board members must be physical persons. There shall be no fewer than 9 and no more than 18 Board members. Their maximum term in office shall be 6 years. However, SCOR having decided to adopt the Corporate governance code of listed corporations of the AFEP-MEDEF of December 2008, the duties of the Directors are in fact limited to 4 years. Directors may not hold office after the age of 72. If a Director in office should exceed this age, his term will continue until the period established by the Shareholders' Meeting. The General Shareholders’ Meeting may, in compliance with the provisions of the bylaws, appoint one to four Non-Voting Directors (Censeurs) to the Company. Non-Voting Directors serve for renewable two-year terms. If there are fewer than four non-voting Directors, the Board of Directors may appoint one or more non-voting Directors. The Directors and the Non-Voting Directors are proposed by the Board of Directors and appointed by the Ordinary General Shareholder’s Meeting. When Directors and Non-Voting Directors are co-opted by the Board of Directors, their appointment is submitted for ratification to the next Ordinary General Shareholder’s Meeting. The age limit for performing the functions of a Non-Voting Director is set at 72 years old. Non-Voting Directors are convened to meetings of the Board of Directors and participate in discussions in an advisory capacity only.
The Board of Directors of the Company had the following 16 members as of the date of this Registration Document: Chairman: Denis Kessler
Directors: Carlo Acutis, Gérard Andreck, Antonio Borgès, Allan Chapin, Peter Eckert, Daniel Havis, Daniel Lebègue, André Lévy-Lang, Médéric Prévoyance represented by Guillaume Sarkozy, Luc Rougé, Herbert Schimetschek, JeanClaude Seys, Claude Tendil, Daniel Valot; Non-Voting Director: Georges Chodron de Courcel.
The average age of members of the Board is 64 years.
The table below shows the positions held by the Directors as of the date of this Registration Document.
Offices and positions held in the Group Chairman and Chief Executive Officer - SCOR SE (France)* Chairman of the Board: - SCOR Global P&C SE (France) - SCOR Global Life SE (France) - SCOR Global Life U.S. Re Insurance Company (U.S.) - SCOR Reinsurance Company (U.S.) - SCOR U.S. Corporation (U.S.) - SCOR Holding (Switzerland) AG (Switzerland) - SCOR Global Life Re Insurance company of Texas (U.S.) - SCOR Global Life Rückversicherung Schweiz AG (Switzerland) - SCOR Switzerland AG (Switzerland) - SCOR Global Life Reinsurance Company of America (U.S.)
Non-Voting Director: - FINANCIERE ACOFI SA (France) - GIMAR FINANCE & CIE S.C.A (France)
Member of the Supervisory Board : - Yam Invest N.V. (The Netherlands)
Chairman of the Board: SCOR Life Insurance Company (U.S.) (formerly Republic Vanguard Life Insurance Company). Commercial Risk Partners Limited (Bermuda) Commercial Risk Reinsurance Company (U.S.) Commercial Risk Reinsurance Company Limited (U.S.) SCOR VIE (now known as SCOR Global Life SE) SCOR Italia Riassicuriazioni S.p.A (Italy)
Abroad: Chairman: - BPC Investimenti SGR S.p.A. (Italy) - Vittoria Capital N.V. (The Netherlands)
Permanent Representative of MACIF: - on the Board of Directors of Atlantis Seguros (Spain) - on the Board of Directors of Atlantis Vida (Spain) - on the Board of Directors of Foncière de Lutèce - on the Board of Directors of Euresa Holding - on the Board of Directors of Compagnie Foncière de la MACIF - on the Board of Directors of MACIF Participations - on the Supervisory Board of Capa Conseil SAS - on the Supervisory Board of MUTAVIE - on the Board of GPIM - on the Board of OFI RES
France Chairman of the Board of Directors - Macif-Mutualité - Mutuelle Santé
Member of the Supervisory Board : - OFIVALMO - GPIM - MACIF Gestion - IMA
Other offices and positions held in any company in France and abroad as at the date of the Registration Document Offices held during the last five years: Birth Date: 18 November 1949
Professional address: 2nd Floor 167 Fleet Street London EC4A 2EA United Kingdom
Member of the Tax Committee: - Banco Santander de Negocios (Portugal)
Other offices and positions held in any company in France and abroad as at the date of the Registration Document Offices held during the last five years: Allan CHAPIN (1) (4) Director
Professional address: COMPASS ADVISERS Compass Advisers LLP 825 3rd Avenue, 32nd Floor New York, NY 10022 United States of America
Other offices and positions held in any company in France and abroad as at the date of the Registration
Principal position: Chairman of the Board of Directors of Banque Clariden Leu AG (Switzerland)
Other positions: Vice-Chairman of the Board: - SCOR Switzerland AG (Switzerland) - SCOR Holding (Switzerland) AG (Switzerland) - SCOR Global Life Rückversicherung Schweiz AG (Switzerland)
Chiarman: - Farmers Group (US) - Farmers New World Life (US) - Zurich Compagnie d’Assurances (Germany) - Zurich Deutsche Herold (Germany) - Zurich Kosmos (Austria)
Document Offices held during the last five years: Daniel HAVIS (1) (2) Director
Other: - Conseil Supérieur de la Mutualité (High Council on Mutual Insurance): member of the “Approval” Committee and member of the “General Affairs” Committee
Commercial Code Chairman of the Supervisory Board: - MATMUT Assurances - MATMUT VIE - MATMUT Protection Juridique - MATMUT ENTREPRISES - IMA
Chairman of the Board of Directors: - MUTRE - MATMUT Assurances - MATMUT Vie - Matmut Protection Juridique - MATMUT ENTREPRISES - MTG XV
Vice-Chairman of the Board: - MATMUT Vie - AMF Assurances - ADI - MTG XV
of OFI SMIDCAP - MATMUT on the Supervisory Board of IMA - MATMUT on the Supervisory Committee of OFI RES - OFIVALMO Gestion on the Board of Directors of OFIVALMO NET EPARGNE
Non-Voting Director: - AMF Assurances - ADI - HANDIMUT - MUTRé - Mutations Normandie
Director: - Gaz de France* (France) - SCOR VIE (France) - SCOR Reinsurance Company (U.S.) - General Security National Insurance Company (U.S.) - Crédit Agricole S.A.* (France) - Alcatel Lucent* (France)
Other offices and positions held in any company in France and abroad as at the date of the Registration Document Offices held during the last five years: Médéric Prévoyance (1) (2) Director
Member of the Supervisory Board: - Fédéris Gestion d’Actifs SA (France)
Permanent Representative: - of Médéric Prévoyance to the Board of Directors of BPI SA (France)
Chairman of the Supervisory Board: - UNIQA International Versicherungs Holding GmbH (Austria) - DIE ERSTE österreichische Sparkasse Privatstiftung, Wien (Austria) - UNIQA Assurances S.A. (Switzerland)) - UNIQA Previdenza S.p.A. (Italy) - UNIQA Assicurazioni S.p.A. (Italy) - UNIQA Protezione S.p.A.,(Italy) Vice-Chairman of the Supervisory Board: - Bauholding STRABAG SE (Austria) - UNIQA Versicherungen AG (Austria)*
Chairman of the Board of Directors: France - MAAF Assurances (SAM) - MAAF (SA) - MMA IARD (SAM) - MMA VIE (SAM) - COVEA (SGAM)
Other offices and positions held in any company in France and abroad as at the date of the Registration Document Offices held during the last five years: - Institut Diderot
Chairman and Chief Executive Officer of Technip* until 27 April 2007 (retirement)
Abroad: Chairman: - Technip Italy (Italy) (until 27 April 2007) - Technip Far East (Malaysia) (until 27 April 2007)
Other offices and positions held in any company in France and abroad as at the date of the Registration Document Offices held during the last five years: Georges CHODRON de COURCEL (1) (4) Non-Voting Director
Denis Kessler, a French citizen, is a graduate of HEC business school (Ecole des Hautes Etudes Commerciales) and holds a PhD in economics and advanced degrees in economics and social sciences. He was Chairman of the Fédération Française des Sociétés d’Assurance (FFSA), CEO and member of the Executive Committee of the AXA Group and Executive Vice-President of MEDEF (Mouvement des Entreprises de France). He joined the Group as Chairman and Chief Executive Officer on 4 November 2002.
Before becoming a partner at Compass Advisers LLP in New York in June 2002, Allan Chapin, a U.S. citizen, was a partner at Sullivan & Cromwell LLP and Lazard Frères in New York for several years. He also serves on the boards of directors for the Pinault Printemps Redoute group (PPR) and a number of subsidiaries of SCOR in the U.S.
Jean-Claude Seys, a French citizen, has spent his career in the insurance and banking industry. He was Chairman and Chief Executive Officer of MAAF and of MMA in which he remains a Director. He is the Vice-Chairman and Deputy Director of COVEA (société de groupe d’assurance mutuelle).
2003 Director: SCOR Global P&C SE (France) SCOR Global Life SE (France) SCOR Holding (Switzerland) AG (Switzerland) SCOR Africa Ltd (South Africa) (South Africa) MutRé SA (France)SCOR UK Company Ltd (UK) SCOR Underwriting Ltd (UK) SCOR Global Life Rückversicherung Schweiz AG (Switzerland) SCOR Switzerland AG (Switzerland). .
