111.2. Information about the SCOR Group 1.3. 25Market and financial review
Corporate governance principles, shareholders’ meetings, corporate officers, executives, employees, information required by article L. 225-375 of the French Commercial Code 792.2. Executive compensation and share ownership 1172.3. Major shareholders and related party transactions Audit report on the corporate governance report
RISK FACTORS AND RISK MANAGEMENT MECHANISMS03 1303.1. Main risks Internal control and risk management procedures 1453.2.
Third-party information and statements by experts and declarations of any interest 2555.3.
NON-FINANCIAL PERFORMANCE DECLARATION06 257 2586.1. Business model 2636.2. Social impact of SCOR’s activity
Business conduct and Compliance 276Considerations of environmental and social issues in the Group’s activities 6.4.
APPENDIX F 352Correspondence table – delegated regulation (EC) of March 14, 2019
WHAT IS REINSURANCE Reinsurance is at the heart of risk management, it enables insurers to cover their risks by ceding part of them, in order to mutualize them worldwide. SCOR covers major Non-Life risks including large catastrophe risks (both natural and man-made catastrophes: hurricanes, floods, volcanic eruptions, explosions, fires, plane crashes, etc.), and Life biometric risks (mortality, longevity and lines, both long term and short term). The challenge for reinsurance professionals consists of identifying, selecting, assessing and pricing risks, in order to be able to absorb them.
In 2019, SCOR has delivered profitable growth, whilst absorbing the impact of a higher frequency and severity of natural catastrophe events that occurred for the third consecutive year. The Group has navigated 2019 successfully by continuing its franchise expansion, and by leveraging its balanced portfolio between Life and P&C while generating solid operating capital.
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P&C segment Life segment 5, 5, 8, 7, 6, 6, 8, 9, 7, 9,
6, 6, 6, 6, 6, 6, 5, * Excluding the impact of US tax reform.
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1.1.3. DIVIDEND DISTRIBUTION POLICY A resolution will be presented at the Annual Shareholders’ Meeting held during the first half of 2020, to approve the financial statements for the 2019 financial year, proposing the distribution of a dividend of EUR 1.80 per share for the financial year 2019.
Key figures and strategic plan SCOR GROUP01 9SCOR Universal Registration Document 2019
With “Quantum Leap”, SCOR sets equally weighted profitability and solvency targets that are ambitious in the current financial and economic environment: • a return on equity above 800 basis points above the five-year rolling average of five-year risk-free rates over the cycle; • an optimal solvency ratio in the 185-220% range (percentage of SCR, according to the internal model) (1).
Across this new strategic plan, SCOR also sets the following underlying assumptions: • SCOR Group: Gross written premium annual growth rate of ~4% to 7%, financial leverage of ~25%, Value of New Business (2) (VNB) annual growth rate of ~6% to 9%, cost ratio of ~5.0% and tax rate between ~20% to 24%; • SCOR Global P&C: Gross written premiums annual growth rate of ~4% to 8%, net combined ratio of ~95 to 96% and Value of New Business (2) (VNB) annual growth rate of ~6% to 9%; • SCOR Global Life: Gross written premiums annual growth rate of ~3% to 6%, net technical margin of ~7.2% to 7.4% and Value of New Business (2) (VNB) annual growth rate of ~6% to 9%; • SCOR Global Investments: Average annualized return on invested assets in the range of ~2.4% to 2.9% (3).
It also affirms the Group’s consistent shareholder compensation policy set by SCOR’s Board of Directors. SCOR aims to remunerate shareholders through cash dividends, and if relevant, does not exclude special dividends or share buy-backs.
• Step 4: Evaluate any excess capital for shareholder repatriation or future use.
Key figures and strategic plan SCOR GROUP01 10 SCOR Universal Registration Document 2019
It is specified that the information included in the Company's website is not part of this Universal Registration Document, unless such information is expressly incorporated by reference in this Universal Registration Document. In this respect, such information has not been reviewed or approved by the AMF.
Listing In 1989, the Company and UAP Réassurances, a subsidiary of the state-owned Société Centrale de l’Union des Assurances de Paris, combined their Non-Life and Life reinsurance businesses. Following a reverse merger with Compagnie Générale des Voitures, the Company listed its ordinary shares on the Paris stock exchange and changed its name to SCOR SA and to SCOR in 1996. In the same year, UAP Réassurances sold its 41% stake in SCOR through an IPO. SCOR’s American depositary shares were also listed on the New York stock exchange at that time. They were delisted in 2007 and the Company’s securities were deregistered with the US Securities and Exchange Commission (SEC) on September 4, 2007.
As at the date of this Universal Registration Document, SCOR SE’s shares are listed on the Eurolist of Euronext Paris SA and on the SIX Swiss Exchange (formerly SWX Swiss Exchange) in Zurich, where they were admitted for trading on August 8, 2007.
The ordinary shares are included on the following indices: SBF 120, SBF TOP 80 EW, CAC Next 20, CAC Large 60, CAC Large 60 EW, CAC All-Shares, CAC All Tradable, CAC Financials, Euronext FAS IAS, Euronext 100, Euronext France Next 40 EW, Euronext Europe Sustainable 100 EW, Euronext France Energy Transition Leaders 40, Euronext Vigeo® Eurozone 120, Ethibel® Sustainability Index Excellence Europe (ESI EXC Europe and ESI EXC Europe VM), SBFT 50 ESG EW, CAC® Large 60 Responsible Investment SW, Euronext Europe 500, Euronext Eurozone 300, Euronext Eurozone 150 EW, Euronext Eurozone Next 100 EW, Euronext Eurozone 100 ESG and Euronext Core Europe 100 ESG EW.
Information about the SCOR Group SCOR GROUP01 11SCOR Universal Registration Document 2019
Applicable laws and regulations General The Company was converted into a European Company (Societas Europaea) in 2007. As such, SCOR SE is governed by the provisions of Council Regulation (EC) No. 2157/2001 (the “SE Regulation”) and those of European Council Directive 2001/86/EC of October 8, 2001 supplementing the Statute for a European Company with regard to the involvement of employees, and by the provisions of French law relating to European Companies, as well as for all other matters partially covered or not covered by the SE Regulation, by French legal provisions applicable to sociétés anonymes, as far as that they are not contrary to the specific provisions applicable to European Companies.
The Group’s business units’ activities of insurance, reinsurance and asset management are subject to comprehensive regulation and supervision in each of the jurisdictions in which the Group operates. Given that the Group is headquartered in Paris (France), this supervision is based, to a significant extent, on European Union directives and on the French regulatory system. The Group’s principal regulators in France are the financial markets authority (Autorité des marchés financiers – AMF), and the French insurance and reinsurance regulator (Autorité de contrôle prudentiel et de résolution – ACPR). Although the scope and nature of regulations differ from country to country, most jurisdictions in which SCOR’s insurance and reinsurance subsidiaries operate have laws and regulations governing solvency standards, reserve levels, permitted types and concentrations of investments, and business conduct to be respected by insurance and reinsurance companies. The supervisory authorities with jurisdiction over the Group’s operations may conduct regular or unexpected examinations of the insurers’/ reinsurers’ or asset managers’ operations and accounts and request specific information from the insurer or reinsurer. Certain jurisdictions also require registration and periodic reporting by holding companies that control a licensed insurer or reinsurer. These holding company legislations typically require periodic disclosure concerning the corporate entity that controls the licensed insurer and other affiliated companies, including prior approval of transactions between the insurer, the reinsurer and other affiliated companies such as intragroup asset transfers and dividend payments by the authorized insurer or reinsurer. In general, these regulations are designed to protect the interests of insureds rather than shareholders.
Prudential regulations SCOR SE and its insurance and reinsurance subsidiaries are subject to regulatory capital requirements in the jurisdictions in which they operate, which are designed to monitor capital adequacy and to protect insureds. While the specific regulatory capital requirements (including the definition of admitted assets and methods of calculation) differ between jurisdictions, an insurance or reinsurance company’s required capital can be impacted by a wide variety of factors including business mix, product design, sales volume, invested assets, liabilities, reserves and movements in the capital markets, including interest rates and equity markets.
Data protection regulation The General Data Protection Regulation (GDPR) (EU 2016/679) of April 27, 2016, applicable since May 25, 2018, has updated the
principles of personal data processing within the European Union. The main objectives of the reform are (i) the strengthening of individuals’ rights in order to give them more control over their personal data and facilitate their access to it, (ii) a harmonization of the applicable laws within the European Union as well as a system of one-stop shop resulting in closer cooperation between the Data protection authorities, and finally (iii) a stricter application regime under which data protection authorities will be able to pronounce fines of up to 4% of the annual global turnover of a company infringing the European regulation. The Group has terminated in 2018 its project aiming to globally comply with the Regulation and is closely monitoring the various local regulations across the world that are currently being developed.
1.2.2. HISTORY AND DEVELOPMENT OF SCOR SCOR became a reinsurance company in 1970, at the initiative of the French government and with the participation of insurers on the Paris market, to create a reinsurance company of international stature under the name of Société Commerciale de Réassurance. SCOR group rapidly developed in various world markets, building up a substantial international portfolio.
Since then, SCOR has mainly carried out the following operations: • On November 21, 2006, SCOR completed the acquisition of Revios Rückversicherung AG (Revios), enabling it to become a leading worldwide Life reinsurer. Based in Cologne (Germany), Revios was the former Life reinsurance unit of Gerling Global Re Group and had successfully developed on a stand-alone basis from 2002 onward to become one of the leading European reinsurers specializing in Life reinsurance, with operations in 17 countries.
• In August 2007, SCOR acquired Converium (which became SCOR Holding (Switzerland) AG (SCOR Holding Switzerland)). SCOR’s shares were also admitted to trading in Swiss Francs on the SWX Swiss Exchange (which later became the SIX Swiss Exchange) in Zurich.
Information about the SCOR Group SCOR GROUP01 13SCOR Universal Registration Document 2019
Group operating companies The Group parent company whose stock is listed on the Euronext Paris regulated market is SCOR SE.
The Hub structure SCOR has structured its operations around three regional management platforms, or Hubs: the EMEA Hub, the Americas Hub and the Asia-Pacific Hub.
Each Hub has local, regional (1) and Group responsibilities, with the heads of each Hub reporting to the Group Chief Operating Officer, COO. Each Hub typically includes the following functions: Legal and Compliance, Information technology support, Finance, Human Resources and General Services. This organization enables: • SCOR’s operational structures and support functions to be optimized by creating service platforms in charge of managing pooled resources, including information technology, human resources, legal/compliance and others in the Group’s main locations; • several Group functions to be carried out and managed in geographical locations other than Paris in order to benefit fully from the competencies within different Hubs; and
The Hub structure is designed to facilitate access to local markets through a network of local subsidiaries, branches and representative offices, to better identify profit centers in each major reinsurance market, obtain a deeper understanding of the specific features of local risks and develop local management and underwriting expertise, and thereby improve customer service and maintain proximity relationships with ceding companies.
At December 31, 2019, the relevant ratings for the Company were as follows (2): Subordinated DebtSenior DebtFinancial Strength aA+ stable outlook aa-
Rating at “A+”. Fitch Ratings also affirmed the ratings of SCOR's core operating subsidiaries. The outlooks remain stable.
(1) EMEA Hub: European countries including Russia, Middle East and Africa; Asia-Pacific Hub: Asia and Australia; Americas Hub: North America and Latin America.
1.2.5. BUSINESS OVERVIEW Since 2002, SCOR has defined its strategy and principle orientations through the creation of seven successive plans: “Back on Track” (2002-2004), “Moving Forward” (2004-2007), “Dynamic Lift” (2007-2010), “Strong Momentum” (2010-2013), “Optimal Dynamics” (2013-2016), “Vision in Action” (2016-2019), and “Quantum Leap” (2019-2021). The success of its various plans, along with the Group’s acquisitions of Revios (in 2006), Converium (in 2007), Transamerica Re (in 2011) and Generali US (in 2013), has contributed to the diversification strategy by balancing the proportion of the consolidated premiums written between its Non-Life and Life segments and has enabled the Group to preserve both its solvency and its profitability.
SCOR’s risk appetite framework SCOR’s risk appetite framework is an integral part of the Group’s strategic plan. It is approved by the Board of Directors upon the review of a new strategic plan, based on recommendations from the Group’s Executive Committee and the Risk Committee of the Board of Directors. The Board of Directors may vary the amount and the composition of risk that the Group is prepared to take.
SCOR’s risk appetite framework encompasses four concepts: risk appetite, risk preferences, risk tolerances, and footprint scenarios.
In addition, reinsurers may also provide advisory services to ceding companies by: • helping them define their reinsurance needs and devise the most effective reinsurance program to better plan their capital needs and solvency margin; • supplying a wide panel of support services, particularly in terms of knowledge sharing, best practices and risk assessment, modeling and management tools; • providing expertise in certain highly specialized areas such as complex risk analysis and pricing; and
Types of reinsurance Treaty and facultative The two basic types of reinsurance arrangements are treaty and facultative reinsurance.
In facultative reinsurance, the ceding company cedes, and the reinsurer assumes all or part of the risks covered by a particular specified insurance policy or by insurance policies covering a specific ultimate group insured as part of the same program. Facultative reinsurance is negotiated separately for each insurance policy that is reinsured. Facultative reinsurance is normally purchased by ceding companies for individual risks not covered by their reinsurance treaties, for amounts in excess of the monetary limits of their reinsurance treaties or for unusual risks. Underwriting expenses and, in particular, personnel costs, are higher relative to premiums written on facultative business because each risk is individually underwritten and administered. The ability to separately evaluate each risk reinsured, however, increases the probability that the underwriter can price the contract more accurately to reflect the risks involved.
Excess of loss reinsurance is often written in layers. One or a group of reinsurers accepts a tranche or layer of risk above the ceding company’s retention up to a specified amount, at which point another reinsurer, or a group of reinsurers accepts the next layer of liability. The stacked layers protecting the same underlying portfolio are called a program, and after protection from the upper layer is exhausted liability reverts to the ceding company. The reinsurer taking on the risk immediately above the ceding company’s retention layer is said to write primary or working layer or low layer excess of loss reinsurance. A loss just above the ceding company’s retention will create a loss for the lower layer reinsurer, but not for the reinsurers on the higher layers. Loss activity in lower layer reinsurance tends to be more predictable than in higher layers due to greater historical frequency, and therefore, like quota share reinsurance, underwriters and actuaries have more data to price the underlying risks with greater confidence.
Breakdown of the Group’s business The Group is organized into three business units (SCOR Global P&C, SCOR Global Life and SCOR Global Investments), of which there are two reportable operating segments, and one corporate cost center referred to as “Group Functions”. The reportable operating segments are: the SCOR Global P&C business, which has responsibility for property and casualty insurance and reinsurance (also referred to in this Universal Registration Document as “NonLife ”); and the SCOR Global Life business, with responsibility for Life reinsurance (also referred to in this Universal Registration Document as “Life”). These two businesses represent SCOR's two “operating segments” for purposes of IFRS 8 – Operating segments, and are presented as such in its consolidated financial statements, included in Section 4. – Consolidated financial statements. Each operating segment underwrites different types of risks and offers different products and services, which are marketed via separate channels; responsibilities and reporting within the Group are established on the basis of this structure. SCOR Global Investments is the asset management business unit of the Group. Its role is complementary to the two operating segments as it manages SCOR Global P&C’s and SCOR Global Life’s investment assets associated with the contract liabilities. SCOR Global Investments also manages assets on behalf of third parties although these activities are currently not considered material. Therefore, SCOR Global Investments is not considered as a separate reportable operating segment for purposes of IFRS 8 – Operating segments.
The Group organizes its operations around three regional management platforms, or “Hubs” named EMEA Hub, Asia-Pacific Hub and Americas Hub. Each main location of the Hubs has local, regional and Group responsibilities, with the managing directors of each Hub reporting to the Group Chief Operating Officer. Each Hub includes the following functions: Legal and Compliance, Information Technology support, Finance, Human Resources and General Services. Hub shared service costs are allocated to the segments based on allocation keys. For a description of the Hub structure, see Section 1.2.3. – Organizational structure of SCOR.
The SCOR Global P&C segment carries out its global operations through the subsidiaries and branches of its main global reinsurance entity SCOR SE that merged with SCOR Global P&C SE and SCOR Global Life SE on March 31, 2019 (See Section 1.3.3. – Significant events of the year). In November 2018, SCOR Global P&C announced the creation of SCOR Europe SE, a Paris-based P&C specialty insurance company to ensure the continuity of services provided to clients after the effective date of the Brexit. Its business purpose is mainly direct insurance of major industrial risks across Europe. This subsidiary started its activities on January 1, 2019.
SCOR Global P&C is represented in three business regions, EMEA, the Americas and Asia-Pacific and operates in three business areas: Specialty Insurance (large corporate accounts underwritten through facultative insurance contracts, direct insurance and through the participation in Lloyd’s syndicates, including SCOR Channel, for which SCOR is the sole capital provider), Reinsurance (including Property, Casualty, Motor, Credit and Surety, Decennial Insurance, Aviation, Marine, Engineering, and Agricultural risks) and P&C Partners (including Cyber and Alternative Solutions). For a description of products and services, see Section 1.2.5.2. – NonLife reinsurance.
The SCOR Global Life segment operates worldwide through the subsidiaries and branches of SCOR SE. Via this network SCOR Global Life is represented in three business regions, EMEA, the Americas and Asia-Pacific, reinsuring Life and Health insurance risks along the three product lines Protection, Longevity and Financial Solutions with a strong focus on biometric risks. In order to achieve this, SCOR Global Life manages and optimizes the in-force book, deepens the franchise and aims at having the best team, organization and tools. The franchise strategy is composed of three elements, which are the expansion of the footprint in protection to defend and strengthen market presence around the world, the diversification of the risk profile by growing health and longevity, and growth of consumer demand by supporting clients with unique distribution solutions. SCOR Global Life aims to achieve diversification, both from a geographical and a product lines perspective. For a description of products and services, see Section 1.2.5.3. – Life reinsurance.
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Reinsurance SCOR’s P&C Reinsurance business area provides proportional and non-proportional reinsurance in many forms across: • Property: covering damage to underlying assets and direct or contingent business interruption losses caused by fire or other perils, including natural catastrophes; • Motor: covering original risks of motor property damage and bodily injury; • Casualty treaties: covering general liability, product liability and professional indemnity.
Credit and Surety SCOR has been a global leader reinsuring Credit, Surety and Political risks for more than 40 years, providing underwriting capacity for: • Domestic and Export Credit Insurance; • Various surety lines, like market surety and professional surety; • Political Risks: Confiscation Expropriation Nationalization
SCOR draws its expertise from a local presence in North Americas (Miami, New York), Europe (Paris, Zurich) and Asia (Singapore, Hong Kong).
Decennial Insurance Committed to a consistent underwriting approach over the past 40 years, SCOR’s leading global position enables the team to be involved in most IDI (Inherent Defect Insurance) initiatives launched by insurers, governments, professional organizations and financial bodies across the world, and to keep up to date with and reinsure almost all new IDI schemes.
SCOR provides customized products and solutions tailored to local situations: • Basic cover of construction damage caused by inherent defects in structural works; • Tailored cover, including material damage caused by inherent defects in waterproofing works and/or in other specific parts of construction; • Additional extensions to IDI policies such as waiver of subrogation against builders and consequential third-party liability.
Engineering With a consistent underwriting approach and substantial capacity, SCOR’s engineering team offers a broad range of reinsurance and insurance cover: Construction All Risks (CAR) and Erection All Risks (EAR) insurance, as well as advance loss of profits or delay in startup following a CAR or EAR loss, contractors’ plant and machinery, electronic equipment, machinery, machinery loss of profits and combined machinery/electronic equipment and property.
Agricultural Risks With a consistent, long-term approach to underwriting and pricing, SCOR’s dedicated Agriculture team offers a broad and flexible range of reinsurance cover, underpinned by a strong natural catastrophe modeling and analytics infrastructure. SCOR P&C provides customized risk transfer solutions and innovative approaches in the field of crop/crop hail, aquaculture, forestry, greenhouse and livestock/bloodstock insurance.
Property Catastrophes For more than 15 years, SCOR’s Property Cat team has provided reinsurance solution to cover natural catastrophes events and property risks.
