SCOR GROUP 3 1.1. Selected financial information 5 1.2. Information about the SCOR Group 8 1.3. Market and financial review 24
CONSOLIDATED FINANCIAL STATEMENTS 153 4.1. Consolidated balance sheet 154 4.2. Consolidated statement of income 155 4.3. Consolidated statement of comprehensive income 156 4.4. Consolidated statement of cash flows 157 4.5. Consolidated statement of changes in shareholders’ equity 158 4.6. Notes to the consolidated financial statements 161 4.7. Information on holdings 232 4.8. Statutory Auditors 233 4.9. Auditing of historical consolidated financial information 234
APPENDICES 251 APPENDIX A Internal control and risk management procedures 252 APPENDIX B Person responsible for the annual report 263 APPENDIX C Unconsolidated corporate financial statements of SCOR SE 264
This registration document was filed on February 23, 2018 with the French financial markets authority (Autorité des marchés financiers – AMF) in accordance with Article 212-13 of its General Regulation. It can be used as a support document for a financial transaction only if presented together with a securities information note (note d’opération) approved by the AMF. This registration document was prepared by the issuer and is the responsibility of the person whose signature appears therein.
Pursuant to Article 28 of Regulation (EC) 809/2004 of April 29, 2004 of the European Commission implementing the Directive 2003/71/EC (the “Regulation (EC) 809/2004”), the following information is included by reference in this registration document (the “Registration Document”): SCOR SE’s corporate and consolidated financial statements for the financial year ended December 31, 2016 and the report of the Statutory Auditors regarding said financial statements as presented in SCOR SE’s registration document filed with the AMF on March 3, 2017 under number D.17-0123; SCOR SE’s corporate and consolidated financial statements for the financial year ended December 31, 2015 and the report of the Statutory Auditors regarding said financial statements as presented in SCOR SE’s registration document filed with the AMF on March 4, 2016 under number D.16-0108.
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 (trends and shocks on 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.
(3) Earnings per share are calculated as net income divided by the number of ordinary shares, which includes the average number of shares over the reporting period, shares issued during the period and time-weighted treasury shares. See Section 4.6.21 – Earnings per share for detailed calculation. (4) Closing stock price on December 29, 2017 (December 30, 2016 and December 31, 2015). (5) Includes a EUR 301 million one-off cash in-flow from the repayment of a cedent’s fund withheld.
(6) The net combined ratio calculation has been refined to exclude some immaterial non-technical items that were previously included. Considering their potential growth, these items have been excluded to ensure they do not distort the net combined ratio in the future. The impacts on the previously reported ratio is +0.26%pts and +0.22%pts as at December 31, 2016 and December 31, 2015, respectively.
(1) By net reinsurance premiums written, source: “AM Best Special Report Global Reinsurance 2017”.
Total shareholders’ Equity Subordinated debt * 2013 consolidated net income – Group share included gains from bargain purchases of EUR 202 million (net of acquisition related costs).
* The leverage ratio is calculated by dividing the subordinated debt by the sum of shareholders’ equity and subordinated debt. The calculation excludes accrued interest and includes the impact of swaps related to subordinated debt issuances. This ratio is used to determine how much lenders are financing the Group’s activities over shareholders.
Following the reorganization of Euronext indices on January 3, 2005, the ordinary shares are now included on the following indices: SBF TOP 80, SBF 120, CAC Next 20, CAC Large 60, CAC All-Shares, CAC All Tradable, CAC Financials, Euronext FAS IAS, Euronext 100 and Ethibel® Sustainability Index Excellence Europe (ESI Europe). The SBF TOP 80 index is made up of 80 French stocks which are the most traded on the continuous segments not included in the CAC 40 index. The SBF 120 index consists of the 120 most actively traded French stocks. The CAC Next 20 index includes the most representative stocks in terms of free float-adjusted capitalization and share turnover not included in the CAC 40 index. The CAC Large 60 index is composed of the constituents of the CAC 40 and CAC Next 20 indices. The CAC All-shares index is composed of all the stocks listed on Euronext Paris with an annual velocity ratio of over 5%. The CAC All Tradable index includes all the stocks of the Euronext Paris market with a free float of at least 20%. The CAC Financials index is composed of the stocks included in the CAC All Tradable index belonging to the financial sector. The Euronext FAS IAS index is composed of the stocks included in the CAC All Tradable index that fulfill the following conditions: at least 3% of the capital is controlled by employees, a minimum of 25% of the workforce in France should own shares of the company and a minimum of 15% of the overall workforce should own shares of the company. The Euronext 100 index comprises the 100 largest and most liquid stocks traded on Euronext. The ESI Europe indices universe is composed of companies included in the Russell Developed Europe Index that display the best performance in the field of Corporate Social Responsibility.
The global reform of the rules of personal data protection, contained in the Regulation (EU) 2016/679 of April 27, 2016, in force since May 24, 2016, updates within the European Union the principles of personal data processing put by the Directive on the personal data protection dated October 24, 1995. Companies shall have to organize their compliance before May 25, 2018. The main objectives of the reform are (i) the strengthening of individuals’ rights, to grant them more control over their personal data and facilitate them the relevant access, (ii) the 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 regime of application according to which the Data protection authorities can pronounce fines up to 4% of the global turnover of a company infringing the European regulation.