20072 Chairman of the Board of Directors: SCOR Holding (UK) Ltd (UK) SCOR Insurance (UK) Ltd (UK) SCOR UK Company Ltd (UK)
Paolo De Martin 40 Group Chief Financial Officer 20073 Director: SCOR Global Life SE (France) SCOR Global P&C SE (France) SCOR Global Life Rückversicherunbg Schweiz AG (Switzerland) SCOR Holding (Switzerland) AG (Switzerland) SCOR Switzerland AG (Switzerland) Member of the Supervisory Board: ReMark Group BV (The Netherlands)
2 Benjamin Gentsch was previously an executive at Converium since 2002. 3 Paolo De Martin had previously been an executive at Converium since 2006.
Vice President of the Supervisory Board: SCOR Global Investments SE (France)
Director: SCOR Holding (Switzerland) AG (Switzerland) SCOR Reinsurance Asia-Pacific PTE Ltd (Singapore) SCOR Global Life Re Insurance Company of Texas (US) SCOR Global Life Reinsurance Company of America (U.S.) Prévoyance Ré (France) ReMark Japan K. K. (Japan) Sweden Reinsurance Co. Ltd (Sweden) SCOR Global Life Rückversicherung Schweiz AG (Switzerland) SCOR Switzerland AG (Switzerland)
Victor Peignet 52 Chief Executive Officer of SCOR Global P&C SE
Norbert Pyhel 59 Deputy Chief Executive Officer of SCOR Global Life SE
Director SCOR Global Life Re Insurance Company of Texas (US) SCOR Global Life US Re Insurance Company (US) SCOR Financial Services Ltd (UK) SCOR Africa Ltd (South Africa) Investors Insurance Corporation (US) SCOR Global Life Reinsurance Company of America (US) SCOR Global Life Reinsurance Ireland Ltd (Ireland) Sweden Reinsurance Co. Ltd (Sweden)
Jean-Luc Besson is an actuary and holds a PhD in Mathematics. He has served as a Professor of Mathematics at the University level, then as Director of Research, Statistics and Information Systems at the FFSA. He was appointed Chief Reserving Actuary of the Group in January 2003 and has been Chief Risk Officer since 1 July 2004.
Paolo De Martin, 40, Group Chief Financial Officer of SCOR SE
Paolo De Martin, an Italian national, graduated from Ca’ Foscari University, Italy, with a degree in Business Economics. He subsequently spent two years in the optical business as founder and managing partner of an eyewear manufacturer. He joined the General Electric Company (GE) in 1995 as a finance trainee in London. In 1997, he joined GE's internal auditing & consulting Group, charged with assignments in multiple GE businesses in the Americas, Europe and AsiaPacific. In 2001, Paolo De Martin was promoted to Executive Manager for GE Capital Europe, before joining GE Insurance Solutions as Financial Planning and Analysis Manager for Global Property and Casualty Reinsurance.. As of 2003, he was appointed Chief Financial Officer of GE Frankona Group before becoming Chief Financial Officer of Converium in July 2006. In September 2007, Paolo De Martin was appointed Group Chief Financial Officer of SCOR.
Gilles Meyer holds dual French and Swiss nationality and a degree from a French business school and an MBA from GSBA in Zürich. Gilles Meyer started his career as an underwriter at Swiss Re before managing the facultative department of La Baloise in Basel. After 23 years of experience in facultative and treaty reinsurance, Gilles Meyer was Chief Executive Officer of Alea Europe from 1999 to 2006, where he was in charge of property-casualty reinsurance and Life reinsurance, and from 2005 to 2006, he was Manager of group underwriting at Alea. He joined the Group in January 2006 and to date has managed the German-speaking markets of SCOR Global P&C based in Hanover, Basel, and Winterthur. He was named head of Business Unit 1 of SCOR Global Life and a member of the Group Executive Committee in November 2006, then Deputy Chief Executive Officer of SCOR Global Life SE in September 2007. In January 2008, he was appointed Chief Executive Officer of SCOR Global Life SE.
Victor Peignet, 52, Chief Executive Officer of SCOR Global P&C SE
A German citizen, Norbert Pyhel holds a doctorate in mathematical statistics from the Technische Hochschule Aachen. He began his career in insurance with Gerling Globale Rückversicherungs-AG, where he was appointed Executive Director Life & Health for continental Europe in 1990 and Joint Managing Director of Gerling Life Reinsurance GmbH in Cologne in 2002. He was a member of the Executive Board of Revios, which then became SCOR Global Life. His most recent position was as Managing Director of SCOR Global Life in Germany. He is a member of the German Association of Actuaries (DAV) and the Swiss Association of Actuaries (ASA). In February 2008, he was named Deputy Chief Executive Officer of SCOR Global Life SE.
François de Varenne, 43, Chief Executive Officer of SCOR Global Investments SE
A French national, François de Varenne is a graduate of the Ecole Polytechnique, a civil engineer of the Ponts et Chaussées and holds a doctorate in economic sciences. He is graduated as an actuary from the Institut de Science Financière et d’Assurances (ISFA). François de Varenne joined the Fédération Française des Sociétés d’Assurances (FFSA) in 1993 as Manager of Economic and Financial Affairs. In London beginning in 1998, he served successively as Insurance Strategist with Lehman Brothers, Vice-President for asset management solutions and structured transactions, a specialist in insurance and reinsurance companies at Merrill Lynch, and then at Deutsche Bank. In 2003, he became Managing Partner of Gimar Finance & Cie. He joined the Group in 2005 as Director of Corporate Finance and Asset Management. On 3 September 2007, he was named Group Chief Operating Officer. On 29 October 2008, he was appointed Chief Executive Officer of SCOR Global Investments SE.
To our knowledge, during the last five years: no Director and no member of senior management has been convicted of fraud; no Director and no member of senior management has been associated with a bankruptcy, sequestration, or liquidation; no Director and no member of senior management has been the subject of an accusation or official public sanction issued by statutory or regulatory authorities;4 and no Director and no member of senior management has ever been prohibited by a court from acting as a member of an administrative, management, or supervisory body of an issuer or from participating in the management or business of an issuer.
To our knowledge, there are no conflicts of interest between the duties of the Directors and members of senior management with regard to SCOR and their private interests.
15.1 page 126 Amount of remuneration paid and benefits in-kind 15.2 page 132 Total amounts set aside or accrued to provide pension, retirement, or similar benefits for financial year 2009
15.1 Amount of remuneration paid and benefits in-kind 15.1.1 DIRECTORS’ FEES AS OF 31 DECEMBER 2009
M. Antonio Borgès 53,800 50,600 M. Allan Chapin 50,400 47,200 M. Georges Chodron de Courcel 50,400 38,700 M. Peter Eckert (3) 40,300 NA M. Daniel Havis 53,800 35,300 M. Daniel Lebègue 64,000 55,700 M. André Lévy Lang 64,000 55,700 Médéric Prévoyance, represented by Guillaume Sarkozy (3) 31,800 NA M. Luc Rougé(4) 33,600 31,900 M. Herbert Schimetschek 45,300 38,700 M. Jean-Claude Seys 52,100 45,500 M. Jean Simonnet(5) NA 8,400 M. Claude Tendil 52,100 43,800 M. Patrick Thourot(6) 16,800 38,700 M. Daniel Valot 67,400 59,100
(1) Pursuant to the decision made by the Board of Directors on 21 March 2006, the Chairman and Chief Executive Officer receives directors’ fees along with the other members of the Board of Directors of the Company, based on the same conditions for distribution. (2) Director whom appointment has been ratified by the Annual Ordinary General Meeting of the Shareholders of 7 May 2008. (3) Director appointed by the Annual Ordinary General Meeting of the Shareholders of 15 April 2009. (4) Director representing the employees elected by the Annual Shareholders’ Meeting of 24 May 2007 as employee representative. His directors’ fees are paid to the CFDT union. (5) Mr. Jean Simonnet resigned from office on 18 March 2008. (6) Director whom appointment ended on 15 April 2009.
SCOR Holding (Switzerland) Georges Chodron de Courcel CHF 27,500 CHF 50,000 Jean-Claude Seys CHF 27,500 CHF 50,000 Peter Eckert CHF 15,000 15. 1.2 EXECUTIVE COMMITTEE MEMBERS REMUNERATION
Gross compensation paid in 2009 to the Group Executive Committee members (including the Chairman and Chief Executive Officer) as of 31 December 2009 amounts at EUR 7,218,315. In addition, they were awarded a total number of 395,000 shares and 395,000 stock options in 2009 for a total estimated value of EUR 6, 464,9005.
In application of 3 July 2008 Act implementing the European Union Directive 2006/46/CE of 14 June 2006, SCOR shall thus refer to the AFEP-MEDEF governance code in preparing the report to be issued in accordance with article L. 22537 of the French commercial Code.
5 The amount corresponds to the IFRS2 fair value as described in note 18 of section 20. 6 It should be noted that the figures stated above do not represent paid compensation but correspond to actuarial estimates in line with AFEP/MEDEF
The following table presents a summary of the gross compensation of the Executive and Corporate Officer for fiscal years 2009, 2008 and 2007: Summary table of the gross compensation to the Executive and Corporate Officer
Number of options exercised during the period Date of the plan Exercise price
Performance shares granted during the period to the Executive and Corporate Officer by the issuer or by another company of the
Performance share acquired during the period by the Executive and Corporate Officer by the issuer or by another company of the Group (nominative list)
Number of shares acquired during the period Date of the plan Conditions of acquisition
15.1.2.2 Gross remuneration to Executive Committee members7 (COMEX) other than the Chairman as of 31 December 2009
The following table presents the gross compensation related to fiscal years 2009, 2008 and 2007 and paid in 2009, 2008 and 2007 to the members of the Executive Committee.