Specialties Insurance The Group has announced in September 2018 the grouping of its existing insurance units under a newly formed Specialties Insurance division. It is composed of SCOR Business Solutions, SCOR Channel (SCOR’s Lloyd’s syndicate) and MGAs.
SCOR Business Solutions (SBS) It is SCOR’s large corporate risk insurance and facultative reinsurance unit. Taking a consistent and long-term approach, SBS combines risk management expertise and advanced technology with creativity and flexibility to support the strategies and needs of its clients, particularly in Energy, Construction, Property, Liability and Financial lines.
SCOR Channel SCOR Channel is SCOR’s Lloyd’s syndicate, offering a full suite of insurance products, from core lines of business to specialist lines such as Political and Credit risks, Cyber and Environmental Impairment Liability.
Managing General Agencies (MGA) MGAs are a specialized type of insurance agent/broker vested with underwriting authority from an insurer. Accordingly, MGAs perform certain functions ordinarily handled only by insurers, such as underwriting, pricing and settling claims. MGAs are mainly involved with specialty lines of business in which specialized expertise is required.
The Protection reinsurance market, as well as SCOR Global Life’s Protection portfolio, is characterized by the dominance of longterm contractual relationships. SCOR Global Life also writes shortterm Protection business, in markets and product lines in which this is common practice.
Disability Disability insurance mitigates the loss of income when the insured is totally or partially unable to continue his or her professional occupation or any occupation for which he or she is suited due to sickness or accident.
Critical Illness Critical Illness (CI) insurance typically pays a lump sum benefit, to be used at the policyholder’s discretion, if the insured suffers from a serious condition and survives a defined period.
Medical Medical insurance covers medical and surgical expenses incurred by the insured person.
Longevity Longevity products cover the risk of negative deviation from expected results due to the insured or annuitant living longer than assumed in the pricing of the cover provided by insurers or pension funds.
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For information on underwriting, catastrophe risk, claims and reserves, see Section 3.3.2.1. – Management of underwriting risks related to the P&C business and Section 3.3.2.2. – Management of underwriting risks related to the Life reinsurance business.
The proportion of brokered and direct business written by the Group’s subsidiaries varies according to market and cedent practices. For the year ended December 31, 2019, the Non-Life business unit wrote approximately 66% of gross written premiums through brokers and 34% through direct business, while the Life business unit wrote approximately 6% through brokers and approximately 94% through direct business.
For the year ended December 31, 2019, SCOR’s largest brokers for the Non-Life business unit were MMC with approximately 22% of the Group’s Non-Life gross written premiums, Aon Group with approximately 20% and Willis Group with approximately 12%. SCOR’s largest brokers for the Life business unit were Aon Group with approximately 2% of the Group’s Life gross written premiums and Willis Group with less than 1%.
For more information on the capital, refer to Section 1.3.6.1. – Capital. For more information on the Capital Shield Strategy, refer to Section 3.3.3. – Retrocession and other risk mitigation techniques. For information on the Group’s solvency scale, refer to Section 1.3.7. – Solvency and Section 4.6. – Notes to the consolidated financial statements, Note 12 – Information on share capital, capital management, regulatory framework and consolidated reserves. For information on structured entities used in the Capital Shield Strategy, refer to Section 4.6. – Notes to the consolidated financial statements, Note 2 – Scope of consolidation.
Group Investment Committee The Group Investment Committee is chaired by the Group’s Chairman and Chief Executive Officer and is composed of the Group Chief Financial Officer, the Group Chief Risk Officer, the Chief Economist, the Chief Executive Officer of SCOR Global P&C, the Chief Executive Officer of SCOR Global Life, the Chief Executive Officer of SCOR Investment Partners and other representatives of SCOR Global Investments. The Group Investment Committee meets at least each quarter and defines the strategic and tactical asset allocation as well as the risk appetite of the Group.
SCOR Global Investments SCOR Global Investments is the SCOR Group’s asset management business unit and consists of two entities: (i) the Group Investment Office and (ii) a regulated asset management company, SCOR Investment Partners.
Group Investment Office The Group Investment Office manages the interaction between the SCOR Group and SCOR Investment Partners in managing the risk appetite, monitoring investment risks and setting investment guidelines. It is also responsible for portfolio monitoring and reporting, development of the Group’s strategic and operating plans, financial forecasts, performance analysis of SCOR’s investments, and for defining policies, governance and reporting on Environmental, Social and Governance matters within the investment portfolio.
Based on the expertise initially developed for the management of the SCOR Group’s invested assets, SCOR Investment Partners decided in 2012 to open some of its investment strategies to thirdparty investors. Third-party assets under management of SCOR Investment Partners and its subsidiaries stood at EUR 5.0 billion as at December 31, 2019 (including undrawn commitments).
Research and development activities In order to keep abreast of biometric trends and scientific developments, SCOR Global Life relies on five communities of expertise called chapters. In February 2019, the eight Research & Development (R&D) centers, which were designed to assess the key risks within mortality, longevity, morbidity and policyholder behavior, were replaced by chapters whose missions are aligned with those of the previous centers with a continuing focus on biometric risks such as mortality, longevity, disability and long-term care, which are at the heart of Life reinsurance, but more deliberately drawing on the full expertise of SCOR Global Life's employees while facilitating the dissemination of knowledge. These 5 chapters are: • a chapter on biometric risk modeling, which is at the heart of the calculation of "best estimates" for pricing, reserve calculation and risk modeling. This is the key expertise needed by a Life reinsurer. It provides the best knowledge (methods, tools, etc.) for current and future biometric risk assessments; • a chapter on medical expertise that is necessary to understand biometric risks and crucial for medical underwriting or claims assessment; • a chapter on Data Science that is critical to extracting information and knowledge from experience; • a chapter on Behavioral Science to better track policyholder behavior that is critical to achieving our goals of improving health status, simplifying underwriting and assisting in claims management, given that interactions with policyholders are growing exponentially (connected objects, applications, etc.); • an Agility chapter with coaches who are needed to help members of previous chapters achieve their goals by providing them with a toolbox of organizational approaches to carry out their projects.
SCOR has entered into many scientific partnerships over the years, the active ones in 2019 being with the ADERA (Association pour le Développement de l’Enseignement et des Recherches auprès des universités, des centres de recherche et des entreprises d’Aquitaine – INSERM) on LTC (EUR 100,000 annually) and the Pierre et Marie Curie University at the Pitié-Salpêtrière Hospital on HIV developments (EUR 30,000 annually). SCOR has also funded the Department of Demography at the University of California, Berkeley on the Human Mortality Database project (USD 20,000 per year), which serves the academic and actuarial community, to build predictive models of life expectancy for many countries.
The chapters provide input at the product development stage, giving advice on definitions, underwriting standards, pricing and reserving. They contribute to the monitoring of biometric risks by carrying out experience studies on portfolio data and by undertaking prospective risk modeling.
At the forefront of risk modeling, particularly extreme risks in Life and Non-Life businesses, the Group devotes considerable resources to fundamental research and the promotion of scientific risk management techniques in various disciplines. As well as internal research projects, conducted with the assistance of students from renowned schools and universities, the Group works to develop scientific research in the field of risk via corporate philanthropy operations supported by its corporate foundation (see Section 6.1.2. – Research and risk management), which has signed partnership agreements with the following institutions: • a Research Chair on Risk, in cooperation with the Risk Foundation and Toulouse School of Economics of Toulouse University is dedicated to the risk market and to value creation, with a research program specially focused on Long-Term Care. For SCOR, this implies costs of EUR 0.9 million spread over three years; • a Research Chair in Finance and Insurance, in cooperation with the Toulouse School of Economics of Toulouse University, focuses on risk management, long-term investment, corporate governance and the links between insurance and financial markets. For SCOR, the related cost is EUR 1.5 million spread over five years; • a Research Chair on Macroeconomic Risk in cooperation with the Paris School of Economics (PSE), is dedicated to the macroeconomic modeling of tail events, the consequences of uncertainty on the macroeconomic equilibrium and the contagion of extreme macroeconomic risks and crises. For SCOR, the related cost is EUR 900,000 spread over three years; and
SCOR Foundation for Science also supports research in key areas of risk analysis: climate risks and their insurability, coastal flood forecasting, natural risks to crops, modeling risks in general, Alzheimer's disease, pandemics, emerging infectious diseases, genetic treatment of tuberculosis, prevention of chickenpox, modeling of life expectancy and mortality, the risks of meteorites, car insurance, pension funds, best practices in risk management, predictability of earthquakes and the corresponding human behaviors following the event, biodiversity, mathematics of extreme events, building of economic and financial expectations, international financial imbalances. The Foundation also participates in the development of actuarial practice in Tunisia and within the CIMA (Conférence Interafricaine des Marchés d’Assurance) zone. Finally, every year, it awards three prestigious prizes in Paris: the best young researcher in finance and insurance, the best young actuary and the best PhD in actuarial science.
In addition to the above, scientific risk management techniques are promoted, and knowledge shared, via the involvement in collective studies through the Geneva Association and the teaching of insurance and scientific risk management techniques in schools and universities (e.g. the 218 Master’s at Paris Dauphine, the Zurich ETH, the University Ca’Foscari in Venice Italy and the graduations, the masters and the Executive MBA supplied by the École Nationale d’Assurance (ENASS) of the Paris Conservatoire National des Arts et Métiers (CNAM)).
platform is regularly enriched through the development of new modules, such as, Trace, a global treasury solution deployed in 2019, or Cost vision, managing expenses at a much granular level, to be deployed in 2020. In this financial area, the introduction of RPA has also provided opportunities to optimize several manual processes, this approach being now extended to other areas of the information system.
In 2019, a focus was again put on strengthening SCOR’s front office applications to improve risk selection, anticipation and reactivity in markets and products. Several projects have been launched in recent years which will continue through 2020 to develop Business Unit specific solutions fully integrated with the rest of the Information System.
Among these projects, to start with the P&C business unit, the ForePlan tool provides capability to build the underwriting plan and follow its execution. Non-Life pricing is closely managed using xAct, the global in-house standard P&C treaty pricing tool, which uses standardized models, and profitability analysis, to provide full visibility of proportional and non-proportional business. The underwriting and pricing process of large industrial or specialty risks is now supported by an in-house solution ForeWriter and specialized modules in different expertise fields such as space, agriculture, cybersecurity. Control of exposure to natural catastrophes and pricing is under improvement through the development of the SCOR Cat Platform which monitors all the liabilities and accumulations through use and calibration, or the model combination deemed as most efficient. The new platform to monitor the MGA book of business through automatic underwriting controls that have been rolled-out to US portfolio, with other regions to follow. Norma, the P&C internal model, combines the risk assessment produced by these front-office tools to provide an overall P&C risk measure.
Life business unit has developed an IT roadmap which aims at preparing SCOR Global Life for the future by increasing its competitiveness, providing high level of service to clients, complying with all regulatory requirements (ie. IFRS 17, GDPR) and increasing the understanding of Life business. Other front-office solutions have been developed for SCOR Global Life to harmonize and further enhance the underwriting of substandard risks and develop tele-underwriting in different countries. The introduction of Artificial Intelligence completes these solutions. Underwriting solutions like Velogica are proposed to SCOR's Life clients, notably in the US market. The integration of Life Individual policy management systems is now completed in the US and is now being progressively extended to the rest of the world by the development of a new platform, named hElios, which will provide an even more accurate knowledge of the risks. These individual data are the basis for enhanced actuarial modeling, in which SCOR Global Life is also investing, through the development of a pricing and reserving technical platform and through the roll-out of a new experience analysis solution.
In all areas, the modeling and analysis methods are getting gradually richer in Machine Learning & Artificial intelligence innovative technologies that actuaries can test through a test platform “Sandbox” which is made available to them to assess their new algorithms. This platform will migrate in 2020 to a cloud environment to offer enhanced technological capabilities, to cope with the increasing volume of data and to reinforce the capacity to productionize the new services, shortening the innovation cycle.
In the asset management area, SCOR Investment Partners is now equipped with a global front-office solution, Bloomberg AIM, reinforcing the real-time monitoring of all investments. The record keeping of the portfolio managed by SCOR Global Investment and the investment accounting are managed through an integrated platform, Simcorp Dimension. All this asset management information is now available in real time through global analytical platforms. The asset management landscape is currently evolving to comply with the new accounting standard, IFRS 9, starting Jan 1st, 2022.
Information about the SCOR Group SCOR GROUP01 24 SCOR Universal Registration Document 2019
Principal investments made over the past three financial years See Section 3.3.4. – Management of market risks, for a description of risk management connected with SCOR investments in debt instruments and equity securities as well as with investments it owns.
See Section 1.2.2. – History and development of SCOR, and Section 4.6. Note 3 – Acquisitions and disposals.
In 2019, losses from natural disasters were primarily driven by several large tropical cyclone events, notably hurricane Dorian in the Caribbean and typhoons Faxai and Hagibis in Japan. Overall demand for non-life reinsurance remained strong. Pricing is on an overall upward trend, albeit with differences across markets and lines of business according to their recent loss and profitability trends. The upward trend in pricing is also reflecting the current low interest rate environment which supports insurers’ and reinsurers’ focus on technical profitability.
1.3.2. FINANCIAL MARKET DEVELOPMENTS The year 2019 has been drawing to close the ambitions for a normalization of monetary policies. Indeed, uncertainties surrounding US-China bilateral tariff negotiations coupled with weaknesses in the manufacturing sector have led to new accommodative policies to avoid an economic downturn. A benign inflationary environment permitted these new expansionary monetary policies. Indeed, while the US unemployment rate remained at its lowest level of 3.5% for the past 50 years, the CPI has been contained below 2.5%. In Europe, the low inflation environment is even more pronounced with a CPI of only 1.3%.
The prorogation of a low and even negative yield environment combined with subdued but positive economic forecasts enabled most financial assets to deliver positive performances. Growth consensus for 2020 is at 1.8% for the US, 1.0% for the Eurozone and 5.9% for China.
The bond indices have been positive with an overperformance of bonds carrying the highest credit risk. Hence, high yield bonds (bonds issued by companies with a high level of indebtedness) have delivered a 11.3% return for the European market and 14.4% for the US market versus respectively 6.8% and 7.0% for government bonds of the same currencies.
The main equity indices have followed the same trend, beating historical highs in the US. As a result, the S&P 500 total return was at 31.5% versus 27.7% for the European Stoxx 600.
1.3.3. SIGNIFICANT EVENTS OF THE YEAR Covéa On January 29, 2019, SCOR announced that it had decided to initiate legal actions against Thierry Derez and Covéa in relation to the misconduct committed to the detriment of SCOR, in the context of the preparation and submission by Covéa, on August 24, 2018, of its unsolicited takeover proposal for SCOR (these legal proceedings are described in Section 4.6. – Notes to the consolidated financial statements, Note 25 – Litigation). On the same day, Covéa announced that a transaction with SCOR was no longer part of its strategic options.
As of April 1, 2019, all assets, rights, obligations and liabilities of SCOR Global Life SE and SCOR Global P&C SE have been transferred to SCOR SE. This transfer has no impact on current contractual obligations and SCOR SE is automatically substituted for SCOR Global Life SE and SCOR Global P&C SE, without modifying any of the terms and conditions of the transferred contracts.
With this first acquisition, SCOR Investment Partners is entering an important new phase in its development and expanding its capacity on the ILS market, reaching an aggregate sum of USD 2.1 billion of assets under management and operating in both, Paris and London.
The combined ILS platform will enable SCOR Investment Partners to provide its investors with strong value-added expertise and services, including improved market access, additional expertise in financial engineering and complementary fund infrastructure.
Issuance of a new contingent capital facility On December 3, 2019, SCOR issued a new 3-year contingent capital facility. This takes the form of a contingent equity line, providing the Group with EUR 300 million coverage in case of extreme natural catastrophe or life events impacting mortality. The facility enables the Group to protect its solvency in case of catastrophe events and is consistent with the “Quantum Leap” strategic plan. This is the fourth contingent capital facility launched by SCOR – its first, pioneering solution was launched on January 1, 2011. This new solution is consistent with the previous facilities.
The equity line facility will replace, as of January 1, 2020, the current contingent capital facility which comes to an end on
SCOR intends to use the proceeds of the issuance for general corporate purposes. SCOR also confirms its current intention, subject to market conditions and regulatory approval, to redeem the CHF 125 million undated subordinated note lines, issued on October 20, 2014, and callable in October 2020 using the proceeds of the New Notes.
Market and financial review SCOR GROUP01 26 SCOR Universal Registration Document 2019
SCOR’s competitors include independent and state-owned reinsurance companies, subsidiaries or affiliates of established worldwide insurance companies, and reinsurance departments of certain primary insurance companies. Among the Group’s major competitors are European reinsurers (for example, Swiss Re, Munich Re and Hannover Re) and US/Bermudian reinsurers (for example, Partner Re, RGA, Berkshire Hathaway, Axis Capital, TransRe, Odyssey Re, Gen Re and Everest Re). Moreover, Lloyd’s syndicates (where SCOR is also present via its fully-owned SCOR Channel) are recognized as competitors.
(1) By Net Reinsurance premiums written, source: “AM Best Special Report Global Reinsurance 2019”.
1.3.5. REVENUES & EARNINGS SUMMARY The Group's financial data is presented in Section 1.1. – Key figures and strategic plan and in Section 4. – Consolidated financial statements. The commentary below is based on the financial data presented in the aforementioned sections.
Gross written premiums Gross written premiums for the financial year ended December 31, 2019 amounted to EUR 16,341 million, an increase of 7.1% compared to EUR 15,258 million in 2018. At constant exchange rates the growth is 4.1%. The overall increase in gross written premiums of EUR 1,083 million in 2019 is composed of an increase of EUR 972 million for SCOR Global P&C and of EUR 111 million for SCOR Global Life.
Gross written premiums for the financial year ended December 31, 2018 amounted to EUR 15,258 million, an increase of 3.2% compared to EUR 14,789 million in 2017. At constant exchange rates the growth was 7.1%. The overall increase in gross written premiums of EUR 469 million in 2018 was composed of an increase of EUR 150 million for SCOR Global P&C and of EUR 319 million for SCOR Global Life.
In EUR millions 2018 20172019 By operating segment 56%9,194 60%9,083 59%8,764SCOR Global Life
Net investment income Net investment income (1) for the year ended December 31, 2019 amounted to EUR 671 million as compared to EUR 615 million for the year ended December 31, 2018 and EUR 764 million for the year ended December 31, 2017, essentially driven by higher investment revenues and by the active portfolio management strategy implemented by SCOR Global Investments. The Group recorded realized capital gains of EUR 93 million in 2019, slightly lower compared to 2018 (EUR 123 million), mostly achieved on the real estate and the fixed income portfolio.
Gross benefits and claims paid Gross benefits and claims paid were EUR 11,792 million, EUR 11,168 million and EUR 11,963 million in 2019, 2018 and 2017, respectively. The level of gross benefits and claims paid for SCOR Global P&C increased to EUR 4,576 million during 2019 from EUR 3,942 million in 2018 (2017: EUR 4,564 million). For SCOR Global Life the level of gross benefits and claims paid slightly decreased to EUR 7,216 million in 2019 from EUR 7,226 million in 2018 (2017: EUR 7,399 million).
Net retrocession result The net result of the Group’s retrocession program was a net cost of EUR (327) million in 2019 as compared to a net cost of EUR (264) million and a net gain of EUR 398 million in 2018 and 2017, respectively.
The impact of alternative retrocession coverage, Atlas IX 2015 (ended December 31, 2018) and 2016 and Atlas Capital UK 2019 PLC catastrophe bonds (SCOR Global P&C) and Atlas IX mortality risk transfer contract (SCOR Global Life; ended December 31, 2017) (See Section 3.3.5. – Retrocession and other risk mitigation techniques) are not included in the net cost of retrocession as the products are accounted for as derivatives.
Other operating income and expenses include a recovery of USD 13 million (EUR 12 million) on Atlas IX 2015-1 related to 2017 hurricane Harvey, Irma and Maria (HIMM) events.
Market and financial review SCOR GROUP01 29SCOR Universal Registration Document 2019
In a year marked by a significant series of natural catastrophes primarily driven by several large tropical cyclone events, notably hurricane Dorian in the Caribbean and typhoons Faxai and Hagibis in Japan, the results benefited from a positive underlying performance of SCOR Global P&C and SCOR Global Life and a prudent asset management policy which safeguarded shareholders’ interests whilst delivering solid returns, albeit in a very low interest rates environment.