In line with the General Data Protection Regulation (GDPR), this draft regulation aims at completing the upgrade of personal data regulation (with an extended scope, changes for internet cookies and enhancement of data confidentiality).
In 2003, the Group reorganized its Life reinsurance business. The Group transferred all of the Group’s Life reinsurance business throughout the world to SCOR Vie and its subsidiaries. SCOR Vie, whose corporate name was changed to SCOR Global Life in 2006, and which became a European Company (Societas Europaea) in 2007, and its subsidiaries, are all directly or indirectly wholly owned by SCOR SE.
On May 16, 2006, SCOR transferred all of its Non-Life reinsurance business in Europe, comprising Property & Casualty Treaties (including Credit and Surety business), large Corporate Accounts and Construction reinsurance to Société Putéolienne de Participations, a French subsidiary wholly owned by SCOR, whose corporate name was changed to SCOR Global P&C, with retroactive effect from January 1, 2006. In 2007, SCOR Global P&C adopted the European Company status (Societas Europaea) via a merger by absorption of SCOR Deutschland Rückversicherungs AG and SCOR Italia Riassicurazioni SpA.
On November 21, 2006, SCOR completed the acquisition of Revios Rückversicherung AG (Revios), enabling it to become a leading worldwide Life reinsurer. Based in Cologne (Germany), Revios was the former Life reinsurance unit of Gerling Global Re Group and had successfully developed on a stand-alone basis from 2002 onward to become one of the leading European reinsurers specializing in Life reinsurance, with operations in 17 countries. The combination of Revios and SCOR Vie created SCOR Global Life SE, which is now one of SCOR’s three primary operational subsidiaries (along with SCOR Global P&C SE and SCOR Global Investments SE, which became SCOR Investment Partners SE, described below), with responsibility for the Life reinsurance business.
On October 29, 2008, SCOR announced its decision to create SCOR Global Investments SE (which became SCOR Investment Partners SE), its asset management company (société de gestion de portefeuille) and third operational entity within the Group along with SCOR Global P&C SE and SCOR Global Life SE. This new company, incorporated on February 2, 2009, manages SCOR’s investment portfolio and implements the investment strategy determined by the Group’s Investment Committee chaired by the Group Chairman and Chief Executive Officer. SCOR Global Investments SE (which became SCOR Investment Partners SE) was approved by the AMF as a portfolio management company with effect from May 15, 2009. As a regulated portfolio management company, SCOR Investment Partners SE carries out its activities on an arms-length basis and with the operational independence required under Article L. 214-9 of the French Monetary and Financial Code (Code monétaire et financier).
In 2011, the Lloyd’s Market Franchise Board approved the creation of the Channel Syndicate 2015. SCOR is the sole capital provider for the Channel Syndicate, which in 2011 had an initial stamp capacity of GBP 75 million. Underwriting by the Channel Syndicate began on January 5, 2011. The portfolio of the syndicate focuses on direct insurance business in markets, including property, marine, accident and health, financial institutions and professional civil liability.
On August 9, 2011, SCOR acquired the mortality portfolio of Transamerica Re, a division of AEGON N.V., for USD 919 million. The transaction also included the acquisition of an Irish entity, which underwrote Transamerica Re’s business risks. SCOR Global Life and Transamerica Re were merged into a new entity SCOR Global Life in North America: SCOR Global Life Americas Reinsurance Company (SCOR Global Life Americas).
On October 1, 2013, SCOR acquired Generali’s life reinsurance operations in the US (Generali U.S. Holdings, Inc. or Generali U.S.) for total consideration of EUR 573 million (USD 774 million).
SCOR GROUP01 Information about the SCOR Group including Australia, New Zealand, China, Hong Kong, Japan, Singapore, Malaysia, South Korea and India and its distribution and distribution solutions through its specialized subsidiary of SCOR Global Life SE.
SCOR SE also makes loans to its subsidiaries and issues them guarantees so that they can underwrite under favorable conditions, particularly by benefiting from its credit ratings. SCOR SE provides actuarial, accounting, legal, administrative, IT, internal audit, investment, and human resources support to Group subsidiaries. Finally, SCOR SE acts, as needed, as retrocessionaire for its two operational subsidiaries through annually renewed proportional treaties which constitute the Group’s internal steering instrument through which it annually allocates capital to the operating subsidiaries based on the profitability expected from their underwriting activity. The contracts that formalize the relationships between SCOR SE and its subsidiaries are presented in Appendix C – 5.2.9 – Transactions with subsidiaries, affiliates and others.
As part of the implementation of the New SCOR project announced in June 2005, SCOR first transferred all of its Non Life reinsurance business in Europe to Société Putéolienne de Participations (which became SCOR Global P&C), a French subsidiary wholly owned by SCOR. Secondly, SCOR SE, SCOR Global P&C SE and SCOR Global Life SE (formerly known as SCOR Vie) adopted European Company status (Societas Europaea) on June 25, August 3 and July 25, 2007 respectively.