(*) The compensation is paid in CHF, the exchange rate used is: 1 EUR = 1,5123 CHF (**) Including the Chairman and Chief Executive Officer for whom remuneration details are available in section 15.2.1.
The Compensation and Nomination Committee determines the variable compensation of the COMEX members in agreement with the Chairman. The variable portion of the compensation presented in the table above depends, on the one end, on the achievement of individual objectives and, on the other hand, on the achievement of the Group’s earnings objectives (based on the Group’s Return on Equity or ROE). The total amount of the variable portion can not exceed 80% of the fixed compensation.
The following table presents the components of the gross compensation for fiscal years 2009, 2008 and 2007 for the members of the Executive Committee (other than the Chairman and Chief Executive Officer).
Norbert Pyhel 350,004 245,000 - N/A 345,837 225,780 François de Varenne 350,000 259,000 3,434 N/A 350,000 197,638 (*) The compensation is paid in CHF, the exchange rate used is: 1 EUR = 1,5123 CHF (**) This amount includes an expatriation premium related to fiscal year 2008. (***) This amount includes an expatriation premium related to fiscal year 2007 and paid in 2008. (****) Those allowances cover business expenses
The following table presents the components of the actual gross compensation paid in 2009, 2008 and 2007 to the members of the Executive Committee (other than the Chairman and Chief Executive Officer).
Norbert Pyhel 350,004 225,780 - 575,784 345,837 216,000 François de Varenne 350,000 197,638 3,434 551,073 350,000 224,000 (*) The compensation is paid in CHF, the exchange rate used is: 1 EUR = 1,5123 CHF (the exchange rate of reference for the DDR). (**) This amount includes an expatriation premium related to fiscal year 2009. (***)This amount includes an expatriation premium related to fiscal year 2008 and an expatriation premium related to fiscal year 2009. (****) This amount includes an expatriation premium related to fiscal year 2008. (*****) This amount includes an expatriation premium related to fiscal year 2007 and paid in 2008. (******) Those allowances cover business expenses
The benefits in kind and insurance services granted to the Chairman and Chief Executive Officer and to the Chief Operating Officer are presented in Appendix B - Report of the Chairman of the Board of Directors on the terms and conditions for preparing and organising the work of the Board of Directors and on internal control procedures in compliance with Article L. 225-37 of the French Commercial Code.
For details on stock options and shares granted to members of the Executive Committee, refer to Sections 17.2.2 - Stock options held by members of the Executive Committee and other company officers as of 31 December 2009 and 17.2.3 – Free allocation of shares to COMEX members and other company officers as of 31 December 2009.
15.2 Total amounts set aside or accrued to provide pension, retirement, or similar benefits for financial year 2009 Like all senior executives in France having joined the Group before June 20088, French COMEX members are entitled to a guaranteed capped pension plan conditioned on a minimum 5 years length of service with the Group, the payment of which is based on their average compensation over the last five years.
8 This pension scheme was frozen on June 2008 and concerns only a limited number of executives in France.
Chairman of the Board of Directors and Chief Executive Officer 2011 (*) 4 November 2002 NA
Voting Director) NA (*) At the end of the Ordinary Annual General Shareholder’s Meeting taking place during the indicated year (10) Cooptation with ratification voted on by the Ordinary General Shareholders’ Meeting of 7 May 2008. (11) Cooptation with ratification voted on by the Joint General Shareholders’ Meeting of 12 May 1997.
16.2 Information on service contracts of members of administrative and management bodies To our knowledge, there are no service agreements involving the members of the administrative or senior management bodies and the Company or one of its subsidiaries providing for benefits upon termination of such agreement.
17.1 page 139 Number of employees 17.2 page 140 Information on shareholdings and stock options or Company stock purchases by members of Administrative and Management bodies 17.3 page 145 Plans providing employee participation in Company 17.4 page 150 Defined pension schemes
17.1 Number of employees The total number of employees increased from 1770 as of 31 December 2008 to 1,790 as of 31 December 2009. The distribution of personnel is uniform over the various geographical areas to meet strategic principles of the Group.
The following table shows the distribution of employees by geographic area and by entity (1): Distribution by geographic region
(2) SCOR Global Investments (100% subsidiary of SCOR SE) was created in February 2009 with the transfer of the employees dedicated to asset management.
(4) SCOR Global Life SE controls 100% of the capital of ReMark. Remark acquired ESG in May 2009.Due to its specific activity, ReMark is managed independently from the Group in terms of human resources.
Mr. Denis Kessler 246,040 Mr. Carlo Acutis 12,000 Mr. Gérard Andreck 583 Mr. Antonio Borgès 1,500 Mr. Allan Chapin 1,000 M. Peter Eckert 400 Mr. Daniel Havis 2,000 Mr. Daniel Lebègue 1,456 Mr. André Lévy Lang 19,373 Guillaume Sarkozy, representing Médéric Prévoyance9 0 Mr. Luc Rougé 1 Mr. Herbert Schimetschek 2,388 Mr. Jean-Claude Seys 8,847 Mr. Claude Tendil 2,000 Mr. Daniel Valot 4,529
17.2.2 STOCK OPTIONS HELD BY THE MEMBERS10 OF THE EXECUTIVE COMMITTEE AND OTHER COMPANY OFFICERS AS OF 31 DECEMBER 2009
Potential transaction volume (EUR) Exercise period 02/28/2007 to 02/27/2013 09/13/2011 to 09/12/2017 09/13/2011 to 09/12/2017 10 Julien Carmona is member of the Executive Committee since January 1, 2010 as Group Chief Operating Officer and is not included in those tables which relate the previous years. He joined the Goup on October 20, 2009 as Chairman Special Advisor.
Number of stock options underlying shares Date of plans Price (EUR)
TOTAL 126,000 2,289,160 François de Varenne - 7,308 09/16/2005 15.90 116,197 09/16/2009 to 09/15/2015
Number of stock options underlying shares granted during the financial year by the issuer and by any company included in the option distribution scope to ten employees of the issuer and of any company included in such scope, whose number of options thus purchased or subscribed is the highest (aggregate information )
The table below presents the share allocation plans awarded to the members of the Executive Committee on 31 December 2009: Plan Share award rights
The General Shareholders’ meeting of 7 May 2008, in its nineteenth resolution, authorises the Board of Directors under the provisions of Articles L.225-177 to L.225-185 of the Commercial Code, to grant on the proposal of the Compensation and Nominations Committee, on one or more occasions for the benefit of members of staff and the corporate officers, of the Company and companies or groups linked to it in terms of Article L.225-180 of the Commercial Code, options entitling to the subscription of new ordinary shares of the Company in issue as to increase its capital, as well as options entitling to purchase shares of the Company from acquisitions made by it as provided by law within the limits of a number of options giving right to a maximum of three million (3,000,000) of shares.
Following the upgrade from “A-“ to “A” by the Standard & Poors’ rating agency, the Board of Directors of 16 March 2009, on the proposal of the Compensation and Nominations Committee of 13 March 2009, decided to allocate stock options to Partners and to the Chairman and Chief Executive Officer.
The Board of Directors of 16 March 2009 allocated, on 23 March 2009, 1,403,500 stock options on the basis of the authorisation of the Shareholders meeting of 7 May 2008 in its nineteenth resolution.
The exercise of options is conditioned, in addition to the presence conditions, by three out of the four conditions outlined below: 1. The S&P financial strength rating must be “A” in 2009 and 2010; 2. SCOR Global P&C’s combined ratio must be less than or equal to 102% on average in 2009 and 2010; 3. The growth of SCOR Global Life’s embedded value must be higher than or equal to 3% in 2009 and 2010; 4. The SCOR group’s ROE for the financial years ending 31 December 2009 and 31 December 2010 must be higher than 300 points above the risk-free rate on average.
Following the authorisation of the Shareholders meeting of 15 April 2009 in its twenty-second resolution, the Board of Directors of the same day decided to grant stock options to some employees that hired in a position of Executive Global Partner or Senior Global Partner after 15 April 2009. Following this decision, 88,500 stock options were allocated to 17 employees on 25 November 2009.
Those options can be exercised at the earliest 4 years after the grant date, if the presence condition is respected. The exercise price is calculated in accordance with current legislation and is based on the weighted average of the opening date of the 20 trading days preceding the decision to award the stock options.
On 7 May 2008, in its twentieth resolution, the Shareholders’ Meeting authorised the Company’s Board of Directors to make, on one or more occasions, to the employees and directors and officers defined by law, or to some of them, of the Company and of companies or groups affiliated with it pursuant to Article L. 225-197-2 of the French Commercial Code, free allotments of existing or yet-to-be-issued shares of the Company and resolved that the Board of Directors of the Company would determine the identity of the beneficiaries of the allotment and the conditions and criteria for the allotment of the shares.
The Shareholders’ Meeting also decided that (i) the total number of free shares granted under this authorisation may not exceed 3,000,000 Shares of which 1,000,000 shares granted subject implementation of performance conditions set by the Board of directors on the proposal of the Compensation and Nominations Committee , (ii) the allocation of shares to their beneficiaries will be definitive only after a vesting period of a minimum set at two years for tax residents of France and a minimum of 4 years for beneficiaries not tax residents of France, (iii) the beneficiaries will be subject, where appropriate, an obligation to retain shares in a period of two years from the end of the vesting period for tax residents of France and that the retention period for beneficiaries not tax residents of France, and (iv) the Board of Directors of the Company will have the authority to increase the lengths of the acquisition period and the holding obligation period.