In 2019, the effective tax rate was 25.7% compared to 34.7% in 2018 which was notably impacted by the US tax reform with a negative impact of EUR 68 million and 16.7% in 2018. See Section 4., Note 17 – Income taxes, for further explanations on the effective tax rate.
Return on equity was 7.0%, 5.5% and 4.5% for the years ended December 31, 2019, 2018 and 2017 respectively. Basic earnings per share were EUR 2.27, EUR 1.72 and EUR 1.53 for the years ended December 31, 2019, 2018 and 2017, respectively.
The business comprises the traditional reinsurance operations: Specialties Insurance and Reinsurance. SCOR Global P&C capitalizes on a long-standing franchise, experience, and an extensive data base comprising multi-line expertise.
Gross written premiums In 2019, gross written premiums increased by 15.8% compared to 2018, from EUR 6,175 million to EUR 7,147 million. At constant exchange rates the growth is 12.7%, supported by both Reinsurance (US Property and Casualty treaties) and Specialties Insurance (MGAs and SBS Property) activities.
In 2018, gross written premiums increased by 2.5% compared to 2017 from EUR 6,025 million to EUR 6,175 million. At constant exchange rates the growth was 6.7% and was consistent with the trend indicated after January 2018 renewals.
In 2018, the net combined ratio reflected severe and extended natural catastrophes that occurred, especially in Japan and the Americas, partially absorbed by 1.9 percentage points of reserve releases (EUR 100 million). The natural catastrophe ratio stands at 12.6% compared to 14.9% in 2017 and 5.5% in 2016.
In 2017, the net combined ratio reflected the severity of higher natural catastrophes that occurred compared to previous years, especially the American hurricanes, earthquake and wildfires. The natural catastrophe ratio stands at 14.9% compared to 5.5% in 2016 and 2.2% in 2015. The net combined ratio was also negatively impacted by 1.4 percentage points (EUR 71 million) due to the change in the Ogden discount rate, partially balanced by 0.9 percentage points of reserve releases (EUR 45 million).
The following table highlights losses due to natural catastrophes for the years 2019, 2018 and 2017: As at December 31
Losses due to catastrophes, net of retrocession (25) (6)49 (4) 11 (8)
Number of catastrophes occured during current and previous financial years In EUR millions
Losses and loss adjustment expenses due to catastrophes, gross 779 (8)656 (6)665 (4)Losses due to catastrophes, net of retrocession (1)
(1) Net of retrocession and reinstatement premiums (assumed and retrocession). (2) The net loss ratio is calculated by dividing Non-Life claims (including claims arising from natural catastrophes) by Non-Life premiums earned. This ratio is net of retrocession (See Section 1.3.9.5. – Net combined ratio).
(3) Including Typhoons Hagibis, Faxai, Hurricane Dorian, US Cyclone Bomb CAT 1919, Dallas Tornado – CAT 1961, Various Italian Storms 2019, Townsville flooding, Southern Peru flooding, Storm Eberhard, US Storm & Tornicadoes, Sao Paulo Flooding, Texas Hailstorm CAT, Cyclone Fani, US weather event cat, Nothern Peru Earthquake, Munich Hailstorm, Typhoon Lekima, India Floods and Luxembourg Tornado.
10March 2019US Cyclone Bomb CAT 1919 September 2019Hurricane Dorian 90 September 2019Typhoon Faxai 156
October 2019Typhoon Hagibis 227 Dallas Tornado – CAT 1961 14October 2019 31Various Italian Storms 2019 (5 events) July 2019 Other natural catastrophes (less than EUR 10 million) 60 616TOTAL
In 2018, SCOR was affected by the following catastrophes which resulted in total net estimated losses of EUR 681 million as at December 31, 2018: Adjusted estimated loss net of retrocession as at
In 2017, SCOR was affected by the following catastrophes which resulted in total net estimated losses of EUR 768 million as at December 31, 2017: Date of loss
Earthquake in Mexico 24September 2017 2018 Cyclone Debbie 1721 17March 2017 28Southern California Wildfires 18December 2017 28 June 2017Western Cape Storm & Fire 1315 13
1.3.5.3. SCOR Global Life SCOR Global Life operates through its unified global organization with a macro market approach in three regions: Americas, EMEA (Europe, Middle East, Africa and Latin America) and Asia Pacific. It underwrites Life reinsurance business in the following product lines: • Protection; • Financial Solutions; • Longevity.
Gross written premiums by product line SCOR Global Life ranks among the top four life reinsurers worldwide (1) and has grown by 1.2% in gross written premiums from EUR 9,083 million in 2018 to EUR 9,194 million in 2019
(a -1.8% decrease at constant exchange rates (2). The premium growth is affected by the renewal of certain Financial Solution deals as fee business in 2019. Excluding this change, normalized growth at constant exchange rates amounts to 4.5%. SCOR Global Life has increased its new business premiums from new clients and with existing clients in all three regions and across all three product lines (after adjusting the Financial Solution premium volume for the renewal of certain transactions in 2019 as fee business). Growth was recognized in the Protection product line mainly in Americas and Asia-Pacific, in the Financial Solutions product line in Americas and specific markets in EMEA and Asia Pacific, and in the Longevity product line in EMEA.
Protection The Protection business accounts for 81% of total gross written premiums in 2019 and remains the main driver for premium growth (4.4% growth in gross written premiums in 2019 at constant exchange rates (2). SCOR Global Life has maintained its leadership in the US Life reinsurance market (3), the largest life reinsurance market in the world. In the EMEA region, SCOR Global Life reinforced its franchises in key European markets such as France, the UK, and Nordic countries.
• Mortality protection: 58% of SCOR Global Life’s portfolio is traditional mortality reinsurance business, based on 2019 gross written premiums. SCOR Global Life developed a strong position in Mortality in the US, as well as in the major European markets.
• Disability: SCOR Global Life has established strong market positions in disability in many continental Europe markets, Australia and New Zealand, and Canada.
• Although Medical represents a rather small portion of SCOR Global Life’s portfolio, it was a key growth driver within the Protection product line in 2019 due to new business volume in Asia.
(1) Based on 2018 gross written premiums. (2) At December 31, 2019 exchange rates. (3) Source: 2018 SOA/Munich Re survey of US life reinsurance, published in 2019.
Market and financial review SCOR GROUP01 33SCOR Universal Registration Document 2019
Net interest income on funds withheld and contract deposits 151158 177 (75) (69)Investment management expenses (68)
TOTAL NET INVESTMENT INCOME 615671 764 3 (27)Foreign exchange gains/(losses) (13)
(3) Realized gains/(losses) on invested assets are presented net of EUR 1 million realized gain attributable to 3rd parties, included in realized capital gains/losses on investments under IFRS.
During 2019, invested assets increased to EUR 20,571 million from EUR 19,153 at December 31, 2018, mainly as a result of positive mark-to-market development, positive foreign currency exchange impacts and positive income generated by the invested assets portfolio in 2019.
SCOR announced its new investment strategy in September 2019, as part of its “Quantum Leap” strategic plan. During the thirtymonth period covered by the strategic plan SCOR Global Investments intends to provide a strong and recurring financial contribution from the invested assets portfolio. SCOR Global Investments’ roadmap is built around the following pillars: • Acting as a sustainable investor to better manage risks and generate superior long-term returns; • Enhancing portfolio diversification towards value-creation assets to increase portfolio returns; • Maximizing value creation while safeguarding portfolio value; • Fully leveraging SCOR’s positioning as a leading player in
Liquidity, defined as SCOR’s share of cash and cash equivalents and short-term government bonds (with maturities above three months and below twelve months) and bank overdrafts, is at 6% of invested assets as at December 31, 2019, slightly above the level of 5% observed as at December 31, 2018.
The fixed income portfolio continues to represent a significant portion of SCOR’s invested assets with 81% invested within this asset class (82% at year end 2018). SCOR Global Investments has started to position its fixed income portfolio more cautiously. The exposure to corporate bonds decreased from 49% at the end of 2018 to 43% at the end of 2019. Conversely, the exposure to government bonds and assimilated increased from 24% to 27%, the exposure to covered bonds and Agency MBS increased from 8% to 9% and the exposure to structured and securitized products increased from 1% to 2%, over the same period. The fixed income portfolio remains of very high quality with an average rating at “A+” at the end of 2019, stable compared to the average rating at the end of 2018. The duration of the fixed income portfolio stands at 3.4 years at the end of 2019 compared to 4.3 years at the end of 2018.
The real estate portfolio remained stable at 3% of invested assets as at December 31, 2019 (as at December 31, 2018: 3% of invested assets) after taking into account several real estate sales during 2019.
Other investments, comprising mainly ILS, private equity and infrastructure funds and non-listed equities remained stable at 3% of invested assets as at December 31, 2019 (as at December 31, 2018: 3% of invested assets).
(1) Including Atlas CAT bonds and foreign exchange derivatives. (2) Loans and receivables excluded from invested assets are certificates of deposit (CDs) maturing in more than three months and less than twelve months. (3) Assets invested by third parties in mutual funds and non-controlling real estate investments fully consolidated by SCOR. (4) Certain consolidated entities held for investment purposes have been included in the scope of Invested Assets. (5) Fair value less carrying amount of real estate investments excluding EUR 6 million attributable to third-party investors. (6) Real estate financing related to real estate investments (buildings held for investment purposes) excluding EUR 31 million attributable to third-party investors.
Investments at fair value through income - - - 266 - 979 1,245 - 1,245 - - 1,245
TOTAL INSURANCE BUSINESS INVESTMENTS AND CASH AND CASH EQUIVALENTS 1,175 15,906 2,077 403 802 1,092 21,455 8,101 29,556 138 67 29,761
(3) Assets invested by third parties in mutual funds and non-controlling real estate investments fully consolidated by SCOR. (4) Certain consolidated entities held for investment purposes have been included in the scope of Invested Assets in Q3 2017. (5) Fair value less carrying amount of real estate investments excluding EUR 5 million attributable to third-party investors. (6) Real estate financing related to real estate investments (buildings owned for investment purposes) excluding EUR 30 million attributable to third-party investors.
Shareholders’ equity Shareholders’ equity stood at EUR 6,374 million at December 31, 2019 compared to EUR 5,828 million at December 31, 2018 and EUR 6,225 at December 31, 2017. See Section 4.5. – Consolidated statement of changes in shareholders’ equity for a description of this change.
Capital Shield Strategy The Group reconciles its strategic objectives with the protection of its capital via its “Capital Shield Strategy”, which articulates the Group’s risk appetite. This policy is based on an economic approach and aims to protect the Group against potential shock losses. The policy is built on the following four concepts: traditional retrocession, capital market solutions, solvency buffer and contingent capital facility.
For information on the Atlas special purpose vehicles used in the Capital Shield Strategy, see Section 4.6. – Notes to the consolidated financial statements, Note 2 – Scope of consolidation.
Restrictions on the use of capital Some of the letters of credit granted by SCOR to cedents require 100% collateral coverage in case of non-compliance with financial covenants or in case of a decrease in the Group’s financial strength rating. For example, the Group and its companies are subject to minimum net worth requirements and maximum debt levels under the terms of certain stand-by letter of credit agreements. Nonrespect of these covenants could lead to an increase in the percentage of required collateralization.
For more information on regulatory restrictions on the use of capital, see Section 1.2.1. – Introduction, and Section 4.6. – Notes to the consolidated financial statements, Note 12 – Information on share capital, capital management, regulatory framework and consolidated reserves.
Debt is a key component of the Group’s financing strategy. It is essentially composed of subordinated debt used to optimize its cost of capital. Subordinated debt provides long-term financial resources as well as financial flexibility.
The total level of financial liabilities which includes subordinated debt, real estate financing and other financial liabilities increased to EUR 3,027 million from EUR 2,831 million in 2018 (2017: EUR 2,702 million).
For a description of the derivatives used to hedge the risks related to financial liabilities, see Section 4.6. – Notes to the consolidated financial statements, Note 7 – Insurance business investments.
On June 2, 2015, SCOR successfully placed a dated subordinated notes issue on the Euro market in the amount of EUR 250 million. SCOR also called the balance of the USD subordinated step-up floating-rate notes due 2029, and of the EUR subordinated step-up
Market and financial review SCOR GROUP01 38 SCOR Universal Registration Document 2019
The Group has a leverage ratio of 26.4% at December 31, 2019, as compared to 27.5% at December 31, 2018 and 25.7% at December 31, 2017. This ratio is calculated as the percentage of subordinated debt compared to total shareholders’ equity plus subordinated debt. The calculation of the leverage ratio excludes accrued interest from debt.
Credit facilities The Group has been granted credit facilities from several companies of the banking sector to guarantee the reinsurance activities of various subsidiaries for a global issued amount of USD 3.9 billion as at December 31, 2019. These credit facilities are stand-by letters of credit that the banking counterparty agrees to issue in the form acceptable to the American National Association of Insurance Commissioners (NAIC) or other appropriate regulatory body.
See Section 4.6. – Notes to the consolidated financial statements, Note 11.1 – Cash and cash equivalents.
Total investments, including cash and cash equivalents, amounted to EUR 31.7 billion at December 31, 2019 compared to EUR 29.8 billion and EUR 29.4 billion at December 31, 2018 and 2017, respectively.
(1) See Section 1.3.5.4. – Net investment income and investment income on invested assets.
1.3.7. SOLVENCY The European “Solvency II” Directive applies to the Group since January 1, 2016. For more details on solvency regulations, see Section 1.2.1. – Introduction.
This comprehensive and holistic model was developed internally, on the basis of SCOR’s experience and expertise. It covers all known material quantifiable risks to which the Group is exposed (Life and Non-Life underwriting risk, market and credit risk, operational risk) and reflects SCOR’s risk profile and strategy. This model is based on high scientific standards, and advanced methodologies, systematically applying stochastic simulations and modeling dependencies between risks.
SCOR’s internal model is used extensively in the preparation of management decisions which involve risk management or solvency considerations. The solvency position of the Group is monitored using SCOR’s dynamic solvency scale which defines SCOR’s strategic solvency target for"Quantum Leap" – the “Optimal Range” between 185% and 220% – as well as the various management actions to be taken depending on the solvency position, as shown below.
Solvency II places great emphasis on the robustness of the risk management system of (re)insurance companies. SCOR has an established and robust ERM framework covering existing and emerging risks.
For further information on risk management mechanisms, see Section 3. – Risk factors and risk management mechanism and Appendix A – Internal control and risk management procedures.
Net investing cash flow amounted to EUR (219) million in 2019, EUR (101) million in 2018 and EUR (1,280) million in 2017. In 2019 cash flows used in investing activities were mainly composed of acquisitions of tangible and intangible assets and financial assets, while in 2018 they were mainly composed of acquisitions and disposals of other business investments.
The Group’s total liquidity, defined as cash and cash equivalents (including cash and cash equivalents from third parties) (2), shortterm government bonds with maturities above three months and below twelve months and bank overdrafts, which is well diversified across a limited number of banks, stands at EUR 1.5 billion at the end of 2019 (2018: EUR 1.2 billion and 2017: EUR 1.0 billion), supported by a very strong operating cash flow generation.
As at December 31, 2018As at December 31, 2019 As at December 31, 2017In EUR millions 27,418Average investments (1) 26,46826,770
532588Total investment income on invested assets 656 3.0%Return on invested assets (ROIA) 3.5%2.8%
(1) Average investments are the quarterly averages of the total investments as per the “Invested assets” reconciliation table included in Section 1.3.5.4. – Net investment income and investment income on invested assets, adjusted for ceded funds withheld.
(765) (735)Total management expenses (for cost ratio calculation) (756) Gross written premiums 15,25816,341 14,789 4.7% 5.0%GROUP COST RATIO 5.0%
Market and financial review SCOR GROUP01 41SCOR Universal Registration Document 2019
6,020 6,376Weighted average shareholders' equity 5,911 6,376Weighted average shareholders' equity – before U.S. tax reform impact (1) 5,9456,020 7.0% 4.5%ROE – BEFORE U.S. TAX REFORM IMPACT (1) 6.6%
(1) Refer to the 2018 Registration Document, Section 1.3.3. – Significant event of the year 2018 on the U.S. tax reform (Tax Cuts and Jobs Act, the “TCJA”) (2) Pro-rata of 50%: linear acquisition throughout the period.
1.3.9.5. Net combined ratio The loss ratio is calculated by dividing Non-Life claims (including natural catastrophes) by Non-Life premiums earned. This ratio is net of retrocession.
The P&C management expense ratio is calculated by dividing management expenses incurred for Non-Life reinsurance operations by Non-Life premiums earned. This ratio is net of retrocession.
8,3958,337 8,039Net earned premiums 406Net technical result 444472 145152 162Interest on deposits 568Technical result 589624 7.0%7.5% 7.1%LIFE TECHNICAL MARGIN
The developments from the outbreak of the COVID-19 pandemic since early 2020 are closely monitored by management.
With respect to insurance business investments, the recent decline in stock prices and more general fall of market indices is being closely monitored (see section 3.3.4 – Management of Market Risks).
Moreover, as regards operational risks, section 3.1.6 – Operational risks describes a number of risk factors relating to systems and employees. SCOR has taken steps to lower the risks of infection for its employees, including a global travel ban, with only few exceptions, and the use of video- and teleconferencing instead of in-person meetings. Furthermore, the management of SCOR has business continuity plans in place that allow operations to continue even if some office locations are not accessible. Specifically, SCOR has infrastructure and tools in place that ensure that employees can work remotely. A recent global infrastructure test with all employees working from home and temporary office closures in affected countries, confirmed resilience of SCOR’s infrastructure in such a scenario.
The information published by SCOR within the last 12 months from March 4, 2019 to March 13, 2020 is available for downloading from the following sites: • Autorité des marchés financiers (AMF): • Bulletin des Annonces Légales Obligatoires (BALO): • SCOR: • L’info financière: Market and financial review SCOR GROUP01 43SCOR Universal Registration Document 2019
Information required by article L. 225-37-5 of the French Commercial Code 782.1.8.
Compensation of executive committee members other than the chairman and Chief Executive Officer 1022.2.3. Stock options and performance shares 1162.2.4. Summary of transactions in securities by persons discharging managerial responsibilities and persons closely associated pursuant to article L. 621-18-2 of the French Monetary and Financial Code
Special report of the statutory auditors on related party agreements and commitments 1272.3.3.
2.1.1. CORPORATE GOVERNANCE PRINCIPLES SCOR SE’s shares are listed on the Eurolist from Euronext Paris SA and on the Six Swiss Exchange (previously SWX Swiss Exchange) in Zürich since August 8, 2007.