Management reviews the operating results of the Non-Life and Life operating segments individually to assess the operational performance of the business and to allocate resources. For more information on SCOR’s operating segments, see Section 4.6.4 Note 4 – Segment information.
The Company and some of its insurance subsidiaries are rated by recognized rating agencies.
At December 31, 2017, the relevant ratings for the Company were as follows (1):
On July 27, 2017, Fitch Ratings affirmed SCOR’s insurer financial strength rating at “AA-“ and long-term issuer default Rating at “A+”, as in the previous year. Fitch Ratings also affirmed the ratings of SCOR’s main subsidiaries. The outlooks remain stable.
Since 2002, SCOR has defined its strategy and principle orientations through the creation of six successive three-year plans: “Back on Track” (2002-2004), “Moving Forward” (2004-2007), “Dynamic Lift” (2007-2010), “Strong Momentum” (2010-2013), “Optimal Dynamics” (2013-2016) and “Vision in Action” (2016-2019). 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 U.S. (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.
In September 2016, SCOR launched its current three-year strategic plan, “Vision in Action”. This plan covers the period from mid-2016 to mid-2019. It respects SCOR’s four strategic cornerstones, which are: ●● a strong franchise, achieved by: – deepening its presence in the local Non-Life and Life markets in which SCOR operates by strengthening client relationships through best-in-class services and product innovation, and
– further developing the Non-Life US franchise and expanding in fast-growing Asia-Pacific Life markets through organic growth; ●● a high degree of diversification of Non-Life and Life business and geographical presence, providing more stable results and robust capital diversification benefits; ●● a controlled risk appetite on both sides of the balance sheet; and
SCOR’s risk appetite framework encompasses four concepts: risk appetite, risk preferences, risk tolerances, and footprint scenarios: Risk appetite
Risk preferences are qualitative descriptions of the risks which SCOR is willing to accept. The Group aims to cover a wide range of reinsurance risks and geographical areas. On the other hand, it has no desire to take operational, legal, regulatory, tax or reputational risks. This does not mean that the Group is immune to these risks. These risk preferences determine the risks to be included in the Group’s underwriting guidelines.
Risk tolerances are the limits required by SCOR’s stakeholders (e.g. clients, shareholders, regulators, etc.). The Board of Directors defines and approves risk tolerance limits for the Group in terms of solvency by risk driver, and extreme scenario in order to ensure that the Group’s risk profile remains aligned with its risk appetite framework. SCOR uses various risk assessment measures to verify that its exposures remain within these limits. These measures can take several forms depending on the technical constraints or the level of information available and are based on either internal model outputs, scenarios or expert opinions.
Reinsurance has four essential functions: ●● it offers the direct insurer greater security for its capital and solvency, as well as protection against the potentially high volatility of results when abnormally high frequency or severity of losses or events occur, by covering the direct insurer above certain contractually set amounts per event or in the aggregate; ●● it allows insurers to increase the maximum amount they can insure for a given loss or series of losses by enabling them to underwrite a greater number of risks, or larger risks, without excessively raising their need to cover their solvency margin and, therefore, to increase their capital base; ●● it gives insurers access to substantial available liquidity in the event of major loss events; and
Reinsurance, however, does not discharge the ceding company from its liability to policyholders. Reinsurers themselves may feel the need to transfer some of the risks underwritten and/or some of the accumulated exposures derived from such risks to other reinsurers (known as retrocessionaires).
The two basic types of reinsurance arrangements are treaty and facultative reinsurance.
Both treaty and facultative reinsurance can be written on (i) a proportional (or quota share) basis and/or (ii) a non-proportional (or excess of loss or stop loss) basis.
Premiums payable by the ceding company to a reinsurer for excess of loss reinsurance are not directly proportional to the premiums that the ceding company receives because the reinsurer does not assume a direct proportion of the risk. In contrast, premiums that the ceding company pays to the reinsurer for quota share reinsurance are proportional to the premiums that the ceding company receives, consistent with the proportional sharing of risk. In addition, in quota share reinsurance, the reinsurer generally pays the ceding company a ceding commission. The ceding commission is usually based on the ceding company’s cost of acquiring the business being reinsured, including commissions, premium taxes, assessments and miscellaneous administrative expenses, and also may include a partial repayment of profit for producing the business.
Chief Operating Officer departments (Legal and Compliance, Communication, Human Resources, Information Technology, Cost Controlling and Budgeting) and Group Chief Risk Officer departments (Actuarial, Risk Management, Prudential Affairs, Internal Modeling).
Under credit insurance, the insurer covers the risk of losses from the non-payment of commercial debts. Surety insurance is a contract under which a guarantor makes a commitment to a beneficiary to perform or pay the obligation of the secured debtor.
SCOR Global P&C provides insurance/reinsurance solutions in the field of multiple peril crop, aquaculture, forestry and livestock insurance.
SCOR has an ongoing partnership agreement with GAUM (Global Aerospace Underwriting Managers).
SCOR’s Global Life segment underwrites Life reinsurance business in the following product lines: ●● Protection; ●● Financial Solutions; ●● Longevity.