The Shareholders’ Meeting also decided that (i) the total number of free shares granted under this authorisation may not exceed 3,000,000 Shares of which 1,000,000 shares granted subject implementation of performance conditions set by the Board of directors on the proposal of the Compensation and Nominations Committee , (ii) the allocation of shares to their beneficiaries will be definitive only after a vesting period of a minimum set at two years for tax residents of France and a minimum of 4 years for beneficiaries not tax residents of France, (iii) the beneficiaries will be subject, where appropriate, an obligation to retain shares in a period of two years from the end of the vesting period for tax residents of
France and that the retention period for beneficiaries not tax residents of France, and (iv) the Board of Directors of the Company will have the authority to increase the lengths of the acquisition period and the holding obligation period.
This authorisation is given for a period of eighteen months from 15 April 2009.
16 March and 15 April 2009 free shares and performance shares
The Board of Directors of 16 March 2009, on the basis of the authorisation of the Shareholders meeting of 7 Mai 2008, in its twenty-second resolution, decides to allocate 125,000 performance shares to the Chairman and Chief Executive Officer, 314,000 free shares or performance shares to the other members of the Executive Committee and 854,800 free shares or performance shares to the other Partners of the Company. The Board of Directors of 15 April 2009, on the basis of the authorisation of the Shareholders meeting of the same day, in its twenty-third resolution, decides to allocate 116,000 free shares or performance shares to some employees of the Company.
All the allocation to the Chairman and Chief Executive Officer and half of the allocations to the other beneficiaries (including the other members of the Executive Committee), are submitted to the same performance conditions as those decided for the 23 March 2009 Plan (for the description of the performance conditions, refer to 17.3.1 – Stock option plan – Specific allocation of stock options).
Requirement of presence at the company as of 15 August 2010
From 26 August 2008 to 26 August 26, included / No holding period
During the exercise 2009, the rights converted into non-cost shares by the ten employees of the Company and of any company included in its consolidation whose number of shares thus obtained is the highest represent 277,500 shares. Those rights concerned the Free Share Plan of 24 May 2007 whose transfer occurred on 24 May 2009 for the tax residents of France.
A new authorisation of the Board of Directors as regards to the allocation of free shares, replacing the authorisation of the Shareholders meeting of 15 April 2009 in its twenty-third resolution, will be submitted to the approval of the next shareholders meeting.
On 7 May 2008, the Combined Shareholders’ Meeting of the Company delegated its authority to the Company’s Board of Directors in order to increase the share capital by issuing shares reserved for employees of the company and of French and foreign companies affiliated with it pursuant to Article L. 225-180 of the French Commercial Code, who are participants in savings plans and/or any mutual funds, eliminating the pre-emptive right they have. This new authorisation replaces the authorisation granted by the General Shareholders’ Assembly of 24 May 2007.
As of the date of the Registration Document, the Company’s Board of Directors has not exercised this authorisation to increase the share capital by the issuance of shares reserved for the members of savings plans (plans d’épargne), with cancellation of the preferential subscription right to the benefit of such members. This authorisation was granted for a period of twenty six months as of the date of the Combined Shareholders’ Meeting on 15 April 2009.
17.4 Defined pension schemes Several defined contributions and benefits pensions schemes are settled in the Group.
Lump sum benefit, equal to the accrued savings account balance, but at least equal to the sum of the employee contributions.
COMEX members benefit from collective pension plans that are in place in their own entity and do not have any specific scheme.
The amount of annual benefit is paid at Normal Retirement Date in monthly instalments for life is 46% of Average Monthly Compensation, multiplied by a fraction, not exceed 1 and based on seniority upon retirement
The pension is equal to 1/60th of Final Pensionable Salary for each year of membership of the scheme up to Normal Retirement Date
Patinex AG (2) 14,000,000 7.56% 7.84% Alecta Kapitalförvaltning AB (2) 12,500,000 6.75% 7.00% BlackRock Fund Advisors (formerly Barclays Global) (2) 8,705,200 4.70% 4.87% Groupe Malakoff (2) 5,529,100 2.99% 3.10% Générali Investments France S.A. (2) 4,191,600 2.26% 2.35% Amundi Asset Management (2) 3,908,300 2.11% 2.19% LSV Asset Management (2) 3,889,100 2.10% 2.18% Treasury shares 6,599,717 3.56% 0.00% Employees 2,661,700 1.44% 1.49% Others 124,950,397 67.46% 69.96% TOTAL 185,213,031 100.00% 100.00% (1) The percentage of voting rights is determined on the basis of the number of shares at closure, excluding the company’s own treasury shares. (2) Source: TPI and Ipreo.
To the Company’s knowledge, there was no other shareholder than those indicated in the table above holding more than 2.5 % of the share capital or voting rights of the Company as at 31 December 2009.
Share capital structure and voting rights in the Company to the knowledge of SCOR on the basis of a study of identifiable share (titres aux porteurs identifiables – TPI) conducted by the Company as at 31 December 2008: As at 31 December 2008 Number of shares % of capital % voting rights (1)
The Company regularly conducts TPI searches to find out the number and identity of its bearer shareholders. The results of those analyses are presented in the following table: TPI Date January
On 26 January 2007, HSBC Bank Plc, which is controlled by HSBC Holdings Plc, declared that it had exceeded on 22 January 2007, (i) directly and indirectly through the company HSBC Financial Products, on 22 January 2007, as the result of an off-market acquisition of stock, the thresholds of 5% of the capital and voting rights of SCOR, and held directly and indirectly 9,097,266 shares representing 90,972,660 voting rights, which is 7.68% of the capital and voting rights in SCOR, (ii) that it exceeded on 22 January 2007, directly and indirectly through the company HSBC Financial Products, on 22 January 2007, as the result of an off-market acquisition of stock, the thresholds of 5% of the capital and voting rights of SCOR, and held directly and indirectly 9,097,266 shares representing 90,972,660 voting rights, which is 7.68% of the capital and voting rights in SCOR, and that, on 22 January 2007, it had dropped (iii) directly or indirectly through HSBC Financial Products, following a stock placement with qualified investors, below the thresholds of 5% of the capital and voting rights in SCOR, and that it held directly or indirectly 2,810,388 shares representing 28,103,880 voting rights, i.e., 2.37% of the capital and voting rights in SCOR.
On 26 January 2007, UBS AG declared that it had (i) exceeded on 22 January 2007, directly or indirectly through UBS Securities LLC, following an acquisition of stock, the thresholds of 5% of the capital and voting rights in the SCOR company, and that it held directly or indirectly 9,544,987 shares representing 95,449,870 voting rights, or 8.06 % of the capital and voting rights in SCOR and that, on 22 January 2007, (ii) it dropped, directly or indirectly through UBS Securities LLC, following a placement of shares with qualified investors, below the thresholds of 5% of the capital and voting rights in SCOR, and that it held directly or indirectly 3,055,663 shares representing 30,556,630 voting rights, or 2.58% of the capital and voting rights in SCOR.
On 2 July 2007, Morgan Stanley & Co. International Plc, which is controlled by Morgan Stanley, declared that, on 27 June 2007, it had exceeded the thresholds of 5% of the capital and voting rights in SCOR and that it held 6,954,285 shares representing 69,233,910 voting rights, or 5.10% of the capital and voting rights of SCOR.
On 12 July 2007, Morgan Stanley & Co. International Plc, which is controlled by Morgan Stanley, declared that, (i) on 9 July 2007, it had dropped below the thresholds of 5% of the capital and voting rights in SCOR and that it held 6,721,121 shares representing 67,211,210 voting rights, or 4.93% of the capital and voting rights of SCOR and that (ii) on 11 July 2007, it had exceeded the thresholds of 5% of the capital and voting rights in SCOR and that it held 6,923,391 shares representing 69,233,910 voting rights or 5.08% of the capital and voting rights in SCOR.
On 28 October 2008, Malakoff Médéric declared that, on 24 October 2008, it had exceeded the registered thresholds of 2.5% of the capital and voting rights in SCOR and that it held 5,258,103 shares representing 52,581,030 voting rights, or 2.86 % of the capital and 2.98% of voting rights in SCOR.
On 26 November 2008, Malakoff Médéric declared that, on 19 November 2008, it had exceeded the registered thresholds of 3 % of the capital and voting rights in SCOR and that it held 5,529,075 shares representing 55,290,750 voting rights, or 3% of the capital and 3.09 % of voting rights in SCOR.
On 8 December 2008, Silchester International Investors Limited declared that it had exceeded the registered thresholds of 3 % of the capital and voting rights in SCOR and that it held 6,336,360 shares representing 63,363,600 voting rights, or 3.44% of the capital and 3.44 % of voting rights in SCOR.
On 10 December 2008, Edmond de Rothschild Asset Management declared it had fallen below the registered thresholds of 2.5 % of the capital and voting rights in SCOR and that it holds 4,398,813 shares representing 43,988,130 voting rights, or 2.39 % of the capital and 2.45 % of voting rights in SCOR.
On 6 April 2009, BNP Paribas declared that, on 6 April 2009, it had exceeded the registered thresholds of 2.5% of the capital and voting rights in SCOR and that it held, on behalf of its clients, 8,154,783 shares representing 8,154,783 voting rights, or 4.43% of the capital and 4.56 % of voting rights in SCOR.