• Director of BNP Paribas SA (France)* • Director of Invesco Ltd (US)*
• Chairman and Director of Média Aéroports de Paris (France) • Director of Régie Autonome des Transports Parisiens (RATP) (France) • Member of the Board of Directors of Société de Distribution Aéroportuaire (SDA) (France) • Member of the Executive Committee of Relay@ADP (France) • Member of the Supervisory Board of le Cercle des économistes SAS (France) • Chairman of the Fondation d’Entreprise Groupe ADP (France) • Chairman of the Association Paris Europlace (France) • Chairman of the Board of Directors of Etablissement public du domaine national de Chambord (France) • Director of FONDACT (France) • Director of l’Institut pour l’Innovation Economique et Sociale (France) • Director of la Fondation de l’Islam de France (France) Member of the Board of Directors of Airport Council International (ACI) Europe
(France) • Permanent representative of BPCE, director of Natixis (France)* • Permanent representative of BPCE, director of Crédit Foncier de France (France) • Deputy Chief Executive Officer and Permanent representative of BPCE, director of CE Holding Participations (France) • Director of Maisons France Confort (France)* • Director of Natixis Coficine (France) • Director of BPCE IOM (France) • Permanent representative of BPCE, director of Banque Palatine (France) • Permanent representative of BPCE, director of COFACE (France)* • Chairman of the SAS and Chairman of the Board of Directors of ISSORIA (France) • Chairman of the SAS S-Money (France) • Chairman of the Board of Directors of S-Money (France) • Permanent representative of CE Holding Promotion, director of Nexity (France)* • Permanent representative of BPCE, Chairman of the SAS and Chairman of the Board of Directors of BPCE Domaines (France) • Chairman of Meilleurtaux (France) • Chairman of Oterom Holding (France) • Chairman of ISSORIA International Trading (France) • Permanent representative of BPCE, Chairman of ISSORIA (France) • Permanent representative of BPCE, Chairman of ISSORIA International Trading (France) • Permanent representative of BPCE, member of the Supervisory Board of FLCP (France) • Permanent representative of GCE Participations, director of Demain SA (France)
• Director of Engie (France)* • Chief Executive Officer of FB Consulting SAS (France)
• Chief Operating Officer of Airbus and Chairman of Airbus Commercial Aircraft (France)
Date of first appointment: April 26, 2019 Expiration of term: 2020
French – Age: 30 – SCOR SE, 5 avenue Kléber, 75116 Paris, France
French – Age: 41– SCOR SE, 5 avenue Kléber, 75116 Paris, France
• Director of Remark Group BY (Netherlands) • Director of Asefa SA (Spain) • Director of SCOR Perestrakhovaniye (Russia) • Director of SCOR Africa Ltd (South Africa)
Vincent Foucart, a French citizen, graduated from ENSTA, HEC and CHEA. He is also a certified Financial Analyst and Actuary. After having contributed to Société Générale’s Asian operations reorganization, he joined in 2001 the French insurer AGF as an Investor Relations Officer. As of 2005, he was responsible for the management of the AGF Chairman’s Office. He then became in charge of the Alternative Equity Strategies portfolio in 2006, and of Tocqueville Finance asset management in 2007. Since he joined SCOR in 2009 at the Chairman’s Office, he worked as General Secretary until 2014. More recently, he contributed to the development of ILS Strategies for SCOR and in May 2014, he became the Chief Underwriting Officer of the Alternative Solutions Specialty Line. In 2018, he was appointed Deputy CEO of SCOR Global P&C Partners.
• Director of Erasme Hospital (Belgium) • Teacher at the Université libre de Bruxelles (Belgium)
Swiss – Age: 60 – SCOR SE, 5 avenue Kléber, 75116 Paris, France
Jean-Marc Raby, a French citizen, holds a degree in economics as well as an MBA from HEC. He has spent his entire professional career at the Macif group. He became Regional Director of Macif Centre (a regional Macif entity) in 2000, and was subsequently appointed Deputy Chief Executive Officer of the Macif group, in charge of Economic Management, alongside the Chief Executive Officer, Roger Iseli. In 2012, he was appointed Chief Executive Officer of the Macif Group. He holds his position until May 2019.
Malakoff Médéric Assurances (Holding Malakoff Humanis since January 1st, 2020) Represented by Thomas Saunier
French – Age: 53 – Malakoff Humanis, 21 rue Laffitte, 5317 Paris Cedex 09, France
Main position • Chief Executive Officer of Malakoff Humanis Group (France)
Positions that expired during the last five years • Chairman of the Board of Directors of Quatrem SA (France) • Chairman of the Board of Directors of Viamedis SA (France) • Chairman of the Board of Directors of Auxia SA (France) • Chairman of the Board of Directors of Auxia Assistance SA (France) • Director of Viamédis (France) • Director of GIE Karéo Services (France) • Member of the Executive Committee of Cofifo SAS (France) • Chairman of SAS Totem MM 1, now SA MM retraite Supplémentaire (France) • Chairman of SAS Totem MM 2, now MM INNOV’ (France) • Permanent Representative of Malakoff Médéric Assurances at the Board of Directors of La Banque Postale Asset Management (France) • Chief Executive Officer of l’Association Sommitale du Groupe Humanis (France) • Chairman and Chief Executive Officer of l’Association Totem 1 (France) • Chairman and Chief Executive Officer of l’Association Totem 2 (France) • Chairman and Chief Executive Officer of l’Association Totem 3 (France) • Chairman of SAS Totem MM3 (France) • Chairman of SAS Totem MM4 (France) • Sole director of GIE SI2M (France) • Chief Executive Officer of SGAM Malakoff Médéric Humanis (France) • Chief Executive Officer of l’AS2M (France) • Chief Executive Officer of Association de Moyens Assurances (France) • Chief Executive Officer of Association de Moyens Retraite (France) • Chief Executive Officer of SGAPS Humanis Développement Solidaire (France) • Chief Executive Officer of Humanis Prévoyance (France) • Chief Executive Officer of Humanis Retraite AGIRC (France) • Chief Executive Officer of Malakoff Médéric AGIRC (France) • Chief Executive Officer of l’instiution de retraite des cadres et assimilés de France et de l’extérieur (IRCAFEX) (France) • Permanent Representative of Malakoff Médéric Assurances at the Supervisory Board of la Foncière Hospi Grand Ouest (France)
• Director of Pernod Ricard (France)* • Director of Phoenix Group Holdings (UK)* • Director of SGS (Switzerland)* • Member of the Supervisory Board of Bank Gutmann AG (Austria) • Member of the Supervisory Board of Château Mondot (France)** • Director of SCOR Global Life Americas Reinsurance Company (US)** • Director of SCOR Global Life USA Reinsurance Company (US)** • Director of SCOR Reinsurance Company (US)**
• Chairman of the Board of Directors of Generali Vie (France) • Chairman of the Board of Directors of Generali France Assurances (France) • Chairman of the Board of Directors of Generali France (France) • Chairman of the Board of Directors of Europ Assistance Holding (France) • Chief Executive Officer of Generali France (France) • Chief Executive Officer of Generali Vie (France) • Chief Executive Officer of Generali IARD (France) • Director of Assicurazioni Generali SpA (Italy)* • Member of the Supervisory Board of Generali Investments SpA (Italy) • Chairman of the Board of Directors of Europ Assistance Italie (Italy) • Permanent representative of Europ Assistance Holding on the Board of Directors of Europ Assistance (Spain)
Chinese – Age: 63 – SCOR SE, 5 avenue Kléber, 75116 Paris, France
Wang Zhen, a Chinese citizen, holds a BA degree from the Beijing Normal University, and is a Fellow of the Chartered Insurance Institute (FCII). She began her insurance career in 1982 by joining PICC, the insurance monopoly then, and became the General Manager of International Department in 1996 upon PICC becoming PICC Group. From 1997 to 2016, she worked for Munich Re, was the Chief Representative of MR Beijing, the Chief Executive of MR Beijing Branch, the Board member of MR Greater China Advisory Board respectively. From 2014, she has been an Independent Director of Bank of China Insurance Company in China. From 2017, she has also been an Independent Director of Trust Mutual Life Insurance Company in China.
Date of first appointment: April 25, 2013 Expiration of term: 2023
• Director of Control Risks International Ltd (UK) • Director of CDC Group Plc (UK) • Member of the Board of HMG Ministry of Justice (UK) • Director of Ballarpur Industries (India) • Director of BILT Paper (India) • Member of the Board of the Batten School of Leadership, University of Virginia (US)
April 30, 2015Male58 1,469 1,469 • Member of the Strategic Committee
Chinese Yes0Zhen WANG 2020April 26, 2018Female • Member of the Strategic Committee
Female • Chairman of the Corporate Social and Societal Responsibility and Environmental Sustainability Committee
It is reminded that, on the basis of proposals made by the Compensation and Nomination Committee, the Board of Directors has established a number of guiding principles including, in particular: maintaining a broad expertise within the Board, its international character, the diversity of the director profiles and genders and a predominant share of independent Directors. These guiding principles led the Board of Directors, during its meeting held on February 26, 2020, based on the recommendation of the Compensation and Nomination Committee, to propose to the 2020 Annual General Meeting the renewal of the mandates of Mrs. Vanessa Marquette, Malakoff Médéric Assurances (Holding Malakoff Humanis since January 1st, 2020) and Mrs Zhen Wang. These directors have also been re-assessed regarding their knowledge, skills and experience, honorability and independence. As part of its decision, the Board of Directors also noted that these directors had an attendance rate close to 100% since their respective first appointments.
In order to take into account the opinions expressed by some shareholders as part of the active dialogue held with them, and in particular their reservations on what they consider to be cross links between SCOR and BNP Paribas SA, Mrs Marguerite Bérard did not ask for the renewal of her mandate at the 2020 Annual General Meeting. It is however reminded that Mrs Marguerite Bérard, as she is not an executive corporate officer of BNP Paribas SA and as she is in charge of the retail banking activities in France which have no link to SCOR, was able to maintain her quality of independent director pursuant to the internal regulation of the Board of Directors of SCOR SE and the AFEP-MEDEF Code.
In addition, the Board of Directors, during its meeting held on February 26, 2020, based on the recommendation of the Compensation and Nomination Committee, decided to submit to the 2020 Annual General Meeting the appointment of a new woman director.
Malakoff Médéric Assurances (Holding Malakoff Humanis since January 1, 2020), represented by Thomas SAUNIER
Under SCOR SE’s bylaws, each director must own at least one ordinary share for the duration of his or her entire term of office, and under the Board Internal Charter, each director shall agree to acquire shares with a value of at least EUR 10,000 and to hold them throughout his or her term as director. Under French law, a director may be a natural person or a corporate entity for which an individual is appointed as permanent representative, except for the Chairman, who must be an individual. Pursuant to Article L. 22520 of the French Commercial Code, the permanent representative of a corporate entity is subject to the same conditions, obligations and civil and criminal liabilities as if he or she was director in his or her own name, without prejudice to the joint and several liability of the corporate entity he or she represents. Of the fourteen members of the Board of Directors, thirteen are natural persons and one, Malakoff Médéric Assurances (Holding Malakoff Humanis since January 1, 2020), is a corporate entity (represented by Thomas Saunier as permanent representative).
Composition principles The Board of Directors’ composition is guided by the following principles: • application of best-in-class corporate governance practices; • appropriate number of Board members in order to allow meaningful individual participation; • majority of independent directors, pursuant to criteria adopted by the Board of Directors; • diversity of expertise; • professional experience; • diversity of nationalities; • high proportion of female Board members.
As of December 31, 2019, the membership of the Board of Directors is as follows: • 83.3% are independent directors (excluding the employee directors) (81.8% as at December 31, 2018). The Audit Committee is fully composed of independent directors, the Risk Committee is composed of 85.7% of independent directors and the Compensation and Nomination Committee is composed of 80% of independent directors (excluding the employee directors) as is the Corporate Social and Societal Responsibility and Environmental Sustainability Committee; • 64.3% are directors with past experience in the insurance or reinsurance industry, (58.3% as at December 31, 2018). The other directors work in the banking, financial and digital sector, legal advisory services and other services; • 35.7% are non-French directors (41.7% as at December 31, 2018) with directors who are American, British, Belgian, Swiss and Chinese; and
• 41.6% are women (excluding the employee directors) (45.4% as at December 31, 2018). The composition of the Board of Directors is therefore compliant with applicable law.
Since the Shareholders’ Meeting held on April 27, 2017, the employee directors are now elected by the employees of SCOR SE and its direct and indirect subsidiaries whose head office are in France. Under French law, one of the two employee directors must belong to the French “cadre” category, and the other to the “noncadre ” category. In the interest of implementing a democratic process for the election of the employee directors, while being compatible with applicable legal provisions, and in line with the process put into place for the elections of the current SCOR SE employee directors, the Company wishes to continue to involve all employees in the process from all offices throughout the world, by holding a “primary”, which will give them a chance to express their preference before the actual election.
The terms of office of the two employee directors expiring at the 2020 Shareholders' Meeting, a “primary” was held in January 2020 after which the actual election of the two employee directors took place end of February 2020. The mandate of the two newly elected employee directors, Mrs Lauren Burns-Carraud for the “cadre” category and Mrs Fiona Derhan for the “non-cadre” category, will be effective as from the end of the 2020 Shareholders' Meeting.
Changes in the composition of the Board of Directors during the year The following table displays the changes in the composition of the Board of Directors, during the year: 1st nomination RenewalName SexDeparture Reason of the changeNationality
Functioning and duties of the Board of Directors of the Company The Board of Directors defines the strategic orientations of the Company's business activities and ensures their implementation in accordance with its corporate interest, taking into consideration the social and environmental aspects of its activity. Without prejudice to the powers expressly invested in Shareholders’ Meetings, and within the objects of the Company, the Board of Directors deals with all matters relating to the conduct of the Company's business and decides all pertinent issues through its deliberations. It ensures the sound and prudent management of the Company. It regularly reviews, in relation to the strategy it has defined, the opportunities and risks, as well as the measures taken accordingly. To this end, the Board of Directors receives all of the information needed to carry out its tasks, notably from the executive officers. It is informed each quarter by the management of the financial situation, cash position and commitments of the Company. It is informed about market developments, the competitive environment and the most important issues at hand, including in the field of corporate social and environmental responsibility. It takes into account the Own Risk and Solvency Assessment (“ORSA”) when it makes a decision likely to have a significant impact on the Company. The Board also carries out the verifications and controls it deems necessary.
The Board of Directors, upon the recommendation of the Compensation and Nomination Committee, has especially studied the criteria relating to any significant business ties that directors might have with the Company as a customer, supplier, investment or commercial banker or consultant. The Board of Directors has noted that the directors listed below have direct or indirect relations with companies having business relationships with the SCOR Group: • Marguerite Bérard, member of the Executive Committee of BNP Paribas SA; • Fabrice Brégier, Chairman of Palantir France; • Thomas Saunier, Chief Executive Officer of Malakoff Humanis
Moreover, the Board of Directors has checked whether a director represents a significant shareholder of the Company. It has noted that the three following directors are either a shareholder (Malakoff Médéric Assurances, Holding Malakoff Humanis since January 1, 2020) or directly related to a shareholder of SCOR SE: • Malakoff Humanis Group, represented by its Chief Executive Officer Thomas Saunier; • Marguerite Bérard, member of the Executive Committee of BNP Paribas SA; • Claude Tendil, Chairman of the Board of Directors of Generali IARD, Generali Group.
The participation of these companies in the share capital and voting rights of SCOR SE being significantly below the 5% threshold set by the Internal Regulations of the Board of Directors of SCOR SE, the Board of Directors, upon the recommendation of the Compensation and Nomination Committee, stated that: • Malakoff Médéric Assurances (Holding Malakoff Humanis since January 1, 2020), represented by Thomas Saunier and Marguerite Bérard can be considerered as independent; • Claude Tendil cannot be considered as independent. Indeed, Claude Tendil has been a director of the Company for more than twelve years.
Role of the Lead Independent Director The Lead Independent Director is appointed from the independent directors by the Board of Directors upon a proposal by the Compensation and Nomination Committee. He assists the Chairman and Chief Executive Officer in his duties, in particular in organizing the Board and its Committees and ensuring they function properly, and in supervising corporate governance and internal control.
He is also in charge of assisting the Board concerning the smooth operation of the Company's corporate governance and advising the Board on the operations on which the Board is convened to deliberate. He may include any subject he deems necessary on the agenda of the Board of Director’s meetings.
Rights and obligations of directors Directors may receive training, if they feel it is necessary, on the specific aspects of the Company, its lines of business, its area of activity and its challenges in terms of social and environmental responsibility. They agree to regularly attend meetings of the Board of Directors’ Committees of which they are members, and Shareholders’ Meetings. Lastly, they are obliged to express their opposition when they believe that a decision of the Board of Directors is likely to be harmful to the Company.
Accumulation of positions as director In accordance with the recommendations of the AFEP-MEDEF corporate governance code, the executive corporate officer should not hold more than two other directorships in listed corporations, including foreign corporations, not affiliated with the SCOR Group. Moreover, he shall also seek the opinion of the Board before accepting a new directorship in a listed company.
Executive Board of other companies, whether the head office of such companies is located in France or abroad, so that the Board of Directors assisted by the Compensation and Nomination Committee, can verify that the directors are in compliance with applicable limits imposed on multiple offices and that any potential conflict of interest has been dispelled.
Then, the Board Internal Charter requires directors to register all SCOR shares that they themselves or their minor children hold at the time they enter office or those acquired subsequently. In addition, the Board Internal Charter lays down certain restrictions on trading in SCOR’s securities: • first, it is forbidden to trade in SCOR’s securities while in possession of information which, when made public, is likely to have a significant influence on the stock market price. In this regard, any director must refrain from (a) performing or attempting to perform insider dealing, in particular by acquiring or disposing of, for its own account or for the account of a third party, directly or indirectly, financial instruments to which that information relates or by cancelling or amending orders already placed concerning a financial instrument to which the information relates; (b) recommending, inducing or attempting to recommend or induce that another person engage in insider dealing on the basis of a privileged information; (c) unlawfully disclosing or attempting to disclose privileged information to another person, except where the disclosure is made in the normal exercise of an employment, a profession or duties; • in addition, it is forbidden to directly or indirectly conduct any transaction with regard to SCOR’s securities during certain sensitive periods that the Group notifies to the directors or during any period preceding an important event affecting SCOR and likely to influence the stock market price. In all cases, the following periods are considered sensitive: the thirty (30) calendar days before the publication of semi-annual and annual results; the fifteen (15) calendar days before the publication of quarterly results and the announcement of the dividend.
Each director has a loyalty obligation towards the Company. He or she shall not act in his or her own interest, against SCOR’s interests, and must avoid any situation with risks of conflict of interests.
In the event a characterized punctual conflict of interest should arise on a specific topic submitted for discussion at a Board of Directors meeting, the Director in question shall (i) disclose the conflict to the Board prior to the meeting and (ii) abstain from taking part in the Board's debate or decision on the topic (in this case, he/she shall be excluded from quorum and voting calculations); it being specified that any Director also director of a consolidated company must abstain from taking part in the decisions of the Board in the event of a conflict of interest because of his/her quality of director with the concerned subsidiary.
In the event of characterized general conflict of interest, each Director must immediately notify the Chairman of the
Moreover, two training sessions were held in 2019 for Board members on the following topics: • Capital allocation within the Group on February 19, 2019; • Natural Catastrophes and their modelization on October 22, 2019.
Pursuant to the recommendations of the AFEP-MEDEF corporate governance code and to the provisions of the Board Internal Charter of SCOR SE, an assessment of the Board of Directors and of its Committees was conducted between December 2019 and January 2020.
They also appreciated having access to the details of the opinions expressed by the shareholders in the context of the shareholder dialogue held with them, in particular after the Annual General Meeting held in 2019, in order to be able to respond to shareholders' expectations, particularly in relation to subjects concerning both governance and compensation of the Chief Executive Officer.
To SCOR’s knowledge, during the last five years: • no director and no member of the Executive Committee has been convicted of fraud; • no director and no member of the Executive Committee has been affected by the bankruptcy, receivership, liquidation or placing under administration of a company, having been a member of an administrative, management or supervisory body; • no director and no member of the Executive Committee has been incriminated by and/or received an official public sanction by the statutory or regulatory authorities; • no director and no member of the Executive Committee has ever been stripped by a court of the right to act as a member of the administrative, management, or supervisory body of an issuer or from being involved in the management or conducting of business of an issuer.
Pursuant to the provision of the Internal Regulations of SCOR’s Board of Directors, Marguerite Bérard informed the Chairman of the Board and the Lead Independent Director, on February 18, 2019, of a potential punctual conflict of interest situation due to private interests with one of the financial institutions against which SCOR announced the launch of legal actions on January 29, 2019. She therefore abstained from taking part in the Board’s discussions and any decisions of the Board of Directors of SCOR and its specialized Board Committees in relation to these legal actions.
2.1.3.10. Information on service contracts of members of the Board of Directors and the executive committee
2.1.4. BOARD OF DIRECTORS’ COMMITTEES SCOR’s Board of Directors has established six Committees in order to examine specific topics, to prepare the Board’s proceedings and to make recommendations to it.
2.1.4.1. The Strategic Committee The Strategic Committee is composed of Denis Kessler (Chairman), Marguerite Bérard, Fabrice Brégier, Vanessa Marquette, Bruno Pfister, Jean-Marc Raby, Augustin de Romanet, Thomas Saunier (as representative of Malakoff Médéric Assurances, Holding Malakoff Humanis since January 1, 2020), Kory Sorenson, Claude Tendil, Zhen Wang and Fields Wicker-Miurin.
The Committee’s mission is to examine the Group’s development strategy, including investments in organic growth and major internal restructuring operations, plus any significant operation falling outside of the strategy announced by the Group and to examine any acquisition, merger, asset contribution or disposal in an amount in excess of EUR 100 million.