Protection encompasses traditional Life reinsurance business on living and death benefits. The main risks undertaken are mortality, morbidity and behavioral risks for individuals and groups of individuals. Protection is predominantly underwritten in the form of proportional treaties (quota share, surplus basis or a combination of both). Quota share treaties include structures whereby SCOR Global Life’s exposure is identical to those of its clients, and risk-based premium structures whereby treaty conditions differ from those of the underlying policies. A minority of the portfolio is underwritten in the form of non-proportional contracts: excess of loss per person, catastrophe excess of loss or stop loss.
The Protection reinsurance market, as well as SCOR Global Life’s Protection portfolio, is characterized by the dominance of long-term contractual relationships. SCOR Global Life also writes short-term Protection business, in markets and product lines in which this is common practice.
Mortality protection represents more than 60% of the SCOR Global Life portfolio based on gross written premiums for the year ended December 31, 2017. SCOR Global Life actively underwrites mortality risk in all the geographical markets in which it operates.
Financial Solutions combines traditional Life reinsurance with financial components providing liquidity, balance sheet, solvency and/or income improvements to the client. This type of reinsurance treaty is typically used by cedents to fund growth, stabilize earnings or optimize their solvency position (capital relief).
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 3.3.5 – 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 the Atlas structured entities used in the Capital Shield Strategy, refer to Section 4.6 – Notes to the consolidated financial statements, Note 2 – Scope of consolidation.
In 2008, SCOR decided to internalize the management of its insurance business investment portfolio, in order to implement its investment strategy centrally and globally, with strict monitoring of the risk appetite and a dynamic positioning according to an enhanced asset liability management (ALM) process, integrating economic and market expectations.
The Group’s asset management mandate, assigned to SCOR Global Investments, consists of: ●● proposing the macro-positioning of the invested assets portfolio in line with the approved risk appetite and risk limits, respecting a strict ALM process, economic and market expectations, accounting rules and a strict foreign exchange congruency matching between assets and liabilities; ●● implementing the investment strategy; ●● optimizing the absolute return on invested assets and focusing on the recurrence of yields while controlling their volatility. This objective is achieved through active and dynamic management of the portfolio, the identification of cycles and market opportunities and strict qualitative and quantitative risk management.
SCOR Investment Partners benefits from third-party asset management through management fees on the assets under management. SCOR Investment Partners has seven investment strategies which are open to third parties with funds in key products such as High Yield, Private Debt (corporate, infrastructure and real estate loans), ILS and Convertible Bonds.
SCOR owns a 5,100 m2 office and retail leasehold building at 10 Lime Street in London. As at December 31, 2017, the building was occupied at 79% by SCOR for its London Hub office. The remaining space was rented to third parties. SCOR owns a second building in London at 32 Lime Street with a surface area of 1,800 m2 and fully occupied for its London Hub office.
SCOR owns an office area of 1,600 m2 in Madrid which is occupied by SCOR Global Life SE Iberica Sucursal for its operational needs.
In order to ensure that the Life division is continually up-to-date with biometric trends and scientific developments, the expertise of seven dedicated Research & Development (R&D) Centers is used to analyze and assess the key factors underlying mortality, longevity, morbidity and policyholder behavior. Biometric risks such as mortality, longevity, disability and long-term care are at the heart of underwriting in Life reinsurance. Since these risks are subject to shocks and various trends, SCOR Global Life closely monitors their developments in: ●● R&D Center for Mortality Insurance: carrying out mortality studies on life portfolios, enhancing modeling for pricing, reserving and capital modeling and providing support in setting assumptions for new business, in particular new products, and reserving; ●● R&D Center for Longevity Insurance: carrying out mortality studies on pension and annuity portfolios, enhancing risk modeling for pricing, reserving and capital modeling and providing support in setting assumptions for new business, in particular new products, and reserving; ●● R&D Center for Long-Term Care (LTC) and Disability Insurance: providing support in the development of LTC and disability products (definitions, pricing, guidelines) and the monitoring of the corresponding portfolios; ●● R&D Center for Critical Illness: dedicated to the analysis of critical illness risks; complex risks due to multiple definitions, cover types and socio-economic environments; ●● R&D Center for Medical Underwriting and Claims Management: evaluating the impact on insurance of new medical advances, for both known pathologies and the most recently discovered ones; advising clients on the pricing of substandard risks; and
The Centers have entered into many scientific partnerships over the years, the current ones being with: the Assmann Foundation on cardiovascular diseases (EUR 100,000 annually), 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).
●● the Insurance Risks and Finance Research Center in cooperation with Nanyang Business School (Singapore), whose aim is to promote research in the field of risk management. For SCOR, the related cost is SGD 2.5 million spread over five years.
Since 2015, SCOR has also been organizing, with the partnership of the French Institut of Actuaries, an actuarial symposium in Paris. In November 2015, the theme was centered around “Actuarial and Data Science”, in December 2016, the theme was “Scientific laws and mathematical models: from physics to actuarial science”, and in December 2017, the theme was “Will Artificial Intelligence revolutionize 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 offered by the École Nationale d’Assurance (ENASS) of the Paris Conservatoire National des Arts et Métiers (CNAM)).