On 20 May 2009, Natixis Asset Management declared that, on 11 May 2009, it had exceeded the registered thresholds of 2.5% of the capital and voting rights in SCOR and that it held, on behalf of its clients, 5,889,078 shares representing 5,889,078 voting rights, or 3.20% of the capital and 3.28 % of voting rights in SCOR and, on 3 July 2009, Natixis Asset Management declared that, on 30 June 2009, it had fallen below the registered thresholds of 2.5% of the capital and voting rights in SCOR and that it held 2,054,851 shares representing 2,054,851 voting rights, or 1.12% of the capital and 1.14 % of voting rights in SCOR.
As at 31 December 2009: SCOR held 6,599,717 treasury shares; The total number of voting rights amounted to 185,213,031 (including the voting rights attached to treasury shares).
19.1 Related party transactions entered into in 2009 as defined by articles L. 225 – 38 et seq. of the French commercial code
Authorisation to execute an engagement letter between SCOR SE and BNP Paribas
This agreement was not concluded in 2009 and did not give rise to any payment in 2009.
The amendment to the Facility Agreement was not signed in 2009.
At its meeting of 3 March 2009, the Company’s Board of Directors authorised, pursuant to Article L. 225-38 of the French Commercial Code, the parent company guarantee’s signature for the reinsurance commitments of SCOR Global Life Re Insurance Company of Texas.
Authorisation prior to the signature of a cash-pooling contract with BNP Paribas
This agreement between SCOR and BNP Paribas was signed on 20 October 2008. It gave rise to the payment by SCOR SE to BNP Paribas of non material amounts.
This agreement gave rise to the payment by SCOR SE to BNP Paribas of non material amounts.
Remuneration of the parent company guarantee conferred by SCOR SE to the benefit of the reinsurance subsidiaries, pursuant to the insurance and reinsurance contracts finalised by the latter.
At its meeting of 18 March 2008, the company’s Board of Directors authorised, pursuant to Article L. 225-38 of the French Commercial Code, the payment of existing parent company guarantees, drawn up by SCOR SE or of those which could be drawn up in accordance with the agreement granted by the Board of Directors of 28 August 2007, at a rate of 1 for one thousand, based on the amount of the Company’s shareholder’s equity, of which the agreements are guaranteed from the 1st January 2008.
The concerned subsidiaries are as follows: In Europe: SCOR Global Life SE; SCOR Global P&C SE; Irish Reinsurance Partners Ltd (which became SCOR Global P&C Ireland Ltd); SCOR Channel; SCOR Financial Services Ltd; SCOR U.K. Company Ltd; In the United States and Canada: SCOR Reinsurance Company Ltd (US); General Security Indemnity Company of Arizona; General Security National Insurance Company; Investors Insurance Corporation; SCOR Global Life U.S. Re Insurance Company; SCOR Canada Reinsurance Company; Commercial Risk Re-Insurance Company.
At its meeting of 18 March 2008, the Company’s Board of Directors authorised, conforming to the article L.225-38 of the French Commercial Code, the signature of the company’s supplementary pension scheme which has been signed on 15 May 2008.
The companies parties to this agreement are SCOR SE, SCOR Global P&C SE and SCOR Global Life SE. The other companies within the Group could equally benefit from this agreement with approval of BNP Paribas.
At its meeting of 13 November 2008, the Company’s Board of Directors authorised, pursuant to Article L. 225-38 of the French Commercial Code, the signature by SCOR SE, with regard to a contemplated acquisition (the “Operation”) of the engagement letter with the Corporate Finance Department of BNP Paribas (the “Financial Advisor”).
The role assigned under this commission to the Financial Advisor consisted generally of assisting SCOR SE in all phases of negotiations with the shareholders of the company in which the Transaction was planned, its corporate officers and executives, and providing assistance in all phases of the Transaction until it was concluded.
At its meeting of 13 November 2008, the Company’s Board of Directors authorised, pursuant to Article L. 225-38 of the French Commercial Code, the signature by SCOR SE, with regard to the issuance of catastrophe bonds by Atlas V, a special purpose vehicle incorporated in Ireland, the purpose of which is to provide USD 200 million in additional retrocession coverage for SCOR SE and its subsidiaries (the “Operation”) of the engagement letter as joint-book runner and joint lead manager with the London branch of BNP Paribas (the “Financial Advisor”).
This agreement has been concluded on 19 December 2008 and gave rise to the payment of EUR USD 512,000 in 2009.
Parent company guarantee from SCOR SE in favour of Prévoyance Ré for reinsurance commitments
At its meeting of 13 November 2008, the Company’s Board of Directors authorised, pursuant to Article L. 225-38 of the French Commercial Code, the signature of a parent company guarantee by SCOR SE for the reinsurance commitments of Prévoyance Ré.
Only Prévoyance Ré’s commitments, pursuant to the insurance and/or reinsurance contracts, are covered by this parent guarantee.
Parent company guarantee from SCOR SE in favour of SCOR Perestrakhovaniye for reinsurance commitments
At its meeting of 13 November 2008, the Company’s Board of Directors authorised, pursuant to Article L. 225-38 of the French Commercial Code, the signature of a parent company guarantee by SCOR SE for the reinsurance commitments of SCOR Perestrakhovaniye.
The signature of the retrocession framework agreement between SCOR and SCOR Global Life (then named SCOR Vie) was authorised by the Board on 16 May 2006, pursuant to the provisions of Article L.225-38 of the French Commercial Code. The contract was signed on 4 July 2006 with retroactive effect on 1st January 2006.
On 25 July 2007, SCOR Global Life adopted the form of Societas Europaea (SE) at the time of the merger absorption of its wholly owned subsidiary SCOR Global Life Rückversicherung AG (formerly named Revios Rückversicherung AG).
In order to optimise the balance in the balance sheet of the new company SCOR Global Life SE, it has been decided to modify the scope of the internal retrocession agreement with SCOR SE (termination of the agreement in Singapore and in Canada).
On 15 April 2009, for these same reasons and taking into account the 2008 UK reorganisation, i.e.: the creation of a branch of SCOR Global Life SE in London and the business transfer from SCOR Global Life Reinsurance UK Ltd to this branch, the Board of Directors approved a new addendum to the retrocession agreement to exclude the business written by the newly created branch in London of the scope of the retrocession agreement.
This agreement gave rise to the payment of EUR 2.32 million to SCOR SE in 2009.
On 3 August 2007, SCOR Global Life adopted the form of Societas Europaea (SE) at the time of the merger absorption of its wholly owned subsidiaries SCOR Italia Riassicurazioni SpA and SCOR Deutschland.
The Board of Directors of SCOR SE, at its meeting of 13 November 2007, authorised and approved, pursuant to Article L.225-38 of the French Commercial Code, the signature of the amendments to the retrocession agreement signed by SCOR SE and its subsidiary Global P&C SE on 4 July 2006.
On 15 of April 2009, for these same reasons and taking into account the 2009 UK reorganisation, i.e.: the creation of a branch of SCOR Global P&C SE in London and the business transfer from SCOR UK Company Ltd to this branch, the Board of Directors approved a new addendum to the retrocession agreement to exclude the business written by the newly created branch in London of the scope of the retrocession agreement.
This agreement gave rise to the payment of EUR 101.65 million to SCOR SE in 2009.
At its meeting of 2 November 2005, the Board of Directors of the Company authorised, pursuant to Article L.225-38 of the French Commercial Code, the issuance of a parent company letter of guarantee intended to cover the financial obligations of SCOR Global Life (formerly SCOR VIE) under the terms of an agreement to issue letters of credit that would be signed by SCOR Global Life, SCOR Financial Services Limited (“SFS”) and CALYON (“SFS-CALYON Letter of Credit Facility Agreement”) dated 13 December 2005 (for the purposes of this Section, the “Agreement”).
This Agreement and this parent company guarantee were part of a transaction intended to provide SCOR Global Life U.S. Re (“SGLR”) with additional financial resources so that it could meet the financial coverage requirements stipulated by the American “Triple X” prudential regulations.
Related-party agreements and commitments during the financial year: Pursuant to Article L. 225-40 article of the French Commercial Code, we have been advised of the agreements and commitments that received prior authorization from your Board of Directors.
At its meeting of 29 July 2009, the Company’s Board of Directors authorised, pursuant to Article L. 225-38 of the French Commercial Code, the signature by SCOR SE, of an amendment to the opening contract for accessible credit through the issue of a credit letter (“Letter of Credit Facility Agreement”) concluded on 23 December 2008 with BNP Paribas, in order to exclude SCOR Rückversicherung AG from the scope of the contract.
Parent company guarantee from SCOR SE in favour of SCOR Global Life Re Insurance Company of Texas for reinsurance commitments
Only SCOR Global Life Re Insurance Company of Texas’ commitments, pursuant to the insurance and/or reinsurance contracts, are covered by this parent guarantee.
Agreements approved during previous financial periods, the enforcement of which continued or ended during the year: Moreover, pursuant to the French Commercial Code, we have been advised that the following agreements and commitments, approved in previous years, were continued for the last year: Authorization prior to the signature of a cash-pooling contract with BNP Paribas
The Board of Directors’ meeting held on the 18 March 2008 and 26 August 2008 authorised the signature by its Chief Executive Officer, pursuant to Article L.225-38 of the French Commercial Code, with the power of delegation, the conclusion of legal documentation relating to the notional cash-pooling agreement and in particular, the Intragroup Cash Management Agreement contract signed on 20 October 2008, by which participating companies give the power to SCOR SE for the management of cash-pooling.
The parent company guarantee granted by SCOR SE to the benefit of the reinsurance subsidiaries, pursuant to the insurance and reinsurance contracts finalised by the latter.