Fields Wicker-Miurin 100 * Attendance rate taking into account Marguerite Bérard's potential punctual conflict of interest situation. ** Member of the Strategic Committee since April 26, 2019. He was absent and excused to one meeting of the Strategic Committee due to other commitments made prior to his appointment. *** Representing Malakoff Médéric Assurances (Holding Malakoff Humanis since January 1, 2020), director.
Audit Committee is responsible for ensuring that internal procedures relating to the collection and auditing of data guarantee the quality and reliability of the Group’s financial statements. The Audit Committee is also in charge of reviewing agreements with related parties (conventions réglementées), analyzing and responding to questions from employees with regard to internal controls, the preparation of financial statements and the treatment of internal accounting books and records. It gives its opinion on the organization of Internal Audit, examines its annual work program, receives internal audit reports and stays informed regarding the implementation of recommendations. Finally, it examines the annual compliance plan and stays informed regarding the Company’s compliance activities.
The Audit Committee met on four occasions in 2019, each meeting lasting approximately two hours and a half. The Chairman and Chief Executive Officer attended all the meetings in 2019. Moreover, three joint sessions of the Audit Committee and Risk Committee were held in 2019.
Fields Wicker-Miurin 100 2.1.4.3. The Risk Committee The Risk Committee is composed of Bruno Pfister (Chairman), Fabrice Brégier, Vanessa Marquette, Kory Sorenson, Claude Tendil, Zhen Wang and Fields Wicker-Miurin. Each of its members is independent except Claude Tendil.
The Risk Committee met four times in 2019, each meeting lasting approximately two hours and a half. Moreover, three joint sessions of the Audit Committee and Risk Committee were held in 2019.
The Committee mainly discussed the following matters: the quarterly review of the main risks exposures of the Group, the Group risk appetite, the capital shield policy and its effectiveness, the compliance with Solvency II, the review of the RSR and SFCR regulatory reports, the review of the Group Policies required by Solvency II, the review of the US mortality portfolio, the internal model results of the Group, the review of the 2019 ORSA report and the update on prudential developments.
Except for the employee director and Claude Tendil, the members are independent.
In particular, the Compensation and Nomination Committee devoted a significant portion of its time in 2019 to the succession of the Chairman and Chief Executive Officer. A leading recruitment firm has been mandated to assist the Committee. As part of its work, the Committee focused in particular on defining the expected profile with regard to the challenges facing the Company and the reinsurance industry over the next few years and on the persons likely to correspond to this profile. The Committee also discussed the opportunity of separating the functions of Chairman and Chief Executive Officer as of the 2021 General Assembly Meeting. This topic was also discussed during the non-executive directors’ session, under the chairmanship of the Lead Independent Director.
Bruno Pfister 100 100Claude Tendil 100Fields Wicker-Miurin 2.1.4.5. The Corporate Social and Societal Responsibility and Environmental Sustainability Committee
Depending on the agenda, the Lead Independent Director, who chairs this Committee, may exclude the Chairman and Chief
Executive Officer from the discussions of the Crisis Management Committee. Moreover, the Chairman and Chief Executive Officer must be disqualified from such discussions if the crisis is linked to a subject that personally concerns him.
These sessions were held four times in 2019, under the chairmanship of the Lead Indepenant Director. The non-executive directors discussed the results of the votes at the General Meeting as well as the opinions expressed by the shareholders as part of the active shareholder dialogue held with them. The non-executive directors were informed by the Lead Independent Director of the various measures envisaged by the Compensation and Nomination Committee to meet the expectations expressed regarding the remuneration policy. They were also informed of the work carried out by the Compensation and Nomination Committee on the succession plan for the members of the Executive Committee and the Chairman and Chief Executive Officer, and especially about the discussions regarding a possible separation of the offices of Chairman and Chief Executive Officer.
In addition, the non-executive directors raised a number of areas for improvement following the annual assessment of the functioning of the Board, the results of which were presented to the Board of Directors during its meeting of February 19, 2019. In particular, they discussed strengthening the rules relating to potential conflicts of interest for directors. As such, at the beginning of each Board meeting, directors are now formally asked to confirm that they have no potential conflict of interest with an item on the agenda. Otherwise, they must abstain from participating in discussions on the topic in question. As part of these discussions on conflicts of interest, the non-executive directors also discussed the situation that led to the resignation of Mr. Thierry Derez, at the request of the Board of Directors, following the opinion of the Haut Comité de Gouvernement d’Entreprise on November 13, 2018, as well as the legal actions against him.
Thus, in 2019, all of the directors were independent, except the Chairman and Chief Executive Officer, the employee directors and Claude Tendil who has been a director for over 12 years.
Jean-Paul Conoscente Jean-Paul Conoscente, an American and French citizen, is a graduate of the University of California Berkeley (Master of Science in Structural Engineering) and the École des Travaux Publics, Paris (Engineering Diploma in Civil Engineering). He started his career in earthquake engineering in California and then in CAT Modeling as the European head of the Modeling firm EQECAT. He subsequently held several senior positions with AON Benfield as a reinsurance broker in London and Paris and then with AXA Re in Paris as the Global Head of Property. In 2008, he joined SCOR in New York as Chief Underwriting Officer for the Americas for SCOR Global P&C and helped transform SCOR’s team and portfolio in the Americas, before taking on the role of CEO of SCOR’s P&C U.S. Operations in 2016. Following SCOR Global P&C’s restructuring in September 2018, he became its CEO of Reinsurance globally. In April 2019, he was appointed Chief Executive Officer of SCOR Global P&C, and a member of the Executive Committee and a person effectively running SCOR SE.
Romain Launay Romain Launay, a French citizen, is a graduate of the École Polytechnique, of the Corps des Mines and of the Centre des hautes études de l’assurance. Having occupied various positions at the French Ministry for the Economy and Finance between 2004 and 2009, he became Technical Advisor to the Prime Minister in 2009. He joined SCOR in February 2012 as Senior Advisor to the Chairman and Chief Executive Officer, before being appointed Group General Secretary in May 2014. In February 2016, he became Group Chief Operating Officer.
Brona Magee Brona Magee, an Irish citizen, holds a Bachelor of Actuarial and Financial Studies degree from University College Dublin. She is also a Fellow of the Society of Actuaries in Ireland. From 2006 to 2011, she was General Manager for Transamerica International Reinsurance Ireland, which was acquired by SCOR in 2011. She became Chief Financial Officer for SCOR Global Life Reinsurance Ireland from 2011 to 2013. In 2013, Brona moved to the United States to take the position of Chief Financial Officer of SCOR Global Life Americas and in 2015, she was promoted to Deputy Chief Executive Officer, SCOR Global Life Americas where she had oversight for all technical aspects of the business, including finance, actuarial reserving, pricing, risk management and medical underwriting. In February 2017, she returned to Ireland and became Chief Actuary for SCOR Global Life with global responsibility for reserving, pricing and risk management as well as responsibility for the Irish entities. In November 2017, Brona took the position of Head of Client Solutions for SCOR Global Life, focused on the development of a suite of innovative solutions for clients around the world. Since September 2018, Brona has been appointed Deputy CEO of SCOR Global Life and has joined the Group’s Executive Committee.
Laurent Rousseau Laurent Rousseau, a French citizen, is a graduate of HEC (École des hautes études commerciales). He started his career in 2001 as an equity analyst at Credit Suisse First Boston in London, covering European insurers and reinsurers. In 2005, he joined J.P. Morgan in the insurance Investment Banking team, executing M&A, capital raising and restructuring transactions for European insurers and reinsurers. He joined SCOR in 2010 as Advisor to the CEO and became Head of SCOR Global P&C’s Strategy and Business Development in 2012. In July 2015, he became Chief Underwriting Officer of SCOR Global P&C’s treaty business in Europe, Middle East & Africa. In April 2018, he was appointed Deputy Chief Executive Officer of SCOR Global P&C, member of the Group’s Executive Committee and since September 2018, CEO for Specialty Insurance (SCOR Business Solutions, the Channel Managing Agency and MGAs).
2.1.7. NUMBER OF EMPLOYEES The total number of employees of the Group increased from 2,811 as at December 31, 2018 to 3,028 (including 125 SCOR Channel employees) as at December 31, 2019. The distribution of personnel covers the various geographical areas to meet the strategic needs of the Group.
(1) Each Hub covers a region and may have employees in several countries. (2) The EMEA Hub covers employees in France, Spain, Italy, Belgium, the Netherlands, Russia, South Africa, Kenya, the United Kingdom, Ireland, Sweden, Switzerland, Israel and Germany.
For the principles and rules stated for the determination of the compensation and benefits in kind attributable to Mr. Denis Kessler as Chairman and Chief Executive Officer for the 2019 reporting period, please refer to the 2019 Shareholder’s Meeting brochure to the combined general meeting.
The following table presents a summary of the total compensation including gross compensation, shares and stock options granted to the executive corporate officer for financial years 2019, 2018 and 2017: Amount dueAmount paidAmount due Amount paidAmount due Amount paid 00 000 0Additional benefits 3,878,7504,122,500Value of shares granted (2) 3,545,000 188,000218,000Value of stock options granted (2) 400,000
(1) The variable annual compensation related to the 2019 financial year has been determined by the Board of Directors based on a percentage of achievement for the objectives of 90.35%. This variable annual compensation amount is paid in one instalment, pending the approval of the Shareholders’ Meeting. (2) It should be noted that the figures stated above do not represent paid compensation but correspond to actuarial estimates in line with the AFEP-MEDEF corporate governance code. The value is calculated according to the same assumptions as those used for the Group financial statements (IFRS 2). 100% of shares and stock options granted are subject to performance conditions.
Those compensation items are compliant with the principles and rules stated for the determination of compensation and benefits in kind attributable to Mr. Denis Kessler, Chairman and Chief Executive Officer for the 2019 reporting period as approved by the 2019 Shareholders’ Meeting.
In accordance with article L. 225-37-2 of the French Commercial Code, the payment of the variable and exceptional compensation items needs to be approved by the Shareholders’ Meeting.
Following the recommendation of the Compensation and Nomination Committee on its meeting of February 19, 2019, the Board of Directors on February 19, 2019 decided that the Chairman and Chief Executive Officer would receive a fixed gross annual compensation of EUR 1,200,000, payable in 12 monthly instalments. The fixed compensation of the Chairman and Chief Executive Officer has not changed since January 1, 2008.
Following the recommendation of the Compensation and Nomination Committee at its February 19, 2019 meeting, the Board of Directors at its February 19, 2019 meeting decided that the Chairman and Chief Executive Officer could receive a target variable annual compensation of EUR 1,200,000 (100% of his fixed gross annual amount), unchanged since 2015.
The variable compensation for any given year is paid in year y+1, after the financial statements of the Company for such given year are approved by the Board of Directors and is subject, as of 2020 for the variable compensation relating to 2019, to the approval of the Shareholders’ Meeting.
For 2019, the variable compensation of the Chairman and Chief Executive Officer has been determined according to the following objectives: • 50% based on the achievement of a financial objective: ROE level achieved by SCOR, with a target of 800 bps above the five-year risk-free-rate (“Vision In Action” target); • 50% based on the achievement of personal objectives: maintaining a solvency ratio equal or higher than the lower limit of the optimal range defined in the strategic plan, achievement of the strategic plan “Vision in Action”, preparation and communication to the market of a new strategic plan in line with the Group's challenges and stakeholder expectations, preparing the Group for the risks and opportunities related to the new IFRS 9 and IFRS 17 accounting standards, deepening the integration of ESG issues (in particular related to the climate) in the Group's activities and operations, strengthening the Group's talent pool particularly through training and active management of careers and skills.
The objectives, their respective assessments and achievement rates are detailed in a table below. It should be noted that, in order to take into account the results of the votes at the Shareholders’ meeting of April 26, 2019, as well as the opinions expressed by the shareholders as part of the active shareholders dialogue held with then, the Board of Directors has decided, on the Compensation and Nomination Committee's recommendation, the replacement of the linear scale for calculating the achievement rate of the financial objective relating to the ROE target by a stepwise scale that is systematically less favorable, particularly in the event of ROE achieved below the ROE target (minimum threshold raised from 30% to 50% of the target): refer to section 2.2.1.4.2. – Compensation policy of Mr. Denis Kessler as Chairman and Chief Executive Officer for the 2020 reporting period. In addition, the Board of Directors, on the proposal of the Compensation and Nomination Committee, decided not to attribute to the Chairman and Chief Executive Officer any Exceptional Contribution Bonus (ECB).
The Group compensation policy does not provide for variable deferred compensation.NA
The Group compensation policy does not provide for multi-year variable compensation.NA
Stock options EUR 218,000 Shares EUR 4,122,500 (accounting valuation under IFRS)
Aside from the mandatory conditions (1), (2) and (3), if the observed average ROE (condition (4)) is lower or higher than the Target ROE, the options will be exercisable according to the sliding scale set out in the table below: Stock option and free share allocation plans or other longterm compensation
In any case, if the average ROE is lower than 5%, the portion of options that can be exercised based on this criterion will be at 0%.
Compensation elements due or attributed for the financial year ended December 31, 2019 Description
In 2019, the Chairman and Chief Executive Officer received directors’ compensation in a fixed amount of EUR 28,000 and a variable amount equal to EUR 3,000 per Board meeting and Committee meeting in which he participated. In 2019, he attended nine Board meetings (a single amount of EUR 3,000 was paid for the two Board meetings held on February 18 and February 19, 2019, and for the two Board meetings held on April 26, 2019), five Strategic Committee meetings and four Crisis Management Committee meetings, leading to a variable amount of EUR 48,000.
The Ordinary and Extraordinary Shareholders’ Meeting of April 26, 2018, in its 4th resolution, approved, in accordance with the provisions of Article L. 225-42-1 of the French Commercial Code, the following commitments made by the Board of Directors in favor of the Chairman and Chief Executive Officer.
As the plan is closed to new entry since June 30, 2008, only the Group’s senior executives based in France and employed by the Group before this date benefit from this supplementary retirement plan. As he joined SCOR in 2002, the Chairman and Chief Executive Officer is entitled to a guaranteed pension plan of 50% of his reference income, less any pension benefits acquired under other collective and mandatory pension schemes. Moreover, this amount may under no circumstances exceed 45% of the reference income, pursuant to the AFEP-MEDEF corporate governance code. It should be noted that, given his seniority within the Company, the Chairman and Chief Executive Officer has reached the ceiling of 45% set by the plan. The Chairman and Chief Executive Officer has not acquired any additional right since 2011. Consequently, the legal provision which limits the annual increase in potential rights to 3% of the compensation of the beneficiary has no practical implications in his case. Since 2014, he has had the option of exercising his rights under this plan in the event of retirement.
The Chairman and Chief Executive Officer is entitled to this supplementary pension plan, subject to still being in the Company as a corporate officer or an employee of the Company when he retires.
The commitments made by SCOR concerning the defined benefit supplementary pension scheme of its Chairman and Chief Executive Officer represent, as at December 31, 2019, an estimated annual gross pension amount of EUR 1,066,796 based on seniority as at December 31, 2019. This amount represents 44.0% of the Chairman and CEO’s reference compensation, which corresponds to the average of his annual compensation over the five last years, including the fixed and the variable annual compensation. It is a reduction compared to the estimation as at December 31, 2019 of the annual gross pension amount, which was 1,142,573 euros. .
No retirement benefit (or commitment) has been paid to the Chairman and Chief Executive Officer in 2019.
The total pension benefits provision relating to the Chairman and CEO amounts to EUR 24.7 million based on his reference compensation. This amount breaks down as follows: 19.9 million euros excluding employer social contributions and 4.8 million euros corresponding to employer social contributions. Despite the reduction of the estimated annual gross pension amount, the provision has increased by EUR 2.2 million from December 31, 2018. This increase reflects notably the impact of lower interest rates.
*Compensation, indemnities or benefits due or awarded in respect of the financial year which are or have been submitted to the Company’s Shareholders’ Meeting in accordance to the rules applicable to related party agreements and commitments.
Table of the objectives of the Chairman and Chief Executive Officer
The solvency ratio, as defined by the internal model, is estimated at 226% at the end of 2019, i.e. 41 percentage points above the lower limit of the optimal range defined in the strategic plan (185%).
• investments: average return on invested assets of 3.1%, against a
(1) The average normalized ROE and normalized net combined ratio have been adjusted for the following items: the difference between the actual and budget natural catastrophe claims, the reserve releases, the impacts from Ogden rate adjustments, and, for the normalized RoE only, the U.S. Tax reform impact in 2018.
Preparing the Group for the risks and opportunities related to the new IFRS 9 and IFRS 17 standards
Under the leadership of the President and CEO, nearly 200 people have been mobilized to work actively on this project throughout the world. The general design phase of the project is almost complete and implementation work has started to meet the regulatory deadline. IFRS9 brings fundamental changes to the accounting of financial instruments, replacing IAS39. Here too, the Group has committed significant resources to ensure compliance with the standard and to actively take advantage of it. This notably involves the establishment of a new application platform and the integration of middle-office teams capable of managing the entire administration.
Corporate Social and Environmental Responsibility / Fight against climate change (Weight: 7.5%)
Deepening the integration of ESG issues, particularly in relation to the climate, in the Group's activities and operations
With regard to the Group's underwriting activities: • formalization of ESG integration guidelines in insurance activities and strengthening of KYC (Know Your Customer) for sensitive sectors / themes; • ESG quality assessment of insurance activities; • reinforcement of the exclusion policy in the coal sector (exclusion of new coal-fired power plants); • commitment to support by 2025 the development of (re)insurance solutions for countries highly exposed to climate change via the Insurance Development Forum and Insuresilience.
Regarding Group operations: • 100% offsetting of the emissions measured in 2019 (compared to around 40% in 2018) via the acquisition of carbon credits and commitment to pursue this policy as part of the “Quantum Leap” plan; • 34.7% reduction in emissions per employee relating to office operations and car fleet compared to 2014; • effective rollout of initiatives to reduce the use of plastic in Group offices; • continued efforts to reduce paper consumption: 14% decrease in purchases compared to 2018; • ISO 14001 certification for Paris offices and renewal of Breeam in use certifications in London.
Strengthening the Group's talent pool, particularly through training and active management of careers and skills
In terms of career management, active career management facilitated more than 180 internal mobility transfers in 2019, covering more than 33% of recruitments (compared with 30% in 2018 and 20% in 2017). 80% of employees were covered by Leadership & Organization Reviews, during which the emphasis was placed on succession plans. However, the objective of establishing a succession plan covering all staff reporting to Executive Committee members down to level N-3 was not achieved. In order to attract the best talent, an innovative campaign to promote the employer brand was carried out on social media through video testimonials from 60 employees who played the role of ambassadors. It generated 10% more LinkedIn followers, 2,100 likes on Instagram and a rise in the Glassdoor rating to 3.8 at the end of 2019 (+0.9 compared to July 2018).
Corporate Social and Environmental Responsibility / Human Capital Management (Weight: 7.5%)
Stock options and performance shares In accordance with the AFEP-MEDEF corporate governance code, the following tables present for the executive corporate officer the stock options granted and exercised during the financial year as well as the performance shares granted and the performance shares that became available during the financial year.
Number of shares becoming available during the period Vesting conditions 118,750Denis Kessler Presence condition until September 1, 2017 and performance conditionsSeptember 1, 2011
February 23, 2016106,250Denis Kessler Presence condition until February 23, 2019 and performance conditions
+33 percentage pointsDifference between the average Solvency Ratio over 2015-2017 and the average Target Solvency Ratio
Solvency ratio at the end of each quarter ≥150% for 2015 and 2016 years 100%Ratio above 150% each quarter
SCOR Global P&C’s combined ratio ≤100% on average in 2015 and 2016 100%92.1%
ROE SCOR > 1,000 points above the risk-free rate on average in 2015 and 2016 100%1,036 bps
Ratio between the observed average ROE over 2011-2016 and the average Target ROE 90%96.7%
Median compensation paid or granted on a full-time equivalent basis to the Group employees other than the executive corporate officer 98,840(3) 98,616100,267 102,583
Consolidated net income – Group share (in million EUR) 322642 286603 422 4.5%9.5% 7.0%5.5%Return on equity 10.6%
215%Solvency ratio estimated at the end of the year 211% 213%225% 226%
The Shareholders’ Meeting of the Company held on April 26, 2019 resolved that the annual maximum aggregate amount of the compensation for the directors shall not exceed EUR 1,550,000. Upon the proposal of the Compensation and Nomination Committee and within the limit of the amount agreed by the Shareholders’ Meeting, the Board of Directors at its meetings held on February 21, 2017 and October 23, 2018 set the terms and conditions of the allocation so as to encourage the attendance of the directors and to be compliant with the AFEP-MEDEF corporate governance code which stipulates that directors’ compensation should consist primarily of a variable portion. In accordance with the AFEP-MEDEF corporate governance, the directors should be shareholders themselves and hold a significant number of shares in relation to the compensation awarded. According to the Board’s Internal Charter, this significant number of shares corresponds to an amount of EUR 10,000 at the time of purchase of the shares. These latter provisions do not apply to the employee directors.