The Group’s Life and Non-Life reinsurance global back-office operates on a custom software package known as “Omega.” Omega was designed to allow the tracking of brokers and ceding companies within the Group, manage premiums and claims, analyze the technical profitability of contracts, and perform quarterly closings based on the latest estimated results. The Omega databases reflect the reinsurance risk of SCOR Global P&C and SCOR Global Life’s portfolios worldwide. After an extensive study, the Group decided to update and improve Omega, thereby capitalizing on this key asset. The Omega2 project, which included technical modernization and the development of structuring functional improvements, was completed as planned mid -2016 and its enhancement has been pursued in 2017 through an extension dedicated to an optimized management of P&C claims and advanced analytical capabilities powered by a big data solution.
The focus in 2017 was again on strengthening SCOR’s front office applications to improve risk selection, anticipation and reactivity in markets and products, and simulations of results. A number of projects have been launched in recent years which will continue through 2018 through division specific solutions fully integrated with the core back-office, OMEGA. Among these projects, to start with the P&C division, 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 new in-house solutions like ForeWriter and Pacman, embedding the SCOR professionals’ expertise. Control of exposure to natural catastrophes and pricing is under improvement through the development of the SCOR Cat Platform which monitors all liabilities and accumulations through use and calibration or the model combination deemed as most efficient. A first version of a platform to monitor our MGA book of business in the US through automatic underwriting controls has been rolled-out. Norma, the P&C internal model, combines the risk assessment produced by these front-office tools to produce an overall P&C risk measure. For the Life Division, the focus on 2017 was the validation of the target IT roadmap. It is essential to the delivery of Vision in Action and prepares SGL 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 frontoffice solutions have been developed for SCOR Global Life to harmonize and enhance the underwriting of substandard risks and develop tele-underwriting in different countries. In the US market in particular, underwriting solutions like Velogica are proposed to SCOR’s Life clients. The integration of Life Individual policy management systems is now completed in the US, and will now be extended to rest of the Group, to provide an increasing capacity to understand risk at a granular level. This is the basis for enhanced actuarial modeling, in which SCOR Global Life is also investing, targeting to unify pricing and reserving in one single technical platform.
At the Group level, and in the frame of an integrated architecture, the various risk modeling tools are feeding the entreprise internal model which has been key in the Solvency II compliance process.
The SCOR technical environment is based on a secured international network, a cloud-based global data center with a fully replicated dual site, and a standard workstation deployed everywhere in
SCOR’s IT Department is playing a key role in implementing the Group’s “Green SCOR” policy, and drives a number of elements of this multi-year plan, including data center consolidation, server virtualization, new low-energy desktops and laptops, and reductions in printing. Mobility is still being enhanced through ongoing developments in line with technological progress and business needs that require a more permanent connection with the company, while complying with security standards.
Finally, the IT strategy is aligned with the SCOR business objectives and especially those defined through the strategic plan, “Vision in Action”. A new IT strategy has been developed, jointly by the Group IT and businesses, and validated by the Group Executive Committee. This strategy defines a framework for the development of the Group information system, with a focus on the digital transformation of SCOR, steered by the Business Divisions in close partnership with Group IT. Innovation areas have been defined and will enable SCOR to obtain maximum leverage from the new capabilities offered by new technology like Big Data, Artificial intelligence, Cloud or Robotics.
The prolonged economic cycle in the United States and the improvement of the European situation have sent financial assets valuations to high levels. The positive dynamics of the economic environment have been significant, albeit this has not triggered new inflationary pressures. The traditional relationship between unemployment and inflation, implied from the Philips curve, has become less relevant, at least on a short-term basis and at the local level, and deflationary pressures coming from the “new economy” have played a notable role, even if it remains difficult to quantify. In this context, central banks have maintained a strong accommodative bias while initiating a progressive exit from “Quantitative Easing” policies.
US equities have benefited from supportive growth prospects and from a weaker US Dollar but also, through the US administration, from announced regulatory cuts and unprecedented tax packages. Over the year, the S&P 500 experienced returns of 21.8%, the Nasdaq 29.7% and the Dow Jones 28.1%. European equities also post solid performances, in spite of the Euro appreciation, with a total return of 12.5% for the French CAC 40 and the German DAX, and of 16.9% for the Italian MIB.
The third and fourth quarters of 2017 were marked by an exceptional series of large natural catastrophes, with hurricanes Harvey, Irma and Maria, wildfires in California and earthquakes in Mexico. For more information on the impacts of natural catastrophes, see Section 1.3.5.2 – SCOR Global P&C.
On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJA”) was enacted, reducing the statutory rate of US federal corporate income tax to 21% effective January 1, 2018. This reduction resulted in a one-time non-cash loss for SCOR as its U.S. deferred taxes previously measured at 35% were remeasured at 21%. SCOR is currently reviewing the TCJA to assess its potential future implications, in particular with respect to certain complex provisions including the Base Erosion and Anti-Abuse Tax (“BEAT“). There is a high level of uncertainty surrounding the practical and technical applications
SCOR GROUP 01Market and financial review of many of these provisions. The format, scope and timeframe in which future clarifications from the US Treasury may be obtained, such as on the application of BEAT to inward affiliate retrocession, on effectively connected income definition and application and on BEAT implications for modified coinsurance, are still unknown.