At its meeting of 18 March 2008, the company’s Board of Directors authorised, pursuant to Article L. 225-38 of the French Commercial Code, the payment of existing parent company guarantees, drawn up by SCOR SE or of those which could be drawn up in accordance with the agreement granted by the Board of Directors of 28 August 2007, at a rate of 1 for one thousand, based on the amount of the Company’s shareholder’s equity, of which the agreements are guaranteed from the 1 January 2008. The concerned subsidiaries are as follows: In Europe: SCOR Global Life, SCOR Global P&C, Irish Reinsurance Partners Ltd, SCOR Channel, SCOR Financial Services Ltd, SCOR U.K. Co. Ltd.
At its meeting of 26 August 2008, the Company’s Board of Directors authorised, pursuant to Article L. 225-38 of the French Commercial Code, the signature of the agreement, finalised with BNP Paribas, for the issue of stand-by letters of credit, with regard to the Group’s insurance and reinsurance activity for a maximum amount up to US$ 400.000.000.
The companies parties to this agreement are SCOR SE, SCOR Global P&C SE and SCOR Global Life SE. The other companies within the Group could equally benefit from this agreement.
This agreement has been concluded on 19 December 2008 and gave rise to a payment of EUR 512 000 in 2009.
Parent company guarantee from SCOR SE to the benefit of Prévoyance Ré for reinsurance commitments
At its meeting of 13 November 2008, the Company’s Board of Directors authorised, pursuant to Article L. 225-38 of the French Commercial Code, the parent company guarantee’s signature by SCOR SE for the reinsurance engagements of SCOR Africa Ltd.
Parent company guarantee from SCOR SE to the benefit of SCOR Perestrakhovaniye for reinsurance commitments
Only SCOR Perestrakhovaniye’s engagements, pursuant to the insurance and/or reinsurance contracts, are covered by this parent guarantee.
At its meeting of November 13, 2007, the Board of Directors of the Company authorized and approved, pursuant to Article L. 225-38 of the French Commercial Code, the signature of the amendments to the retrocession contracts signed by SCOR and its subsidiaries SCOR Global Life SE and Global P&C SE on July 4, 2006.
In 2006, at the time of the SCOR SE spin-off its Non-Life reinsurance operations to SCOR Global P&C SE, SCOR SE was reorganized for better visibility and SCOR SE remained a reinsurance company because of the retrocessions established between SCOR Global Life SE and SCOR Global P&C SE as the retroceding companies, and SCOR SE as the retrocessionaire.
At its meeting of November 2, 2005, the Board of Directors of the Company authorized, pursuant to Article L.225-38 of the French Commercial Code, the issuance of a parent company letter of guarantee intended to cover the financial obligations of SCOR Global Life (formerly SCOR VIE) under the terms of an agreement to issue letters of credit that would be signed by SCOR Global Life, SCOR Financial Services Limited and CALYON (SFS-CALYON Letter of Credit Facility Agreement) dated December 13, 2005.
Financial information concerning the issuers’s assets and liabilities, financial position and profits and losses
FINANCIAL INFORMATION CONCERNING THE ISSUER’S ASSETS AND LIABILITIES, FINANCIAL POSITION AND PROFITS AND LOSSES
20.1 Historical financial information: consolidated financial statements In application of article 28 of the EC Commission Regulation No. 809/2004, the following information is incorporated by reference in this Registration Document: (i) The consolidated financial statements as at 31 December 2008 are included from pages 154 to 251 and the auditors’ report on these consolidated financial statements as at 31 December 2008 is included from pages 252 to 254 of the Registration Document filed with the Autorité des Marchés Financiers on 5 March 2009 under Number D. 09-0099,
The consolidated financial statements for the year ended 31 December 2009 are presented below: 20.1.1 CONSOLIDATED BALANCE SHEETS
Value of business acquired Note 4 551 607 Other intangible assets Note 4 80 70
Insurance business investments 18,644 16,982 Real estate investments Note 5 307 285 Available-for-sale investments Note 6 9,997 7,220 Investments at fair value through income Note 6 165 153 Loans and receivables Note 7 8,071 9,309 Derivative instruments Note 8 104 15
Other assets 5,054 4,972 Deferred tax assets Note 19 471 446 Assumed insurance and reinsurance accounts receivable Note 10 3,307 3,217 Receivables from ceded reinsurance transactions Note 10 116 113 Taxes receivable 37 85 Other assets 356 360 Deferred acquisition costs Note 11 767 751
Other liabilities 2,055 1,843 Deferred tax liabilities Note 19 251 215 Derivative instruments Note 8 9 10 Assumed insurance and reinsurance payables Note 10 377 140 Accounts payable on ceded reinsurance transactions Note 10 1,083 946 Taxes payable 89 192 Other liabilities 246 340
Gross written premiums Note 2 6,379 5,807 Change in unearned premiums (33) (48) Gross earned premiums 6,346 5,759
Financing expenses Note 14 (61) (61) Share in results of associates (1) 9 Negative Goodwill 14 6 Restructuring provision and charges, net of tax Note 23 - (28) Corporate income tax Note 19 47 44
COMPREHENSIVE INCOME, NET OF TAX 645 (84) (1) Certain comparatives figures have been revised to align with the presentation requirements of IAS 1 (revised).
Acquisitions of consolidated entities, net of cash acquired (43) (71) (Acquisitions)/disposals of real estate investments 73 6 (Acquisitions)/ disposals or reimbursements of other insurance business investments (1,064) (689) (Acquisitions)/ disposals of tangible and intangible assets (18) (15) Cash flows provided by (used in) investing activities (1,052) (769) Issuance of equity instrument 15 Treasury share transactions (42) (46) Dividends paid (143) (144) Cash generated by issuance of financial debt 57 35 Cash used to reimburse financial debt (129) (10) Interest paid on financial debt (27) (55) Cash flows generated by (used in) financing activities (269) (220)
Effect of change in foreign exchange rates on cash and cash equivalents 12 (59) TOTAL CASH FLOW (458) (269)
Cash and cash equivalents at 1 January Note 12 1,783 2,052 Net cash flows from operations 851 779 Net cash flows from investing activities (1,052) (769) Net cash flows from financing activities (269) (220) Effect of change in foreign exchange rates on cash and cash equivalents 12 (59)
Revaluation – Assets available for sale - - - (390) - - - (390)
Effect of change in foreign exchange rates - - (105) - - - - (105) Taxes recorded directly in or transferred to equity - - (33) 90 - - - 57 Actuarial losses not recognised in income - - (13) - - - - (13)
Effect of change in foreign exchange rates - - (21) - - - - (21) Taxes recorded directly in transferred to equity - - 6 (110) - - - (104) Actuarial losses not recognised in income - - (8) - - - - (8)
Total comprehensive income, net of tax - - 350 288 - - - 638
SCOR SE (“SCOR” or “the Company”) is a European Company (Societas Europaea) domiciled in France and governed by the provisions of French law relating to European Companies as well as by the French corporate law provisions applicable to 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 (formerly known as the SWX Swiss Exchange). The principle activities of the Company and its subsidiaries (“the Group”) are Life and Non-Life reinsurance.
The consolidated financial statements were presented by Group Management to the Audit Committee. The Management and the Audit Committee report to the Board of Directors, which approved the consolidated financial statements on 2 March 2010.
The consolidated financial statements will be presented for approval at the Annual General Meeting which will take place on 28 April 2010.
SCOR’s consolidated financial statements are prepared in accordance with International Financial Reporting Standards and interpretations as adopted by the European Union (“EU”) and effective at 31 December 2009.
In conformity with IAS 1, the Group has opted to present expenses by function in the income statement. The costs are allocated to four categories (acquisition and administrative expenses, claims settlement expenses, investment management expenses and other current operating expenses) based on allocation keys which are determined based on management’s judgment.
The Group’s investments in associated companies are recorded using the equity method. Associated entities are companies in which the Group exercises significant influence but not control. Significant influence generally occurs
The Group’s consolidated financial statements are presented in Euros (EUR) and all values are rounded to the nearest EUR million except where stated otherwise. The other key currencies in which the Group conducts business and the exchange rates used for the preparation of the 2009 financial statements are as follows: Currency Ending rate 2009 Average rate - 2009
The Group has adopted the following new and amended International Financial Reporting Standards and interpretations as adopted by the European Union as of 1 January 2009: IAS 1 (Revised) - Presentation of Financial Statements; IFRS 8 - Operating Segments; An amendment to IFRS 7 - Financial instruments: Disclosures; Amendment to IFRS 2 - Share-Based Payment; IFRIC 16 – Hedges of a net investment in a foreign operation; Improvements to International Financial Reporting Standards 2008; Amendment to IAS 23 - Borrowing Costs; and
The Group has also early adopted the following International Financial Reporting Standards and interpretations as adopted by the European Union as of 1 January 2009: IFRS 3 (Revised) - Business Combinations and related revisions to IAS 27 -Consolidated and Separate Financial Statements
The IASB issued revised IAS 1 “Presentation of Financial Statements” in September 2007, effective for annual periods beginning on or after 1 January 2009. The Standard separates owner and non-owner changes in equity as well as introduces a statement of comprehensive income. The SCOR Group has implemented this Standard for the annual period beginning 1 January 2009 and prior year information has been reclassified where necessary to comply with the current year presentation.