The Board of Directors decided to allocate the compensation as follows: • partly in one fixed sum of EUR 28,000 annually payable at the end of each quarter. For non-French resident directors, an additional EUR 10,000 per year is allocated; • partly based on the effective presence of directors at the meetings of the Board of Directors and of its Committees, in an amount equal to EUR 3,000 per Board or per Committee meeting they attend, except for the Chairmen of the Audit Committee, Risk Committee, Compensation and Nomination Committee, Corporate Social and Societal Responsibility and Environmental Sustainability Committee and Crisis Management Committee, who receive an amount equal to EUR 6,000 for each meeting of the Committee that they chair.
Moreover, the non-executive members of the Board of Directors, who are individuals, received an amount of EUR 10,000 on September 12, 2019, which they invested in SCOR shares.
No pension contribution (or commitment) has been paid to the directors, except for the Chairman and Chief Executive Officer, in the exercise of their mandate.
Mrs. Kory Sorenson 118,000125,000 Mr. Claude Tendil 98,000110,000 Mrs. Zhen Wang 68,50099,000 150,000156,000Mrs. Fields Wicker-Miurin 32,000N/AMrs. Michèle Aronvald (4)
(3) Director whose term of office began at the end of Shareholder's Meeting on April 26, 2018 (4) Director whose term of office ended at the Shareholders’ Meeting on April 26, 2018. (5) Director who resigned on November 13, 2018.
Number of shares held by directors Article 10 (“Administration”) of SCOR SE’s bylaws requires that directors own at least one share of the Company during the term of their directorship.
Malakoff Médéric Assurances, represented by Thomas Saunier 5,484,767 3,659Mrs. Kory Sorenson 5,526Mr. Claude Tendil 512Mrs. Zhen Wang Mrs. Fields Wicker-Miurin 2,251 7,084,391TOTAL
In accordance with Article L.225-37-2 of the French Commercial Code, the following paragraphs present the elements relating to the compensation policy for all the Group's corporate officers Directors and Chairman and Chief Executive Officer, submitted for approval by the annual shareholders’ meeting which will approve the accounts for the financial year ending December 31, 2019.
In addition, the review of the compensation policy for corporate officers takes into account the opinions expressed by shareholders through their votes at the Company's general meetings as well as in the context of the active shareholder dialogue maintained with them, including contacts in the presence of the Lead Director. The compensation and employment conditions of the Company's employees are also an integral part of the process of determining and reviewing the compensation policy, being taken into account in the consistency analysis of the compensation structure implemented by the Company. This compensation policy is established in accordance with the measures implemented by the Company to prevent conflicts of interest. The Chairman and Chief Executive Officer is not a member of the Compensation and Nomination Committee and does not attend the discussions of the Board of Directors relating to his compensation.
The compensation policy is established in compliance with the legal and regulatory provisions and following the recommendations of the AFEP-MEDEF Code.
Pursuant to the July 3, 2008 Act implementing the European Union Directive 2006/46/EC of June 14, 2006, SCOR refers to the AFEPMEDEF Corporate Governance Code in preparing the report to be issued in accordance with Article L. 225-37 of the French Commercial Code.
The changes in relation to the compensation policy for the Chairman and Chief Executive Officer presented in 2019 - are specifically identified in the relevant sections.
2.2.1.4.1 Compensation policy of the directors The Shareholders’ Meeting of the Company establishes the maximum aggregate amount of the compensation for the directors.
Thus, the Shareholders’ Meeting of the Company held on April 26, 2019 resolved that the amount shall not exceed 1 550 000 euros.
The individual compensation of the directors is allocated as follows, within the limit of the maximum annual envelope voted by the Shareholder’s meeting: • partly in one fixed sum of EUR 28,000 annually payable at the end of each quarter. For non-French resident directors, an additional EUR 10,000 per year is allocated; • partly based on the effective presence of directors at the meetings of the Board of Directors and of its Committees, in an amount equal to EUR 3,000 per Board or per Committee meeting they attend, except for the Chairmen of the Audit Committee, Risk Committee, Compensation and Nomination Committee, Corporate Social and Societal Responsibility and Environmental Sustainability Committee and Crisis Management Committee, who receive an amount equal to EUR 6,000 for each meeting of the Committee that they chair.
Moreover, the non-executive members of the Board of Directors, who are individuals, receive an amount of EUR 10,000 each year to invest in SCOR shares.
Except the Chairman and Chief Executive Officer and the employee directors, members of the Board of Directors are not entitled to Company stock option plans or free share allocation plans, nor to any variable compensation other than the compensation attributable to their attendance to meetings.
No pension contribution (or commitment) is paid to the directors, except for the Chairman and Chief Executive Officer, in the exercise of their mandate.
2.2.1.4.2 Compensation policy of Mr. Denis Kessler as chairman and chief executive officer for the 2020 reporting period Set out below is the compensation policy regarding the Chairman and Chief Executive Officer of SCOR SE for the 2020 reporting period, which will be submitted for approval to the shareholders in accordance with the provisions of Article L. 225-37-2 of the French Commercial Code.
In compliance with the AFEP and MEDEF recommendations, there is no employment contract between Denis Kessler and the Company.
Governance The Board of Directors of SCOR SE decided, at its December 12, 2008 meeting, to apply the AFEP (Association of French Private sector Companies) and MEDEF (French Business Confederation) recommendations to the compensation of the executive corporate officer of SCOR, considering that these are in line with SCOR’s corporate governance principles.
In a context marked by a dispute with Covéa (refer to section 4.6.25. – Litigation) as well as by an activist campaign, the approval rates for the resolutions relating to the total compensation and benefits in kind for the Chairman and Chief Executive Officer were, for the resolution relating to the previous financial year, 54.46%, and for the resolution relating to the compensation policy, 54.56%.
Taking note of these results, and while considering the particular circumstances that led to them, the Compensation and Nomination Committee decided to carry out an in-depth review of the compensation policy, based on a detailed presentation by the Secretary General and the Lead Director of the opinions expressed by the shareholders before and after the Shareholders' Meeting. This presentation was submitted to the Committee at its July 2019 meeting and was then updated for its October and December 2019 and January and February 2020 meetings. At each of its meetings, the Committee discussed possible developments that were regularly fed by the shareholder dialogue during this period.
This work contributed to the content of the recommendations made by the Committee to the Board of Directors, which validated them at its meeting of February 26, 2020.
The proposed changes concern: • reinforcing the justification of the rates of achievement of personal objectives, particularly in the event of a rate of achievement exceeding 100%: the Committee and the Board of Directors decided to pay particular attention to this point during their deliberations on the achievement of objectives for the 2019 financial year and the setting of objectives for 2020; • the replacement of the linear scale for calculating the portion of annual variable compensation relating to the ROE target by a stepwise scale that is systematically less favorable, particularly in the event of ROE achieved below the ROE target (minimum threshold raised from 30% to 50% of the target). On the Committee's recommendation, the Board of Directors also decided that this new scale would be applied retroactively to the calculation of the portion of annual variable compensation for the 2019 financial year; • the introduction of a pro rata measure for free share and stock option plans in the event of a forced departure for reasons other than fault or insufficient performance; • the fact that in the event of dismissal, the calculation of variable compensation for the current financial year must be subject to an ad hoc evaluation and is no longer determined on the basis of the variable compensation for the previous financial year; • no payment of variable compensation in the event of dismissal for misconduct.
Principles and rules for determining the compensation and benefits of the Chairman and Chief Executive Officer The compensation policy for the Chairman and Chief Executive Officer is set by the Board of Directors and is subject to an annual review in light of the recommendations made by the Compensation and Nomination Committee.
This compensation policy rests on the principles set out below, which are consistent with SCOR Group global compensation policy principles and rigorously applied by the Compensation and Nomination Committee as part of its work, both in the creation and development of the compensation policy submitted to the Board with regard to the Chairman and Chief Executive Officer and in its attribution proposals.
Compliance The compensation policy was established in accordance with the recommendations of the AFEP-MEDEF Code as revised in January 2020.
Talent management and alignment of interests The compensation policy of SCOR constitutes a tool that enables the Group to attract, motivate and retain talents at the highest level, and to meet the expectations of shareholders and other stakeholders, notably in terms of transparency and the link between compensation and performance.
Comparability and competitiveness The Board of Directors has decided that the evolution of the Chairman and Chief Executive Officer’s compensation would be determined in the light of benchmark analysis.
Recruitment The Board of Directors has decided that, should a new Chief Executive Officer be appointed, these same principles will apply.
Directors’ compensation of the Chairman and Chief Executive Officer As a director of SCOR SE, the Chairman and Chief Executive Officer receives directors’ compensation. This compensation is attributed under the conditions set out in section 2.2.1.4.1. – Compensation Policy of the Directors.
In accordance with the AFEP-MEDEF Code, the potential amount of variable compensation is expressed as a percentage of the fixed compensation.
Structure of the variable remuneration The target variable annual portion of the Chairman and Chief Executive Officer rests on transparent and demanding objectives tailored to the Group’s activity sector.
At the end of each year, and for each objective, the level of the achieved result compared to the expected target is communicated, with a justification of the achievement rate.
Termination of duties In order to take into account the most recent shareholder votes on compensation policy and the opinions expressed by certain shareholders, the Board of Directors has decided to change the compensation arrangements in the event that the Chairman and Chief Executive Officer leaves during the year: Should the Chairman and Chief Executive Officer leave during the current year: • his variable compensation relating to the previous year will be payable during the current year (unchanged from the 2019 compensation policy); • in the event of dismissal, the amount of his variable compensation for the current year will be determined by the Board of Directors pro rata temporis to his presence within the Group, without any other specific provision (whereas the 2019 compensation policy provided that the amounts allocated are determined on the basis of the variable compensation relating to the previous financial year); • no variable portion will be paid for the current financial year in the event of dismissal for misconduct (an addition compared to the 2019 compensation policy).
Recruitment The Board of Directors has decided that, in the event that a new Chief Executive Officer is appointed, these same principles will apply, it being specified that if the appointment is made during the current year, the amount due will be prorated based on presence within the Group. Nevertheless, if an appointment is made during the second half of the year in question, performance will be assessed at the discretion of the Board of Directors on the proposal of the Compensation and Nomination Committee.
Moreover, the Board of Directors may also decide to award an amount designed to compensate the new executive corporate officer hired from a company outside the Group for the loss of the variable annual compensation linked to his/her departure from his/ her previous employer, bearing in mind that the payment of such compensation may only take place with the approval of shareholders, in accordance with Article L. 225-37-2 of the French Commercial Code.
The Board of Directors has decided that the Chairman and Chief Executive Officer will not benefit from exceptional compensation for the fiscal year ended on December 31, 2020.
Performance conditions The Board of Directors has decided to subject all stock option and performance share allocations made to the Chairman and Chief Executive Officer to performance conditions, in line with the main strategic objectives of SCOR as set out below.
Each year, the Board of Directors, on the recommendation of the Compensation and Nomination Committee, confirms or determines the performance conditions, their weighting, their targets and their achievement levels, based on the authorizations granted by the Shareholders’ Meeting. All of these conditions are made public every year in this document.
Proportion of the shares definitively acquired / options that could be exercised under this criterion
Higher than or equal to 0 percentage point 100% Between 0 and up to -35 percentage points Linear sliding scale Lower than or equal to -35 percentage points 0%
* If the strategic plan sets a target or “optimal” range, the lower end of this range is considered for calculation purposes as being the Target Solvency Ratio*.
Other than in specific cases (1), the definitive acquisition of performance shares and the right to exercise stock options by the Chairman and Chief Executive Officer are subject to a presence condition until the end of the acquisition period.
Allocation ceiling In accordance with the authorizations by the Shareholders’ Meetings, the stock options and performance shares granted to the Chairman and Chief Executive Officer cannot exceed 10% of the total allocations.
The maximum grants for 2020 decided by the Board of Directors at its meeting on February 26, 2020, comply with this ceiling: • A grant of 125,000 performance shares would represent 4.2% of the performance shares authorized by the Shareholders' Meeting; • A grant of 100,000 stock options would represent 6.7% of the stock options authorized by the Shareholders' Meeting.
Recruitment The Board of Directors has decided that, in the event that a new Chief Executive Officer is appointed, these same principles will apply, bearing in mind that a specific allocation may be made to compensate the new executive corporate officer for the loss of the variable long-term compensation linked to his/her departure from his/her previous employer.
Multi-year compensation The Board of Directors has decided not to use this type of longterm compensation system with a cash payment, preferring to focus instead on share-based instruments that strengthen the alignment of interests with shareholders.
In the event of forced departure or dismissal during the twelve (12) months preceding the end of his term of office, no severance pay would be due.
(iii) in the event of forced departure or dismissal resulting from an unsolicited offer or not recommended by the Board of Directors of the Company resulting in a change of control of the Group, the Chief Executive Officer would receive severance pay equal to the sum of the fixed and variable elements of his annual gross compensation paid in the twenty-four (24) months preceding the date of his departure from the Group. No severance pay would be due in case of non-fulfillment of the performance condition (C_n) defined below.
The purpose of these criteria is to ensure alignment with successive strategic plans, particularly the "Quantum Leap" strategic plan, by incorporating their objectives and thus being representative of the impact of the Chairman and Chief Executive Officer on the Group's performance.
This guarantee is calculated according to a reference income based on his average compensation received over the last five years within the Group considered as “traitements et salaires” under French tax laws. The Chairman and Chief Executive Officer is entitled to this supplementary pension plan, subject to still being in the Company as a corporate officer or an employee of the Company when the benefits are granted.
To this end, an individual insurance policy has been underwritten to complement the “all causes” death or permanent disability insurance policy for senior executives, dated June 30, 1993, as renewed or renegotiated annually, and whose last version is compliant with the collective and compulsory welfare plan, specific to SCOR which benefits on an objective category of employees who have an annual gross base compensation equal to or exceeding three times the social security ceiling. It is specified that these individual and collective “all causes” death insurance policies are renewed or renegotiated on an annual basis so that the Chairman and Chief Executive Officer will benefit from any policies that may replace the existing ones.
The members of the Executive Committee do not receive compensation in respect of their directorships in companies in which SCOR holds more than 20% of the capital.
Pension benefits As it is the case for all senior executives employed in France, the members of the Executive Committee who joined SCOR before June 30, 2008 and are employed in France, are entitled to a guaranteed pension plan conditional notably upon a minimum five years of service with the Group, the payment of which is based on their average compensation over the last five years. This pension plan was closed to employees hired after June 30, 2008.
Gross compensation of the Executive Committee members excluding the executive corporate officer (1) 8,799,225 9,868,9588,600,715
2.2.3.1. Stock options held by the executive corporate officer and the members of the Executive Committee as at December 31, 2019
The table below presents the stock option plans granted to the Executive Committee and the executive corporate officer as at December 31,
Frieder Knüpling 03/22/2011 to03/23/2015 -03/22/202140,000 40,00019.71 to 20,00020,00003/21/201340,000 03/22/201722.25 03/21/2023 -03/10/201650,000 03/11/202031.58 03/10/2026to 33. 78 03/10/2027to --03/10/201750,000 03/11/2021 03/08/2018 to03/09/2022 -03/08/202840,000 -35.10 03/22/20197,500
Paolo De Martin 48,00014.92 to -48,00003/22/201148,000 03/23/201519.71 03/22/2021 03/10/2016 to03/11/2020 -03/10/202660,000 -31.58 to --03/08/201848,000 03/09/202235.10 03/08/2028 48,000 03/08/202338.66 03/07/2029to --03/07/2019 5,000 03/23/201314.92 03/22/2019to
Romain Launay 10,000-03/23/201210,000 03/24/201620.17 03/23/2022 03/22/2017 15503/21/20235,000 4,84522.2503/21/2013 to 31.58 03/10/2026to --03/10/201640,000 03/11/2020 03/10/2017 to03/11/2021 -03/10/202740,000 -33.78 to --03/07/201932,000 03/08/202338.66 03/07/2029 03/23/2009 to03/23/2013 -03/22/201932,000
François de Varenne 32,00014.92 to 40,000-03/22/201140,000 03/23/201519.71 03/22/2021 03/24/2016 -03/23/202240,000 40,00020.1703/23/2012 to 40,00022.2503/21/2013 to03/22/2017 -03/21/202340,000 03/10/2016 to03/11/2020 -03/10/202640,000 -31.58 to --03/08/201840,000 03/09/202235.10 03/08/2028 48,000 03/08/202338.66 03/07/2029to --03/07/2019
Brona Magee -4,50003/20/2015 to --03/10/20165,628 03/11/202031.58 03/10/2026 12/02/2021 -12/01/20273,978 -34.7512/01/2017 to -40.8112/22/2018 to12/23/2022 -12/22/202814,320 -03/07/201932,000 03/08/202338.66 03/07/2029to 766, 3453,349,685GRAND TOTAL 1,176,280
2.2.3.2. Free allocation of shares to the members of the Executive Committee and the executive corporate officer as at December 31, 2019
The table below presents the share award rights granted to the Executive Committee and the executive corporate officer as at December 31, 2019: Number of Shares acquired
Denis Kessler 118,750 09/02/2019 --75,0002016-2022 Long Term Incentive Plan - 02/24/2022
Frieder Knüpling 38,000 09/02/20191,376,36040,000 40,000 -2013-2021 Long Term Incentive Plan - 03/06/2021- --50,0002017-2023 Long Term Incentive Plan (1) - 02/22/2023 2019-2025 Long Term Incentive Plan -- 02/20/2025-30,000
Mark Kociancic 6,6507,000 240,8632011-2019 Long Term Incentive Plan 36.22 09/02/2019 2013-2021 Long Term Incentive Plan - 03/06/2021--40,000 2019-2025 Long Term Incentive Plan -- 02/20/2025-30,000
Jean-Paul Conoscente 4,7505,000 172,0452011-2019 Long Term Incentive Plan 36.22 09/02/2019 4,000 -2016-2022 Long Term Incentive Plan - 02/24/20222017 -2023 Long Term Incentive Plan -- 12/02/2023-1,000 2019-2025 Long Term Incentive Plan - 02/20/2025-25,000 -
Effective vested value at transfer date (in EUR) Negotiability date Share award rightsPlan
Laurent Rousseau 3,800 03/06/2021150,9744,0002013-2021 Long Term Incentive Plan 39.73 --5,000 02/24/20222016-2022 Long Term Incentive Plan 2017 -2023 Long Term Incentive Plan - 12/02/2023--1,250 -20,000 02/20/20252019-2025 Long Term Incentive Plan - 03 /05/2022-
The annual reports published by the company on previous years show the information related to the plans covering shares delivered before 2019.
2.2.3.3. Potential volume of new shares from outstanding share-based compensation plans as of December 31, 2019
The potential volume of new shares from outstanding share-based compensation plans stood at 5,832,945 shares as of December 31, 2019, broken down as follows: Potential volume of new shares from outstanding share-based compensation plans linked to Group executive and employee compensation instruments • of which number of potential new shares from outstanding stock option plans (options allocated but not vested + options vested but not exercised) 4,481,085
(2) Authorization granted by the Shareholders’ Meeting of April 26, 2019 in its 23rd resolution (stock options).