The transaction was subject to the regulatory approval by the SAFER (a French agricultural authority). This approval was subject to a two-month review period, which ended on July 6, 2017. The transaction was financed by SCOR through the use of own funds without issuing any new debt or own shares.
Refer to Section 4, Note 3 – Acquisitions and disposals for additional details.
SCOR competes for business in the European, American, Asian and other international markets with numerous international and domestic reinsurance and insurance companies, some of which have a larger market share than its own, greater financial resources and, in certain cases, higher ratings from the rating agencies. Competition in the types of reinsurance and insurance that the Group underwrites is based on many factors, including financial strength as perceived by the rating agencies, customers and their brokers, underwriting expertise, reputation and experience in the lines of reinsurance and insurance written, country of operation, premiums charged, the quality of the proposed reinsurance structures, the services offered and the speed at which claims are paid.
SCOR is characterized by its strategic positioning aimed at diversifying its exposures. To this end, the Group seeks to preserve: ●● the diversification of its business by maintaining a broadly balanced split between its Life and Non-Life reinsurance activities. The business volume split for the year ended December 31, 2017 was approximately 59% for Life reinsurance and 41% for Non-Life reinsurance based on gross written premiums; (1) By Net Reinsurance premiums written, source: “AM Best Special Report Global Reinsurance 2017”.
●● the geographic diversification of the Group’s business by: – operating in a large number of countries, both mature and emerging,
Gross written premiums for the financial year ended December 31, 2017 amounted to EUR 14,789 million, an increase of 7.0% compared to EUR 13,826 million in 2016. At constant exchange rates the growth is 8.6%. The overall increase in gross written premiums of EUR 963 million in 2017 is composed of an increase of EUR 386 million for SCOR Global P&C and of EUR 577 million for SCOR Global Life.
Gross written premiums for the financial year ended December 31, 2016 amounted to EUR 13,826 million, an increase of 3.0% compared to EUR 13,421 million in 2015. At constant exchange rates the growth was 5.3%. The overall increase in gross written premiums of EUR 405 million in 2016 was due to an increase of EUR 489 million for SCOR Global Life, offsetting the decrease of EUR 84 million for SCOR Global P&C.
In 2017, SCOR generated approximately 37% of its gross written premiums in Europe, Middle East and Africa (EMEA) (2016: 39%), with significant market positions in France, Germany, Spain and Italy, 46% of its gross written premiums in the Americas (2016: 46%) and 17% in Asia (2016: 15%).
Net investment income (1) for the year ended December 31, 2017 amounted to EUR 764 million as compared to EUR 670 million and EUR 666 million for the years ended December 31, 2016 and 2015, respectively. The net return on investments in 2017 was 2.9% compared to 2.5% in 2016 and 2.6% in 2015. The evolution of investment income is essentially driven by higher investment revenues and by the active portfolio management strategy implemented by SCOR Global Investments, which translated into substantial realized capital gains of EUR 272 million in 2017, mostly achieved on the real estate portfolio and to a lesser extent on fixed income and other investments portfolios.
The net result of the Group’s retrocession program was positive at EUR 398 million in 2017 as compared to a net cost of EUR 388 million and EUR 336 million in 2016 and 2015, respectively.
The total amount recorded “other operating expenses” for 2017 in relation to Atlas CAT bonds and the mortality transfer contract Atlas IX was EUR 38 million (2016: EUR 35 million; 2015: EUR 19 million).
2016 and 2015 operating income benefited from the strong technical performance of SCOR Global Life and the robust profitability of SCOR Global P&C.
In 2016, gross written premiums decreased by 1.5% compared to 2015 from EUR 5,723 million to EUR 5,639 million. At constant exchange rates the growth is 1.2%. Compared to 2015, growth at constant exchange rates was driven by the performance of the Property and Casualty Treaties (mainly in the Casualty and Natural Catastrophes portfolios).
In 2017, the combined ratio reflects the severity of higher natural catastrophes that occurred compared to previous years, especially the American hurricanes, earthquake and wildfires. The cat ratio stands at 14.9% compared to 5.5% in 2016 and 2.2% in 2015. The 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 a 0.9 percentage points of reserve releases (EUR 45 million).
The following table highlights losses due to natural catastrophes for the years 2017, 2016 and 2015: As at December 31
Losses and loss adjustment expenses due to catastrophes, gross 1,374 (4) 323 117
(1) The 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.
(2) Net of retrocession and reinstatement premiums (assumed and retrocession). (3) Including Hurricane Harvey, Irma, Maria, Mexico Earthquakes, Northern and Southern California wildfires, Cyclone Debbie, South Africa climatic events,
Typhoon Hato, Peru El Nino Costero events, Newcrest Mining Earthquake loss, US April & March Winds, Mumbai Floods, Portuguese Fires. (4) The impact of developments on the following 2016 catastrophes are included in the 2017 cat ratio: Hurricane Matthew and Kaikoura Earthquake. (5) Including Hurricane Matthew, Fort McMurray Wildfires, Earthquakes in Ecuador, in Taiwan, in Kaikoura and in Italy, Floodings in Europe, in Sri Lanka, in Texas, in Louisiana, in Johannesburg and in United Arab Emirates, Typhoon Meranti and Cyclone Winston.