Revised IFRS 3 “Business Combinations” and related revisions to IAS 27 “Consolidated and Separate Financial Statements” published on 10 January 2008 and applicable for accounting periods beginning on or after 1 July 2009 represent the second phase of the IASB’s project to review the accounting treatment of business combinations. Revised IFRS 3 introduces certain changes in the accounting treatment of business combinations that may impact the amount of goodwill recognised, or the amount of profit in the acquisition period or in subsequent periods. In particular, the acquirer shall recognise, as an adjustment to income, changes in recognised deferred tax assets as from the date when the revised IFRS 3 is applied. The related revisions to IAS 27 require that a change in the interest held in a subsidiary must be accounted for as an equity transaction and no impact is recognised in goodwill or in profit. The revised standards also introduce changes in the accounting treatment of losses generated by subsidiaries and of the loss of control of a subsidiary. SCOR early adopted these revisions as from 1 January 2009.
An amendment to IFRS 7 “Financial instruments: Disclosures” was published in March 2009 and is applicable for annual accounting periods beginning on or after 1 January 2009. The aim of the proposed amendment is to enhance disclosures about fair value and liquidity risk. The IASB noted the urgent need for enhanced disclosures about financial instruments and strongly encouraged earlier application. The new requirements of the Standard have been applied for the preparation of the consolidated financial statements for the annual reporting period. The main changes presented within the consolidated financial statements on application of these amendments include a reconciliation between the opening and closing balances of investments at fair value determined using valuation techniques not (or partially) based on market data (level 3) and the disclosure of significant transfers between investments at fair value based on prices published in an active market (level 1) and those at fair value determined using valuation technique based on observable market data (level 2). SCOR has applied this amendment to disclosures for the current period, with no requirement to provide comparatives on transition.
IFRIC 16 – “Hedges of a net investment in a foreign operation” was issued in July 2008 to address the differing views of the risks eligible for hedge accounting purposes and to clarify which entity within a group could hold a hedging instrument in a hedge of a net investment in a foreign operation. Effective for annual periods beginning on or after 1 October 2008, on adoption this interpretation has not resulted in any material impact on the Group’s consolidated financial statements.
Amendment to IAS 23 “Borrowing Costs”, published on 29 March 2007 and applicable as from 1 January 2009, stipulates that borrowing costs must be capitalised and prohibits immediate expensing of borrowing costs. Financial assets measured at fair value are excluded from the scope of this Amendment. The application of this Amendment has not resulted in any material impact on the Group’s consolidated financial statements.
The following standards have been issued by International Financial Reporting Standards Board during the year but are not yet effective or have not been adopted by the European Union: IFRS 9 – “Financial Instruments” issued in November 2009 specifies how an entity should classify and measure financial assets, requiring all financial assets to be classified on the basis of the entity's business model for managing the financial assets and the contractual cash flow characteristics of the financial asset and subsequently measured at amortised cost or fair value. The current requirements aim to improve and simplify the approach for classification and measurement of financial assets compared with previous standards. This is applicable for annual periods beginning on or after January 2009, with a mandatory adoption date of 2013. This Standard has not yet been endorsed by the EU.
Amendments to IFRIC 14 – “Prepayments of a minimum funding requirement” interpretation issued in November 2009 sought to remove an unintended consequence arising from the treatment of prepayments in some circumstances when there is a minimum funding requirement. This interpretation is applicable for annual periods beginning on or after January 2011 (subject to EU endorsement) and is not expected to result in any material impact on the Group’s consolidated financial statements.
Amendments to IAS 24 – “Related party transactions” issued in November 2009 aims to simplify the definition of a related party, clarifying its intended meaning and eliminating inconsistencies from the definition. In addition it provides a partial exemption from the disclosure requirements for government-related entities. The Amendments are applicable for annual periods beginning on or after January 2011(subject to EU endorsement) and the impact of these Amendments is currently being assessed.
Unless stated otherwise, the improvements to International Financial Reporting Standards published on 12 July 2009 and applicable in part for annual periods beginning on or after 1 July 2009, comprise non-urgent, minor amendments to Standards. They are presented in a single document rather than as a series of isolated changes. They include both Amendments that result in accounting changes for presentation, recognition or measurement purposes, and Amendments that are terminology or editorial changes only, expected to have no or minimal effect on accounting. The application of these Amendments is not expected to result in any material impact on the Group’s consolidated financial statements.
Where the functional currency of an entity is not the same as the reporting currency used to present the Group’s consolidated financial statements, assets and liabilities of the entity are translated using the exchange rate at the balance sheet date and the income statement is translated using the average exchange rate for the period. Translation differences are recognised directly in shareholders’ equity as “translation adjustments”. Transactions denominated in foreign currencies (currencies other than the functional currency) are translated into the functional currency at the rate of exchange at the date of the transaction (for practical purposes, an average rate is used).
Intangible assets with finite lives are amortised over the expected useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for intangible assets with finite useful life are reviewed annually. Changes in the expected useful life or the expected pattern of future economic benefits are accounted for prospectively by changing the amortisation period or method as appropriate and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the income statement in the expense category consistent with the intangible asset.
Properties, including properties used by the Group, are recognised at cost, net of accumulated depreciation and impairment losses. Depreciation is recorded on a straight-line basis over the useful lives of the assets as follows: Category Useful life
Building structure and exterior 30 – 80 years Insulation 30 years Technical installations 20 years Fixtures and fittings 10 to 15 years
Investment properties acquired through financial lease agreements are recorded on the balance sheet as assets based on the present value of future rental payments and any purchase option. Subsequent to the initial recognition they are accounted for like investment properties at cost, net of accumulated depreciation and impairment losses.
Rental income from investment properties is recorded on a straight-line basis over the term of the current rental agreements.
The Group classifies its financial assets in the following categories: available for-sale, fair value through income, loans and other accounts receivable and derivative instruments. There are currently no assets classified as held-to-maturity. Sales and purchases of assets are recorded on the settlement date. Once it has been initially recorded, an asset is measured according to its asset category, determined according to the methods set forth below. Financial assets are derecognised when the contractual rights to the cash flow of the financial asset expire or are transferred, and when the Group has substantially transferred the risks and rewards inherent to the ownership of the financial asset.
Available-for-sale assets include non derivative assets that are either classified as available for sale or not allocated to another category. Available-for-sale financial assets are recorded at their fair value. Unrealised gains and losses and the respective foreign exchange resulting from variations in the fair value of a financial available-for-sale asset are recorded directly in shareholders’ equity.
Non-derivative financial assets, where payment is fixed or determinable and which are not listed on an active market, are also included within this category and these are recognised at amortised cost using the effective interest rate method.
Loans and accounts receivable include short-term deposits or investments with a maturity of more than three months at the date of purchase or deposit.
Loans and accounts receivable include a provision for recoverability if deemed necessary.
The Group has embedded derivatives included in its convertible debt securities. The option relating to the conversion into shares has been separated from the host borrowing contract and recognised separately in equity. It is not subsequently reassessed.
A material embedded derivative is separated from the host contract and is recognised as a derivative: when its economic features and risks are not closely linked to the economic features of the host contract; where the embedded instrument has the same conditions as a separate derivative instrument; and where the hybrid instrument is not assessed at fair value through the income statement.
Hedges of net investments in a foreign operation are recorded as follows: the portion of gains or loss on the hedging instrument considered as the effective portion of the hedge is recorded directly in shareholders’ equity; the ineffective portion of the hedge is recognised in the income statement.
The Group has certain investments which are valued based on models prepared by external third parties using market inputs. These primarily comprise structured products, other than agencies for which the market which is considered active, as well as hybrid, tier 1 and tier 2 corporate debt and hedge funds.
If, as a result of a change in intention or ability or in the circumstance that a reliable measure of fair value is no longer available, it becomes appropriate to carry a financial instrument at cost or amortised cost, then the last reliable fair value available is taken as the new cost or amortised cost, as applicable.
If an available for sale financial asset is impaired, the impairment is computed as the difference between the cost of the asset (net of any principle repayment and amortisation) and its current fair value, less any impairment previously recognised in the statement of income, is transferred from equity to the statement of income.
through the income statement if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment losses were recognised in the statement of income.
Restructuring costs other than those that may be recognised on the balance sheet of an acquired company on the acquisition date are recorded when the Group has a present obligation as evidenced by a binding sale agreement or a detailed formal restructuring plan of which the main features are announced to those affected or to their representatives.
Provisions are recognised when the Group has a present legal, contractual or constructive obligation as the result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Where the Group expects the provision to be reimbursed for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is probable.
Treasury shares and any directly related costs are recorded as a deduction from shareholders’ equity. When treasury shares are subsequently sold or reissued any consideration received is included in consolidated shareholders equity net of any directly related costs and tax effects. Accordingly there is no related income, gain or loss recognised in the income statement.
Basic earnings per share is calculated by dividing net income available to ordinary shareholders by the weighted average number of ordinary shares in issue during the year, excluding the average number of ordinary shares purchased by the Group and held as treasury shares.
For the diluted earnings per share the weighted average number of shares in issue is adjusted to assume conversion of all dilutive potential ordinary shares such as convertible debt and share options granted to directors and employees.
Subsequent events relate to events that occur between the balance sheet date and the date when the financial statements are approved for issue:
Assumed and ceded reinsurance transactions are those contracts that transfer significant insurance risk at the inception of the contract. Reinsurance risk is transferred when the Group agrees to compensate a cedant if a specified uncertain future event (other than a change in financial variable) adversely affects the cedant. Any contracts not meeting the definition of a reinsurance contract under IFRS 4 are classified as investment contracts or derivative contracts as appropriate.