If, nonetheless, free shares were taken into account in the calculation of the potential volume of new shares from outstanding share-based compensation, this theoretical volume (which corresponds to outstanding shares or new shares to be issued) would stand at 13,417,768 on December 31, 2019, due to the addition of (i) outstanding free share allocation plans (shares allocated but not vested on December 31, 2019, i.e. 5,383,825 shares) and, (ii) the unused part of the authorization granted by the Shareholders’ Meeting of April 26, 2019 in its 24th resolution concerning the free allocation of outstanding shares (2,200,988 shares).
The Company's fully diluted issued share capital, as defined below, stood at 229,428,691 shares as of December 31, 2019, broken down as follows: 229,428,691Fully diluted issued share capital • of which total shares comprising the share capital 187,049,511 • of which number of potential new shares from outstanding stock options plans 4,481,085 0• of which number of potential new shares from outstanding free share plans (1)
As of December 31, 2019, the potential volume of new shares from outstanding share-based compensation plans and unused part of the authorizations linked to Group executive and employee compensation instruments stands at 2.54% of the fully diluted share capital.
If free shares were taken into account in the calculation of the potential volume of new shares from outstanding share-based compensation plans and unused part of the authorizations and in the calculation of the fully diluted share capital, this theoretical volume (which corresponds to outstanding shares or new shares to be issued) would stand at 5.66% of the fully diluted share capital on December 31, 2019.
On April 26, 2018, the Shareholders’ Meeting authorized the Company's Board of Directors, in its 23rd resolution, under the provisions of Articles L. 225-177 to L. 225-186-1 of the Commercial Code, upon proposal of the Compensation and Nomination Committee, on one or more occasions, to grant employees of the Company and related companies or groups in terms of Article L. 225-180 of the Commercial Code, as well as the executive corporate officer, options giving the right to the subscription of new shares of the Company to be issued to increase the capital, as well as options giving the right to purchase shares of the Company repurchased by the Company as authorized by the law and within the limits of a number of options giving right to a maximum of one million five hundred thousand (1,500,000) shares. This authorization was given for a period of 24 months from April 26, 2018 and cancelled and replaced, for the unused portion thereof, the previous authorization of April 27, 2017.
Moreover, it should be noted that SCOR is committed to the neutral impact of each stock option allocation in terms of dilution. To achieve this, SCOR’s policy is to systematically neutralize, as far as possible, the potential dilutive impact that could result from the issuance of new ordinary shares following the exercise of stock options, by covering the exposure resulting from the issuance of stock options through the purchase of ordinary shares under its share buyback program, and by cancelling the treasury shares thus acquired as the options are exercised. Therefore, there is no dilution of capital related to the grant of stock options.
March 7, 2019 stock option plan Pursuant to a decision taken by the Board of Directors on February 19, 2019 following a proposal from the Compensation and Nominations Committee at its February 19, 2019 meeting, in accordance with the authorization granted to it by the combined Shareholders' Meeting of April 26, 2018, on March 7, 2019, 100,000 stock options were granted to the Chairman and Chief Executive Officer and 328,000 stock options were granted to other members of the Executive Committee.
Refer to Section 2.2.3.1. of this document for the details of the stock options allocated to the members of the Executive Committee.
In addition to the mandatory conditions (1), (2) and (3), the exercise of all stock options allocated is subject to performance conditions.
In any case, if the observed average ROE is lower than 5%, the proportion of stock options that could be exercised under this criterion would be 0%.
The remaining half of the options will be exercisable provided that the average solvency ratio over three years (from January 1, 2019 to December 31, 2021) is at least equal to SCOR's average strategic solvency ratio target over the same period (the "Target Solvency Ratio" (1)). Nevertheless, if the average solvency ratio recorded is lower than the Target Solvency Ratio, the stock options will be exercisable according to the sliding scale set out in the table below: Difference between the average solvency ratio and the Target Solvency Ratio Proportion of the options that can be exercised under this criterion 100%Higher than or equal to 0 percentage point Between 0 and up to -35 percentage points Linear sliding scale Lower than or equal to -35 percentage points 0%
The table below presents the total number of stock options allocated in 2018 and 2019 by category of beneficiary within the Group: Total number of stock options allocated in 2019
A table showing features of the SCOR stock option plans can be found in Section 4.6. – Notes to the consolidated financial statements, Note 16.2 – Stock options and share allocations.
It should be noted that it is not possible to exercise these stock options during the 30 days before the publication of the annual or half-year financial statements, or during the 15 days before the publication of SCOR’s quarterly financial results.
Number of shares underlying the stock options granted during the financial year by the issuer and by any company included in the scope of allocation of the options to the ten employees of the issuer and of any company included in such scope, whose number of shares thus purchased or granted is the highest (aggregate information) 347,500
Number of shares underlying the stock options of the issuer and of the companies referred to above and exercised during the financial year by the ten employees of the issuer or these companies, whose number of options thus purchased or subscribed is the highest (aggregate information) 174,345
Free share allocation plans Pursuant to the provisions of Article L. 225-197-4 of the French Commercial Code, information provided in this section constitutes the special report of the Board of Directors on the allocation of existing free shares in order to inform the Shareholders’ Meeting of transactions completed under the provisions of Articles L. 225197 -1 to L. 225-197-6 of the same code.
On April 26, 2018, the Shareholders’ Meeting of the Company, in its 24th resolution, authorized the Company’s Board of Directors, under the provisions of Articles L. 225-197-1 to L. 225-197-6 of the French Commercial Code, to grant, upon a proposal of the Compensation and Nomination Committee, on one or more occasions, in favor of employees of the Company and of companies or groups affiliated with it pursuant to Article L. 225197 -2 of the French Commercial Code, as well as in favor of the corporate officers as defined under Article L. 225-197-1-II of the French Commercial Code, free allocations of existing ordinary shares of the Company and resolved that the Company's Board of Directors would determine the identity of the beneficiaries of the allocation as well as the rights and conditions attached to the conditional entitlement to receive the shares.
The Shareholders’ Meeting also decided that (i) the total number of free shares granted under the conditions and, if applicable, subject to the fulfillment of the performance conditions set by the Board of Directors further to a proposal from the Compensation and Nomination Committee, pursuant to this authorization may not exceed 3,000,000 shares, (ii) the allocation of shares to their beneficiaries will be definitive only after a vesting period of a minimum set at three years.
This authorization was given for a period of 24 months from the date of Shareholder’s meeting, i.e. until April 26, 2020 and rendered ineffective, for its unused part, the previous authorization granted on April 27, 2017 in its twenty-second resolution.
This authorization was given for a period of 24 months from the date of the Shareholder’s meeting, i.e. until April 26, 2021 and rendered ineffective, for its unused part, the previous authorization granted on April 26, 2018 in its twenty-fourth resolution.
Refer to Section 2.2.3.2. of the present Universal Registration Document for the details of the performance shares granted to the members of the Executive Committee.
The provisions of the plan provide for a vesting period of three years for all beneficiaries.
In addition to the mandatory conditions (1), (2) and (3), the final vesting of the shares is also subject to performance conditions.
The final vesting of half of the shares is subject to the fact that SCOR's average return on equity "ROE" over three years (from January 1, 2019 to December 31, 2021) is equal to SCOR's average strategic ROE target (the “Target ROE”) over the same period. If the observed average ROE is lower or higher than the Target ROE, the shares will vest according to the sliding scale set out in the table below: Ratio between the observed average ROE and the Target ROE Proportion of the shares finally vested under this criterion 150%From 125% 140%Between 120% and 124.99%
In any case, if the observed average ROE is lower than 5%, the proportion of the shares that may be vested under this criterion will be 0%.
The final vesting of the remaining half of the shares granted is subject to the fact that the average solvency ratio over three years (from January 1, 2019 to December 31, 2021) is at least equal to SCOR's average strategic solvency ratio target over the same period (the "Target Solvency Ratio" (1)). If the observed average solvency ratio is lower than the Target Solvency Ratio, the shares will vest according to the sliding scale set out in the table below: Proportion of the shares finally vested under this criterion Difference between the average solvency ratio and the Target Solvency Ratio Higher than or equal to 0 percentage point 100% Between 0 and up to -35 percentage points Linear sliding scale 0%Lower than or equal to -35 percentage points
The final vesting of half of the shares granted is subject to the fact SCOR's average return on equity "ROE" over six years (from January 1, 2019 to December 31, 2024) is equal to SCOR's average strategic ROE target (the “Target ROE”) over the same period. If the observed average ROE is lower or higher than the Target ROE, the shares will vest according to the sliding scale set out in the table below: Proportion of the shares finally vested under this criterion Ratio between the observed average ROE and the Target ROE
100%Between 100% and 109.99% 90%Between 80% and 99.99% 70%Between 70% and 79.99%
The final vesting of the remaining half of the shares is subject to the fact that the average solvency ratio over six years (from January 1, 2019 to December 31, 2024) is at least equal to SCOR's average strategic solvency ratio target over the same period (the "Target Solvency Ratio" (1)). If the observed average solvency ratio is lower than the Target Solvency Ratio, the shares will vest according to the sliding scale set out in the table below: Difference between the average solvency ratio and the Target Solvency Ratio Proportion of the shares finally vested under this criterion Higher than or equal to 0 percentage point 100%
Linear sliding scaleBetween 0 and up to -35 percentage points 0%Lower than or equal to -35 percentage points
October 23, 2019 Long Term Incentive Plan Pursuant to a decision taken by the Board of Directors on October 23, 2019 following a proposal from the Compensation and Nominations Committee at its October 23, 2019 meeting, in accordance with the authorization granted to it by the Combined Shareholders’ Meeting of April 26, 2019, 91,798 performance shares were awarded on October 23, 2019 to Partners and specific Non Partners employees of the Group (83 employees).
The final vesting of the shares granted is also subject to the satisfaction of performance conditions. The performance conditions are identical to those of the February 19, 2019 Long Term Incentive plan. However, it should be noted that the outperformance of the ROE criterion cannot offset underperformance of the solvency criterion.
(1) If the strategic plan sets a target or "optimal" interval, the lower end of this range is considered for calculation purposes as being the Target Solvency Ratio.
The table below presents the total number of shares allocated in 2018 and 2019 by category within the Group, all types of plans included: Total number of
Achievement of the performance conditions acknowledged in 2019 In 2019, the Compensation and Nomination Committee acknowledged the partial validation of all the performance conditions attached to the 2016 February and December performance share plans as described in the 2016
Registration Document, bringing the share acquisition rate to 85% for Executive Global Partners and Senior Global Partners and to 92.5% for the other beneficiaries. In addition to the performance conditions described below, the strict compliance with Group’s ethical principles as described in the Code of Conduct of SCOR Group was required.
Performance condition Achievement rateAchieved result 70%72.7%Ratio between the observed average ROE over 2016-2018 and the target ROE
+30 percentage pointsDifference between the average Solvency Ratio over 2013-2018 and the average Target Solvency Ratio 100%
(1) These shares have been allocated under non-qualified plans (2) The acquisition of these shares is subject to performance conditions. The performance shares granted before the Extraordinary Shareholders’ Meeting of December 18, 2015 are subject, for half of the grant or all of the grant, depending on the employee’s level within the organization, to performance conditions relating to the solvency ratio, the net combined ratio of SCOR Global P&C, the technical margin of SCOR Global Life and the ROE. Since the Extraordinary Shareholders’ Meeting of December 18, 2015, the performance conditions relate to the ROE and the Solvency Ratio. All the performance shares granted since 2011 as part of LTIP plans are subject to ROE and Solvency ratio performance conditions. The performance conditions are assessed over a two-year period for performance shares granted before the Extraordinary Shareholders’ Meeting of December 18, 2015, over a three-year period for performance shares granted as of the Extraordinary Shareholders’ Meeting of December 18, 2015, and over a six-year period for all LTIP performance shares.
Since the implementation of free share plans in 2004, 24,750,067 shares have been allocated, all types of plans included.
The table below presents the acquisitions, sales, subscriptions or exchanges of SCOR SE shares as well as transactions involving securities linked to SCOR SE carried out by directors, executive corporate officer and persons discharging managerial responsibilities in 2019.
Acquisition of shares for a total amount of EUR 4,159,688Mr. Denis Kessler
Exercise of stock options for a total amount of EUR 883,200 Acquisition of shares for a total amount of EUR 6,041,082 Sale of shares for a total amount of EUR 4,073,767.85 Sale of shares resulting from the exercise of stock options for a total amount of EUR 1,867,335.20
Exercise of stock options for a total amount of EUR 183,924.70 Acquisition of shares for a total amount of EUR 326,293.50 Sale of shares for a total amount of EUR 503,162.88
2.3.1.1. Significant shareholders known to SCOR Every quarter, SCOR conducts "TPI" ("Titres aux Porteurs Identifiables") searches to find out the number and identity of its bearer shareholders.
Distribution of capital (number of shares, % of capital and voting rights) – (i) shareholders with more than 5.0% of the registered capital and/or voting rights and (ii) shareholders who are members of the Board of Directors as at December 31, 2019 based on public notifications: % voting rights(1)% of capitalNumber of sharesAs at December 31, 2019 8.46%Groupe Covea (France )(2) 8.43%15,767,803 0.36%668,058 0.00%Treasury shares
Pursuant to the shareholders’ notifications received by SCOR, there was no shareholder other than those indicated in the table above, holding, directly or indirectly, alone or in concert, more than 5.0% of the share capital and/or voting rights of the Company as at December 31, 2019.There is no covenant stipulating preferential terms for the sale or purchase of ordinary shares eligible for trading on a regulated market, or for which an application is pending, and representing 0.5% or more of the share capital or voting rights that has been notified to the AMF. No ordinary shares have been pledged.
To SCOR’s knowledge, there is no shareholder agreement, or other agreement, among Company shareholders pursuant to which they act in concert. To the Group’s knowledge, there have been no transactions between executives, corporate officers, or shareholders holding more than 5.0% of the Company’s share capital, or of the company controlling them, and the Company on terms other than market terms.
To SCOR’s knowledge, the percentages of share capital and voting rights held by its directors and Executive Committee members were 4.25% of the capital and 4.27% of the voting rights as at December 31, 2019 (December 31, 2018: 4.17% of the capital and 4.37% of the voting rights).
SCOR discloses below the threshold declarations sent by the significant shareholders in 2019. SCOR is not responsible for ensuring the completeness of these declarations.
On February 18, 2019, Allianz Global Investors GmbH declared that it went below the registered threshold of 5.0% of the capital and voting rights in SCOR SE and that it held 9,641,573 shares or 4.99% of the capital and 9,641,573 voting rights or 4.99% of the voting rights in SCOR SE.
On March 19, 2019, Allianz Global Investors GmbH declared to have exceeded the registered threshold of 5.0% of the capital and voting rights in SCOR SE and that it held 9,677,759 shares or 5.01% of the capital and 9,677,759 voting rights or 5.01% of the voting rights in SCOR SE.
2.3.1.5. Agreement that are subject to termination in the event of a change of control
Cumulated number of shares composing the share capital further to the operationOperation
Increase of the share capital resulting from the exercise of stock-options as from January 1 to December 31, 2016 4,364,724.88April 27, 2017Reduction of the share capital by cancellation of self-owned shares to neutralize the dilutive effect resulting from the exercise of stock-options 191,980,4577.8769723554,112 1,512,224,741.93Situation on according to the decision of the Board of Directors on
April 26, 2018 1,692,602 13,332,579.077.8769723Reduction of the share capital by cancellation of self-owned shares to neutralize the dilutive effect resulting from the exercise of stock-options 191,807,715
10,067,377.137.8769723Increase of the share capital resulting from the exercise of stock-options as from January 1 to 31 December 2018
See Section 4.6.23. – Notes to the consolidated financial statements, Note 23 – Commitments received and given.
Number of shares initially authorized at the date of the Shareholders’ Meeting and number of outstanding shares authorized at the date of the Universal Registration Document
19,308,579 shares 18th resolution (Delegation of authority granted to the Board of Directors for the purpose of issuing shares and/or securities granting access to the capital or entitling the holder to debt instruments, as compensation for shares contributed to the Company in the context of contributions in kind within a limit of 10% of the share capital, without pre-emptive subscription rights) (1)
October 25, 21th resolution (Delegation of authority granted to the Board of Directors for the purpose of issuing warrants for the issuance of ordinary shares of the Company, with cancellation of shareholders’ preferential subscription rights to the benefit of a category of entities meeting specific characteristics) (1)
Number of shares initially authorized at the date of the Shareholders’ Meeting of
Acquisition by the Company of treasury shares Stock buyback program in force on the date of filing this Universal Registration Document (program authorized by the Ordinary and Extraordinary Shareholders’ Meeting of April 26, 2019)
On April 26, 2019, the Shareholders’ Meeting, in its 12th resolution, authorized the Board of Directors, with the option to subdelegate, to trade on the Company’s shares in the framework of the 2019-2020 annual share repurchase program. The program allows to buy, sell and transfer Company shares pursuant, inter alia, to the provisions of Regulation (EU) No. 596/2014 of the European Parliament and of the Council of April 16, 2014, Articles L. 225-209 et seq. of the French Commercial Code and to the General Regulation (Règlement général) of the French Financial Markets Authority (Autorité des marchés financiers).
Such transactions on securities can be carried out for any purposes permitted or which would become authorized under applicable laws and regulations, including for purposes of the following objectives: • stimulation of the secondary market or provision of liquidity to the Company’s shares by an investment service provider through a liquidity contract in accordance with a code of practice recognized by the regulation; • setting-up, implementation or hedging of any stock option plans, other plans for allocation of shares and, generally, any form of allocation to employees and/or corporate officers (mandataires sociaux) of the Company and/or of affiliated companies, including hedging of any Company stock option plan pursuant to the provisions of Articles L. 225-177 et seq. of the French Commercial Code, allocation of free shares of the Company in conjunction with the provisions of Articles L. 225197 -1 et seq. of the French Commercial Code, allocation of Company shares pursuant to a profit sharing scheme (participation aux fruits de l’expansion de l’entreprise) or allocation or transfer of Company shares within the framework of any employee savings plan (plan d’épargne salariale), including in conjunction with the provisions of Articles L. 33211 et seq., and L. 3332-1 et seq., of the French Labor Code; • purchase of Company shares for retention and subsequent remittance in exchange or as payment, in particular in conjunction with financial or external growth transactions, without exceeding the limit set by paragraph 6 of Article L. 225209 of the French Commercial Code in conjunction with a merger, spin-off or contribution; • compliance with all obligations related to the issuance of securities granting access to capital; • cancellation of any shares repurchased, within the limits established by law, in conjunction with a reduction in share capital approved or authorized by the Shareholders’ Meeting.
Such transactions are carried out, under the conditions authorized by the stock exchange authorities, by any means, including on a regulated market, on a multilateral trading facility, via a systematic internalizer or over-the-counter, including, inter alia, by buying or selling blocks, by applying derivative financial instruments, listed on a regulated stock exchange or over-the-counter, or by the
implementation of optional strategies and, if applicable, by any third party authorized for such purpose by the Company.
The Shareholders’ Meeting set the maximum purchase price at EUR 60 per share (excluding acquisition fees).
Objectives of the transactions carried out in the course of the financial year 2019 and allocation of the treasury shares As at December 31, 2019, the treasury shares owned by SCOR SE represented 0.36% of the share capital. On such date, the portfolio of treasury shares was allocated as follows: • 126,872 treasury shares allocated to the stimulation of the secondary market or provision of liquidity to the Company’s shares; • 315,266 treasury shares allocated to the hedging of any form of allocation to employees and/or corporate officers (mandataires sociaux) of the Company and/or of affiliated companies; • 0 treasury shares allocated to the retention and subsequent remittance in exchange or as payment; • 0 treasury shares allocated to the compliance with all obligations related to the issuance of securities granting access to capital; • 225,920 treasury shares allocated to their cancellation.