(6) Including UK Flooding, Chennai Floods (India), US Northeast Winterstorms, Storm Niklas, US South and Midwest Weather, Chile Earthquake 2015, Typhoon
Rainbow/Mujigae, Italy Snow & Windstorm, South Carolina Floods, Chilean Storm and Mudslides and Texas and Oklahoma Heavy Rain.
In 2017, SCOR was affected by the following catastrophes which resulted in total net estimated losses of EUR 768 million as at December 31, 2017: In EUR million
Estimated loss net of retrocession as at December 31, 2017Date of loss
Adjusted Estimated loss net of retrocession as at December 31, 2017Date of loss
Other natural catastrophes (less than EUR 10 million) 34 16 16 1.3.5.3. SCOR GLOBAL LIFE
Protection encompasses traditional Life reinsurance business for living and death benefits. The main risks undertaken are mortality, morbidity and behavioral risks for individuals and groups of individuals. Financial Solutions typically combine traditional Life reinsurance with financing components providing liquidity, balance sheet, solvency and/or income improvements to the client. 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 insurance cover provided by insurers or pension funds.
In 2017, SCOR Global Life continued to grow profitably in a competitive Life reinsurance market. The solid operating profitability of SCOR Global Life was maintained thanks to a robust flow of new business and expansion of franchise in various key regions and product lines. Underlying US mortality claim experience has been higher than expected, but was offset by the benefits from active in-force management and the strong reserve position set up at the time of the Transamerica Re and Generali US acquisitions. Both claim expenses and in-force management actions may vary over time.
The Protection business accounts for 77% of total gross written premiums in 2017 and remains the main driver for premium growth (4.6% growth in gross written premiums in 2017).
Asia Pacific remains a region with significant growth opportunities both in terms of premiums and profitability. Premiums development in Asia Pacific was driven by higher Protection business volumes in China, Australia, South Korea and Japan.
Within the Protection product line, mortality was the main risk underwritten and the main growth driver in 2017: ●● Mortality: more than 60% of SCOR Global Life’s portfolio is traditional mortality reinsurance business, based on 2017 gross written premiums. SCOR Global Life developed a strong position in Mortality in the US, as well as in the major European markets.
●● Long-Term Care: SCOR Global Life has been pioneering LTC reinsurance solutions in the French market for twenty years, and has acquired a sound practical experience in the underwriting and the management of LTC risks.
●● Disability: SCOR Global Life has established strong market positions in disability in many continental Europe markets and Canada.
●● Medical represents a small proportion of SCOR Global Life’s portfolio. It is a major product line in the markets of the Middle East and is written selectively in Asia, Continental Europe and the Americas.
●● Personal Accident also represents a small proportion of SCOR Global Life’s portfolio. A main source of Personal Accident business for SCOR Global Life is obtained through its distribution services company, ReMark, which provides direct marketing of life insurance products to insurers, financial institutions and affinity partners.
Through its Global Distribution Solutions (GDS), SCOR Global Life has successfully deployed a number of innovative and tailored client services which aim to help insurers expand and develop their own client bases (ReMark, Velogica, SCOR Telemed and Rehalto). SCOR Global Life has leadership positions in many markets in the EMEA and Asia Pacific regions.
In the Financial Solutions product line, accounting for 14% of 2017 gross written premiums, SCOR Global Life has built a recognized position in providing capital and solvency solutions. Since 2013, SCOR Global Life has signed landmark transactions in Southern Europe, the US, Asia and Latin America. In 2017 SCOR Global Life expanded its footprint in the Asia-Pacific region.
Overall, the Life technical margin in 2017 was 7.1% compared to 7.0% in 2016 and 7.2% in 2015.
(3) Source: 2016 SOA/Munich Re survey of US life reinsurance, published in June 2016.
SCOR GROUP01 Market and financial review 1.3.5.4. NET INVESTMENT INCOME AND INVESTMENT INCOME ON INVESTED ASSETS
The return on invested assets in 2017 was 3.5% as compared to 2.9% in 2016 and 3.1% in 2015. The evolution of investment income in 2017 is essentially driven by higher investment revenues and by the active portfolio management strategy implemented by SCOR Global Investments, which translated into substantial realized capital gains of EUR 272 million, mostly achieved on the real estate portfolio and to a lesser extent on fixed income and other investments portfolios.
Return on invested assets (ROIA as a %) 3.5% 2.9% 3.1%
(1) Investment revenues on invested assets are presented net of EUR 3 million real estate revenues attributable to 3rd parties. (2) Fair value through income on invested assets includes EUR 5 million realized loss on derivatives, included in realized capital gains/losses on investments under
(8) Income/(expenses) on technical items include (1) and (3) amongst other technical items.
Consistent with “Vision in Action”, SCOR Global Investments has pursued the repositioning of the investment portfolio throughout 2017. As a result, liquidity, defined as SCOR’s share of cash and cash equivalents and short-term government bonds (with maturities above three months and below twelve months) and bank overdrafts, was significantly decreased towards the target level of 5% of invested assets, standing at 5% as at December 31, 2017, compared to 11% as at December 31, 2016.