The Group maintains reserves to cover its estimated ultimate liability for claims related to known events or events incurred but not yet reported (IBNR). The reserves are reviewed by management during the year, using new information as soon as it is available and the reserves are adjusted if necessary. Management considers many factors when establishing reserves, including: information from ceding companies; historical developments, such as reserve patterns, claims payments, number of claims to be paid and product mix; internal methods to analyse the Group’s experience; most recent legal interpretations concerning coverage and commitments; economic conditions; biometric developments such as mortality and morbidity and
For Life reinsurance contracts qualifying as “insurance contracts”, the estimation method consists of estimating ceding companies’ missing accounts for the current year in addition to information actually received and recorded.
In Non-Life reinsurance, SCOR is required to maintain its reserves at a sufficient level to cover the estimated amount of its direct commitments and adjustment expenses for reported and unreported claims, at the end of each fiscal year (net of estimates of recovery and subrogation). These reserves, which pertain to all incurred claims, whether reported or not
yet reported, are calculated on the basis of their ultimate cost, undiscounted, except for workers’ compensation claims which are discounted in the USA. Ultimate claims expense is estimated using statistical experience for similar policies. Claim reserves including estimated claims paid are calculated based on expected earnings and supplement the information communicated by ceding companies.
The amount of recoverable is reduced in the form of a bad debt provision when there is an event arising that provides objective evidence that the Group may not receive all amounts due under the contract and the event has a reliably measurable impact on the expected amount that will be recovered from the reinsurer.
Impairment of shadow DAC and shadow VOBA for the life business is included within the liability adequacy testing conducted by SCOR Global Life.
IFRS 4 provides for the separation of embedded derivatives in insurance contracts, particularly when these hybrid contracts are not assessed at fair value through income and when the features of the embedded derivatives are not closely linked with the features and risks of the host contract, and when the embedded derivative meets the definition of a derivative instrument. Embedded derivatives which meet the definition of an insurance contract are not separated. SCOR has identified no embedded derivatives in its contracts.
The employees of SCOR in Paris take benefit of an agreement “Indemnités de Fin de Carrière” signed as of 4 September 2001. This agreement has been cancelled as of 28 September 2009 and is valid until 31 December 2010. The lump sum defined benefit is granted to SCOR employees only if they are employed by SCOR at the date of their retirement and if they are eligible to the conditions stated in this agreement. A revisited agreement is being studied.
Provisions, contingent assets and contingent liabilities have also been assessed at the acquisition date for the entities acquired. Such positions are subject to revision as at the acquisition date whilst the initial accounting is not final. Any revision after the initial accounting is final is recognised in the income statement in accordance with IFRS 3 revised.
The current income tax charge 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 associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns. Assessing the outcome of uncertain tax positions requires judgements to be made regarding the result of negotiations with, and enquiries from, tax authorities in a number of jurisdictions. Provisions for tax contingencies require management to make judgements 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 settlement. Tax benefits are not recognised unless the tax positions are probable of being 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.
SCOR adopted IFRS as from 1st January 2005. In compliance with IFRS 1 “First-time adoption” certain standards may not have been retroactively applied. The first time implementation options applied on adoption of IFRS included: Business combination
SCOR opted not to restate business combinations prior to January 1, 2004, as permitted under IFRS 3. As permitted under IFRS 1, SCOR did not apply IAS 21 “Effects of Changes in Foreign Exchange Rates” retrospectively to goodwill resulting from business combinations that occurred before the transition to IFRS.
Translation adjustments relating to those subsidiary accounts with a differing functional currency to that of the Group, were transferred at January 1, 2004 into consolidated reserves. The new IFRS value of the translation adjustment at January 1, 2004 was therefore returned to zero. In the event of the subsequent disposal of these subsidiaries, the income or loss from the disposal will not include the recovery of exchange rate difference prior to January 1, but will include translation adjustments recorded after January 1, 2004.
For management purposes, the Group’s operations are organised into the following two business segments: SCOR Global P&C which refers to the activities included in and under the responsibility of the management of the SCOR Global P&C Division (also referred to as “Non-Life”) and SCOR Global Life which refers to all operations included in and under the responsibility of the SCOR Global Life Division (also referred to as “Life”). The Group underwrites different types of risks for each segment and responsibilities and reporting within the Group are established on the basis of this structure.
Each segment offers different products and services which are marketed via separate channels. The SCOR Global P&C segment is categorised into four product groups being: Property and Casualty Treaties; Specialty Treaties (including Credit & Surety, Ten-Year Inherent Defects Insurance, Aviation, Space, Marine, Engineering, Agriculture and Structured Risk Transfer); Business Solutions (facultative); and Joint Venture and Partnerships. The SCOR Global Life division offers products for: Life (treaties with mainly mortality risks); Financing reinsurance; Critical illness; Disability; Long term care; Annuities; Health; and Personal accident.
AS AT AND FOR THE YEAR ENDED In EUR million 31 December 2009 31 December 2008 (2)
Change in ceded unearned premiums (5) - - (5) 4 4 - 8
(1) Amounts presented above represent specific balance sheet line items reviewed by management at the segment level, as such some balance sheet items are excluded from this table.
Assets and liabilities by geographic zone are based on the location of the subsidiary.
The cash flows, by segment, are presented as follows: For the year ended 31 December 2009 2008
Cash and cash equivalents at 1 January 1,207 576 1,783 1,413 639 2,052 Net cash flows from operations 384 467 851 602 177 779 Net cash flows from investing activities (608) (444) (1,052) (543) (226) (769) Net cash flows from financing activities (239) (30) (269) (226) 6 (220)
Effect of changes in foreign exchange rates 8 4 12 (39) (20) (59) Cash and cash equivalents at 31 December 752 573 1,325 1,207 576 1'783 (1) Bank overdrafts have been reclassified within the Statement of Cash Flows from financial debt to cash and cash equivalent, net of overdrafts in line with the presentation within note 12. Comparative amounts have been updated to reflect this change in presentation.
The initial accounting of the business combination, included in the consolidated financial statements of the Group at 31 December 2009 has been determined on a provisional basis. This is due to the fact that for certain items including VOBA, contract liabilities and share of retrocessionaires in contract liabilities, the information necessary in order to make a final determination of fair value is still provisional.
Assets VOBA 20 Investments 35 Share of retrocessionaires in contract liabilities 7 Other assets 9 Cash and cash equivalents 6 TOTAL ASSETS 77
Fair value of net assets 44 Consideration 31 Negative goodwill 13
Included* Total* Gross written premiums - Life 26 2 28 Operating results 7 1 8 Corporate income tax 3 0 3 NET INCOME 4 1 5 * Only the period from 4 December to 31 December 2009 is included within the SCOR Group consolidated income statements for the year ended 31 December 2009.
On 31 July 2008, SCOR entered into an agreement with the Malakoff Médéric Group, the leading Group in the French social protection market, to acquire 100% of the share capital and voting rights of Prévoyance et Réassurance, i.e. 1,650,000 shares and voting rights, and its Life and Health reinsurance subsidiary, Prévoyance Ré, i.e. 850,000 shares and voting rights.
In addition, Malakoff Médéric Group, in accordance with its commitment, acquired on the market, as from November 2008, an additional number of SCOR shares enabling it to hold 3% of the share capital and voting rights of SCOR.
Prévoyance Ré’s primary clients consist of provident institutions and other mutual insurance organisations. Prévoyance Ré will continue to provide its clients with high-level services, whilst fully benefiting from SCOR’s recognised know-how in Life and Health.
SCOR acquired the 100% interest in Prévoyance Ré for EUR 40 million (EUR 39 million, excluding expenses) as follows: In EUR million Total
Open market purchases of 3,459,075 SCOR shares 53 Change in share price to 24 October 2008 (14) Fair value of SCOR shares at acquisition date 39 Expenses directly attributable to the acquisition 1 TOTAL CONSIDERATION AS AT 31 DECEMBER 2008 40
The value of business acquired (“VOBA”) has been estimated as EUR 16 million based on an estimate of expected future income and using a discount rate including an appropriate risk premium. This intangible asset will be amortised over the lifetime of the underlying treaties, in line with expected emergence of income.
Net book value at 1 January 2008 777 705 93 1,575
In order to estimate the fair value of SCOR Global P&C for the purpose of impairment testing, SCOR uses a discounted cash flow model comprised of an earnings model, which considers forecasted earnings, and other financial ratios of the reportable segment based on board approved business plans. Business plans include assessments of gross and net premium expectations, expected loss ratios and expected expense ratios over a 3 year time horizon together with actuarial assumptions such as the coefficient of variation on ultimate net reserves together with assumptions as to mean time to payment of existing reserves and future business. SCOR uses Euro risk free interest rates and the estimated SCOR Group cost of capital (9.06%) as derived from the Capital Asset Pricing Model (“CAPM”) for discounting purposes. SCOR also uses conservative growth rate assumptions in its valuation models.
For SCOR Global Life, goodwill is tested for impairment by analysis using inputs and the methodology that SCOR applies in calculating the Life Embedded Value. This approach utilises discount rates of between 1.6% and 4% depending on currency and duration and including an average risk margin of 3%.
As part of the impairment testing, SCOR assesses whether the current fair value of operating units is at least equal to the total carrying value of operating units (including goodwill). If it is determined that an impairment exists, the total carrying value is adjusted to current fair value. Any impairment charge is recorded in income in the period in which it is determined.
VOBA at 31 December 2009 and 2008 relates to the following acquisitions: For the year ended 31 December In EUR million 2009 2008
The IFRS 4 liability adequacy testing which includes VOBA recoverability, showed no indicators of impairment for the years ended 31 December 2009 or 2008. Shadow VOBA amounted to EUR 7 million and EUR 23 million at 31 December 2009 and 2008, respectively.