Such transactions on securities would be carried out for any purposes permitted or which would become authorized under applicable laws and regulations, including for purposes of the following objectives: • stimulation of the secondary market or provision of liquidity to the Company’s shares by an investment service provider through a liquidity contract in accordance with a code of practice recognized by the regulation; Major shareholders and related party transactions REPORT ON CORPORATE GOVERNANCE
(mandataires sociaux) of the Company and/or of affiliated companies, including hedging of any Company stock option plan pursuant to the provisions of Articles L. 225-177 et seq. of the French Commercial Code, allocation of free shares of the Company in conjunction with the provisions of Articles L. 225197 -1 et seq. of the French Commercial Code, allocation of Company shares pursuant to a profit sharing scheme (participation aux fruits de l’expansion de l’entreprise) or allocation or transfer of Company shares within the framework of any employee savings plan (plan d’épargne salariale), including in conjunction with the provisions of Articles L. 33211 et seq., and L. 3332-1 et seq., of the French Labor Code; • purchase of Company shares for retention and subsequent remittance in exchange or as payment, in particular in conjunction with financial or external growth transactions, without exceeding the limit set by paragraph 6 of Article L. 225209 of the French Commercial Code in conjunction with a merger, spin-off or contribution; • compliance with all obligations related to the issuance of securities granting access to capital; • cancellation of any shares repurchased, within the limits established by law, in conjunction with a reduction in share capital approved or authorized by the Shareholders’ Meeting.
Such transactions would be carried out, under the conditions authorized by the stock exchange authorities, by any means, including on a regulated market, on a multilateral trading facility, via a systematic internalizer or over-the-counter, including, inter alia, by buying or selling blocks, by applying derivative financial instruments, listed on a regulated stock exchange or overthe -counter, or by the implementation of optional strategies and, if applicable, by any third party authorized for such purpose by the Company.
Such transactions would be carried out in accordance with applicable regulations, at any time, in one or several times. By way of exception, the Board of Directors shall not, unless previously authorized by the Shareholders’ Meeting, use this authorization during any public bid initiated by a third party on Company shares until the end of the offer acceptance period; it is however specified in this respect that the Company shall remain authorized to carry out the transactions covered by this resolution (i) if the public offering in question is to be completed entirely in cash and (ii) for the strict requirement of compliance with any undertakings made by the Company prior to the filing of the public offering in question, concerning the servicing or coverage of all stock options, other share allocations and, generally speaking, all forms of allocation in favor of employees and/or corporate officers (mandataires sociaux) of the Company and/or of any companies related thereto. Regarding the authorization granted under the conditions set out at (i) and (ii) above, it is also specified that should the transactions in question be liable to cause the public offering considered to fail, their implementation must be the subject of authorization or confirmation from the Shareholders’ Meeting.
As part of the implementation of a contingent capital facility program, SCOR issued, on December 3, 2019, 9,350,025 Warrants for the benefit of J.P. Morgan, each allowing J.P. Morgan to subscribe, as from January 1, 2020 and no later than May 1, 2023 to two new SCOR shares (within the limit of an aggregate amount of subscription of EUR 300 million – issuing premiums included, without exceeding 10% of SCOR’s share capital) when the aggregated amount of (i) the estimated ultimate net losses resulting from eligible natural catastrophes incurred by the Group (in its capacity as an insurer/reinsurer) between January 1, 2020 and December 31, 2022 or (ii) the ultimate net claims amount recorded by SCOR Group Life segment (in its capacity as an insurer/ reinsurer) over two consecutive semesters over the period from July 1, 2019 and December 31, 2022 reaches certain contractual thresholds. In addition, subject to no drawdown having already been conducted under the facility, if SCOR’s daily volume-weighted average share price falls below EUR 10 an individual tranche of EUR 150 million will be drawn down out of the EUR 300 million facility.
Note 12 – Information on share capital, capital management, regulatory framework and consolidated reserves; • Section 4.6. – Notes to the consolidated financial statements, Note 14 – Provisions for employee benefits; • Section 4.6. – Notes to the consolidated financial statements, Note 16 – Stock options and share allocations; • Appendix C – Notes to the corporate financial statements, 5.3.5 – Stock options; and
• Appendix C – Notes to the corporate financial statements, 5.2.3 – Shareholders’ equity.
Regulated agreements Regulated agreements within the meaning of Articles L. 225-38 et seq. of the French Commercial Code appear in the Statutory Auditors’ special report in Section 2.3.3. – Special report of the Statutory Auditors on related party agreements and commitments.
2.3.3. SPECIAL REPORT OF THE STATUTORY AUDITORS ON RELATED PARTY AGREEMENTS AND COMMITMENTS
We are also required, where applicable, to inform you in accordance with article R. 225-31 of the French commercial code (Code de commerce) concerning the implementation, during the year ended December 31, 2019, of the agreements already approved by the Annual General Meeting of shareholders.
Isabelle SantenacJean-Claude Pauly Patrick MenardGuillaume Wadoux 2.4. AUDIT REPORT ON THE CORPORATE GOVERNANCE REPORT
MAIN RISKS3.1. 130 1313.1.1. Strategic risks 135Underwriting risks related to the P&C and Life reinsurance businesses 3.1.2.
Management of underwriting risks related to the P&C and Life businesses
Management of liquidity risks3.3.6. 155 1553.3.7. Management of operational risks 129SCOR Universal Registration Document 2019
The information included in this section, referring to the nature and extent of risks arising from financial instruments and insurance and reinsurance contracts as required by IFRS 7 – Financial Instruments: Disclosures and IFRS 4 – Insurance Contracts, is an integral part of the consolidated financial statements as at December 31, 2019. As such, the corresponding information is audited.
All risks described in Section 3 are managed through a variety of mechanisms in SCOR’s ERM (Enterprise Risk Management) Framework and the most important of these are described in Section 3.3 – Management of main risks.
Although risk management mechanisms have been designed and rolled out across the Group in order to prevent all risks from having a significant impact, there is no guarantee that these mechanisms achieve their intended objective. Many of SCOR’s methods for managing risks and exposures are based on observed historical market behavior, statistics based on historical models, or expert judgment. As a result, these methods may not fully predict future exposures, which may be significantly greater than estimated, particularly in unstable or volatile markets and environments. Other risk management methods depend upon the evaluation of information regarding markets, clients, natural catastrophes or other matters that is publicly available or otherwise accessible to SCOR. This information may not always be accurate, complete, upto -date or properly evaluated. Therefore, the Group cannot exclude the possibility of SCOR’s risk exposure exceeding set risk tolerance limits due to an incorrect estimation of these risk exposures.
SCOR may also be exposed to emerging risks, which include new threats or constantly changing current risks with a high degree of uncertainty. They may arise from the numerous changes to the environment in which the Group operates, such as changes in professional practices, or in legal, jurisdictional, regulatory, social, political, economic, financial and environmental conditions.
Specifically, climate change creates a number of challenges for the re/insurance industry and therefore for SCOR. Climate change is likely to interact with the risks associated with SCOR’s business, investments and operations through physical climate risks (e.g. effects of broad climate trends or “chronic” risks and the frequency and/or severity of natural catastrophes or “acute” risks), the creation of transition risks (through the shift towards a lowcarbon economy) and through the potential to negatively impact the Group’s reputation.
3.1.1. STRATEGIC RISKS Strategic risks can be defined as the risks related to losses arising from an unsuccessful strategy or objectives. Strategic risks can arise as a consequence of either the strategy itself (such as the accumulation of risks or development in lines of business or less known markets), from external risks (such as an adverse economic environment), or from internal risks (such as certain causes of operational risk). Therefore, many of the risks discussed throughout Section 3, in addition to emerging risks, could also impact the success of the strategy.
A deterioration of financial markets and the global economy will have significant implications for SCOR’s activities and results The Group’s results could be significantly affected by the economic and financial situations in Europe and other countries around the world. The threat of a global economic recession due to both cyclical and commercial reasons (e.g. the ongoing U.S – China trade war) remains, and a lasting macroeconomic deterioration could affect SCOR’s activities and results. The current low interest rate environment is reaching previously unknown levels and, in the event that interest rates rise, the current level of indebtedness would become a source of major financial instability. Current monetary policy, particularly within the Eurozone area, seems to have reached a point where any additional easing would probably have little significant economic effect. These trends could result in financial markets experiencing a period of very high volatility, with consequences including waves of corporate bankruptcies and potentially sovereign defaults in vulnerable regions, a fall in the value of the main asset classes (bonds, equity, real estate), and even a major liquidity crisis. Although growth in the Eurozone has become more robust over the years thanks to both internal and external momentum, its maintenance may become increasingly difficult due to several challenges; for example, the eventual consequences of the United Kingdom’s departure from the European Union on January 31, 2020, continuing economic disparities between EU countries and increased political risks. For further information on investments, see Section 1.3.9.2 – Net investment income and investment income on invested assets and Section 4.6 – Notes to the consolidated financial statements, Note 7 – Insurance business investments.
Impact on SCOR’s investment activities SCOR has a large investment portfolio. In the event of extreme prolonged market events, such as global credit crises, SCOR could incur significant losses in its investment portfolio.
The Group may also experience an elevated incidence of claims or be impacted by a decrease in demand for reinsurance and increased surrenders of policies from the cedents (see paragraph on lapse risk in Section 3.1.2.2 – Life reinsurance) that could affect the current and future profitability of its business. Although written premiums have seen steady growth in prior years, a prolonged economic crisis could result in lower written premiums in the future.
Although the risk of inflation is less likely in the current macroeconomic environment, at least in the short term, the economy could experience a period of stagflation, combining a decline in activity with a surge in prices. In this case, underwriting volume would also be negatively impacted, and with it the combined ratio, the net income and the net asset value of the Group.
A prolonged period of deflation could impact the Group in several ways. For example, the value of SCOR’s invested assets would be impacted if deflation is associated with a variation of interest rates and corporate credit spreads. A further scenario could be that a fall in prices, leading to a decrease of premium for a given amount of risk, combined with a decrease in organic growth due to the economic slowdown, results in a drop in the volume of the newly acquired premiums.
SCOR is subject to comprehensive and detailed regulations and to the supervision of the insurance and reinsurance competent authorities in all countries in which it operates. Some of these authorities are considering or may in the future consider enhanced or new regulatory requirements. Such reinforced measures of control and higher capital requirements, intended to further strengthen the protection of policyholders and/or financial stability, could affect the calculation of the local solvency ratio and have a material adverse impact on the Group, including a restriction of underwriting capacity. Insurance and reinsurance supervisory authorities have broad administrative power over many aspects of the reinsurance industry and SCOR cannot predict the timing or form of any future regulatory initiatives.
The International Association of Insurance Supervisors (IAIS) is seeking implementation of its newly adopted holistic approach to evaluating and mitigating systemic risk in the insurance sector from 2020 onwards. This revised systemic framework could influence national and European regulations and result in greater regulatory burdens such as the establishment of recovery and resolution plans, and additional liquidity requirements.
In the meantime, the IAIS has been developing a common framework for internationally active insurance groups (IAIGs), the “ComFrame”. It is the IAIS’s intention to develop Insurance Capital Standards (ICSs) to be applied by all IAIGs with full implementation in 2025. This development could jeopardize the extent of recognition of diversification effects or the use of internal models and there is a risk that these rules could have an impact on capital management aspects. Moreover, these standards involve risks in terms of competition on a level playing field if they are not implemented simultaneously and consistently across different jurisdictions.
3.1.1.3. The valuation of SCOR’s intangible assets and deferred tax assets may significantly affect its shareholders’ equity and the price of its securities
Moreover, some of SCOR’s facilities contain conditions about its financial situation which, if not met, constitute a default and might result in the suspension of the use of current credit facilities and/or a prohibition on obtaining new lines of credit or result in the need to negotiate new LOC facilities under adverse conditions.
For more details about the Group’s lines of credit, see Section 1.3.6 – Financial position, liquidity and capital resources. For more details on liquidity risk, see Section 3.1.5 – Liquidity risks.
Disruptions, uncertainty or volatility in the capital and credit markets may also limit the Group’s access to capital required to operate its business, most significantly its insurance operations. Such market conditions may limit its ability to: • replace, in a timely manner, maturing debts; • access the capital needed to grow its business; • satisfy statutory and regulatory capital requirements and maintain a solvency ratio in line with its risk appetite framework.
For further information on changes in the macroeconomic environment that could impact SCOR, refer to Section 3.1.1.1 – Risks related to the macroeconomic environment affecting SCOR’s strategy.
3.1.1.7. Risks related to acquisitions SCOR has made a number of acquisitions around the world. Acquisitions involve risks that could adversely affect its operating results, including the substantial amount of management time that may be diverted from operations to pursue and complete acquisitions. Acquisitions could also result in additional indebtedness, costs, contingent liabilities, impairment and amortization expenses related to goodwill and other intangible assets. In addition, acquisitions may expose SCOR to operational challenges and various risks.
3.1.2. UNDERWRITING RISKS RELATED TO THE P&C AND LIFE REINSURANCE BUSINESSES
3.1.2.1. P&C Reinsurance The main risks linked to the P&C reinsurance business (and direct insurance activity) underwritten by SCOR’s P&C business unit are P&C long-tail risks, such as large liability losses, natural catastrophes, and other P&C short-tail risks, such as acts of terrorism, as well as other risks beyond its direct control, such as systemic crises or the cyclicality of the business.
Long-tail reserve deteriorations is the risk that the P&C claim frequency and severity are higher than assumed in the calculation of the reserves. For casualty business, the frequency and severity of claims and the related amounts of indemnity paid can be affected by several factors. The most significant factors are claims inflation and the changing legal and regulatory environment, including changes in civil liability law and jurisprudence. Claims inflation is influenced by, but not directly linked to general inflation.
For further information on risks related to reserves, see Section 3.1.2.4 – Risks related to reserves.
In modeling losses, the natural catastrophe models focus on the property damage and consequential business interruption losses triggered when a natural catastrophe affects the insured’s property. Sophisticated tools are used to model the underlying physical phenomena and their impact on SCOR’s risk profile.
Man-made catastrophes refer to negligent or deliberate human actions, e.g. a large explosion and/or fire at a major industrial site and acts of terrorism. These events can cause major damage to property and lives. Acts of terrorism often target large cities and illustrious landmarks such as international airports and governmental facilities. Cyber attacks can lead to business interruptions and damages to property and lives if critical safety systems (e.g. industrial control systems) are impacted by an event.
The extent of the loss event and the affected lines of business will vary depending on the man-made event. Other factors could have an adverse impact, such as systemic crises, which could be generated by transition risks resulting from action to tackle climate change, cyclicality of the business and concentration risks related to its broker business.
Pandemic In Life reinsurance, a severe pandemic is a major risk. In the past century, three major outbreaks of influenza occurred and claimed millions of lives. The occurrence of a similar event could cause large losses to SCOR due to an increased mortality far beyond the usual volatility. A lethal virus strain not only of influenza but of any other communicable disease could lead to a material increase in mortality rates and increased medical costs which could significantly affect SCOR’s results.
Lapses refer to either non-payment of premiums by the policyholder or to policies which are terminated by the policyholder before the maturity date of the policy. Depending upon the product design, higher or lower policyholder lapses than assumed in the pricing or reserving may reduce the expected future income of the Life business unit.
Adverse 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 among other things to: • take out a policy in the knowledge that either their chance of claiming is high or higher than average; • terminate a policy in the knowledge that their chance of claiming is low or lower than average, or; • choose and exercise a policy option which increases the policyholder’s expected benefit.
Climate change could also have impacts on the Life reinsurance business which could manifest both in adverse events and in longterm trends. For instance, increases in the frequency and severity of extreme heat events have the potential to negatively influence mortality and morbidity through, for example, the aggravation of cardiovascular and respiratory illnesses. Natural catastrophes, such as wildfires and hurricanes, may claim more lives with increasing severity. Over a longer time horizon, rising temperatures could change the patterns of disease distribution, for example through expansion in the geographic range of disease vectors such as mosquitos.
SCOR’s ability to grow or maintain its portfolios in the P&C and Life reinsurance business units may also be subject to external factors which may be interconnected, such as economic and political risks. For instance, slowdowns in economic growth or recessions in the major markets may lead households and companies to take out less insurance, to suspend certain premium payments, or to terminate the insurance policies underlying the existing P&C and Life treaties earlier than anticipated. Similarly, the risk of social and political instability is particularly significant in emerging markets, in which both business units operate. These risks could lead to significantly reduced business growth in these target markets. See Section 3.1.1 – Strategic risks for further details.
SCOR is also exposed to insurance risks in its investment portfolio either through publicly traded securities (e.g. CAT bonds), or OverThe -Counter (OTC) contracts (e.g. collateralized reinsurance). Such investments could be impacted by the occurrence of underwriting risks as described in the above paragraphs (e.g. natural catastrophe, mortality etc.) that could significantly result in changes in value, or even the full loss of the amount invested. In the case of publicly traded securities, these risks could also have a significant impact on the liquidity of these instruments.
3.1.2.4. Risks related to reserves The SCOR Group is required to maintain reserves to cover its 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. Its reserves are established based on the information it receives from its cedent insurance companies, including their own reserving levels, as well as on the basis of its knowledge of the risks, the studies it conducts and the trends it observes on a regular basis. As part of the reserving process, SCOR reviews available historical data and tries to anticipate the impact of various factors, such as changes in laws and regulations, judicial decisions, social and political attitudes and trends in mortality and morbidity, and changes in general economic conditions.
3.1.3.1. Interest rate risks Interest rate risk is the risk that the fair value of future cash flows of a financial instrument fluctuates because of changes in interest rates. Interest rate fluctuations have direct consequences on both the market value and the return on SCOR’s investments as the level of unrealized capital gains or losses and the return on securities held in its portfolio both depend on the level of interest rates. Floating-rate instruments expose the Group to cash flow interest rate risk, whereas fixed interest rate instruments expose the Group to fair value interest rate risk.
For further information on the sensitivity of the Group’s consolidated income and consolidated equity to interest rate risk, see Section 3.3.4.6 – Monitoring sensitivity to market risks.
3.1.3.2. Currency risks Currency risk is the risk of loss arising due to adverse changes in or volatility of foreign exchange rates. This would impact the value of SCOR’s assets (e.g. through direct investments in assets denominated in various currencies) and liabilities (e.g. reinsurance treaties with liabilities denominated in specific currencies).
SCOR’s main non-French legal entities are located in Ireland, Switzerland, North America, the UK and Asia. The shareholders’
equity of these entities is denominated mainly in Euros, US dollars, British pounds and Canadian dollars.
considers the impact on equity of a 10% movement in the exchange rates of the Group’s two largest translation risk currency exposures, USD and GBP relative to the EUR.
3.1.3.4. Equity risks Equity prices are likely to be affected by risks which affect the market as a whole (uncertainty on economic conditions in general, such as anticipated changes in growth, inflation, interest rate fluctuations, sovereign risk, etc.) and/or by risks which influence a single asset or a small number of assets (specific or idiosyncratic risk). This may lead to a decrease in prices of the equity held by SCOR and may impact its realized or unrealized gains and losses. A material or long-lasting decline in the prices of SCOR’s equity holdings may also result in the impairment of its equity portfolio which would affect its net income.
Liquidity needs may also arise from increased collateral requirements. Some facilities SCOR uses to grant letters of credit to cedents require 100% collateral in case of non-compliance with financial covenants or in case of a decrease in the Group’s financial strength rating, which would result in a deterioration of the Group’s liquidity level. Collateral arrangements are also used by SCOR when operating business in jurisdictions that demand a higher level of reserves than under IFRS in other jurisdictions. This is especially the case in the US for business falling under the NAIC Model Regulation XXX or Valuation of Life Insurance Policies Model Regulation, commonly referred to as Regulation XXX (or Triple X). Letters of Credit carry the risk of a duration mismatch, i.e. that short-term Letters of Credit are covering long-term business and might have to be renewed as less favorable conditions, creating additional cost.
Liquidity risks are increased when capital and credit markets experience extreme volatility or disruption, as SCOR may need to sell a significant portion of its assets quickly and on unfavorable terms, particularly if current internal resources do not satisfy its liquidity needs.
0-1 year 1-3 years P&C insurance contract liabilities In EUR millions > 7 years3-7 years Total
As at December 31, 2019 Debt maturity profiles > 5 years*Interest rate ranges < 1 year Total**In EUR millions 1-5 years
SCOR may also be exposed to an unfavorable business environment such as evolving or additional regulatory constraints potentially hindering its business model.
The level of legal, regulatory, tax or accounting requirements depends on several factors, including the type of business (e.g. primary insurance or reinsurance business), the location and the legal structure of SCOR. The large number of different regulatory environments in which SCOR operates, as well as changes in present and future regulations increase the complexity and risks of the related Group processes. Any violation of laws, regulations or accounting requirements could potentially expose SCOR to fines, class actions with compensation payments, accounts reinstatements or business restrictions.