SCOR’s exposure to loans increased marginally to EUR 724 million as at December 31, 2017 and stands at 4% of invested assets (as at December 31, 2016: EUR 718 million, representing 4% of invested assets).
SCOR’s exposure to equity securities increased to EUR 645 million as at December 31, 2017, representing 3% of invested assets (as at December 31, 2016: EUR 506 million, representing 2% of invested assets). This exposure is essentially composed of listed equities and convertible bonds.
The following table presents a reconciliation of these figures with the IFRS amounts as presented in Section 4 – Consolidated financial statements
Investments at fair value through income - - - 266 - 891 1,157 - 1,157 - - 1,157
Direct real estate unrealized gains and losses (5) - - - - 152 - 152 - 152 - - -
On July 26, 2017, SCOR launched a share buy-back program commencing on July 27, 2017, for an amount of up to EUR 200 million over 24 months, subject to market conditions. For more information on the share buy-back program, see Section 4.6 – Notes to the consolidated financial statements, Note 12 – Information on share capital, capital management, regulatory framework and consolidated reserves.
Some of the letters of credit granted by SCOR to cedents require 100% collateral coverage in case of non-compliance with financial covenants or in case of a decrease in the Group’s financial strength rating. For example, the Group and its companies are subject to minimum net worth requirements and maximum debt levels under the terms of certain stand-by letter of credit agreements. Non respect of these covenants could lead to an increase in the percentage of required collateralization.
For information on collateral requirements, see Section 3.6 – Liquidity risks and Section 4.6 – Notes to the consolidated financial statements, Note 23 – Commitments received and given.
The total level of financial liabilities which includes subordinated debt, real estate financing and other financial liabilities decreased to EUR 2,702 million from EUR 2,758 million in 2016 (2015: EUR 3,155 million).
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 3.7 billion as at December 31, 2017. 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.
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, stood at EUR 1.0 billion at the end of 2017 (2016: EUR 2.3 billion and 2015: EUR 2.0 billion) supported by very strong operating cash flow generation. The Group executed its strategy of redeployment of liquidity as described by the “Vision in Action” asset management policy.
Total investments, including cash and cash equivalents, amounted to EUR 29.4 billion at December 31, 2017 compared to EUR 29.8 billion and EUR 29.3 billion at December 31, 2016 and 2015, respectively.
This comprehensive and holistic model was developed internally over the last 10 years, 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 the highest scientific standards, systematically applying stochastic simulations and modeling dependencies across risks and using cutting-edge methodologies.
SCOR’s internal model is used extensively to help to prepare management decisions which involve risk management or solvency considerations. The solvency position of the Group is monitored on SCOR’s dynamic solvency scale which defines SCOR’s solvency target – the “optimal range” being between 185% and 220% – as well as the various management actions to be taken depending on the solvency position, as shown below. The Solvency scale is well established and has been confirmed by the new strategic plan Vision in Action.
At year-end 2017, SCOR’s solvency ratio stood at 213% (1), in the upper part of the optimal solvency range of 185%-220% as defined in the “Vision in Action” plan.
Positive operating cash flows amounted to EUR 1,144 million in 2017 (2016: EUR 1,354 million and 2015: EUR 795 million, respectively). In 2017, SCOR Global P&C provided strong cash flow in line with expectations, despite of having commenced payments on Q3 2017 cat events. SCOR Global Life showed elevated technical business cash flow in the last quarter of 2017 due to two large transactions. In 2016, strong recurring cash flows were generated and one exceptional item occurred: SCOR Global P&C received a non-recurring fund withheld settlement of approximately EUR 301 million.
SCOR GROUP 01Market and financial review 1.3.9. CALCULATION OF FINANCIAL RATIOS
BASIC BOOK VALUE PER SHARE 33.01 35.94 34.03 1.3.9.2. RETURN ON INVESTMENTS AND RETURN ON INVESTED ASSETS
The return on investments (ROI) is used to assess the profitability of the Group’s investments, including funds withheld by cedents and other deposits less cash deposits. This percentage return is calculated by dividing the total net investment income by the average investments (calculated as the quarterly averages of the total investments).
(1) Pro-rata of 50%: linear acquisition throughout the period. (2) Considers time weighted transaction based on transaction dates. (3) A daily weighted average is applied used for the currency or currencies that experienced material foreign exchange rates movements, and simple weighted average is applied used for the other currencies.
(1) The net combined ratio calculation has been refined to exclude some immaterial non-technical items that were previously included. Considering their potential growth, these items have been excluded to ensure they do not distort the net combined ratio in the future. The impacts on the previously reported ratio is +0,26% pts and +0,22% pts as at December 31, 2016 and December 31, 2015, respectively.
2.1. CORPORATE OFFICERS, EXECUTIVES AND EMPLOYEES 44 2.1.1. Corporate governance principles 44 2.1.2. Board of Directors 45 2.1.3. Board of Directors’ Committees 63 2.1.4. Executive Committee 67 2.1.5. Number of employees 69 2.2. EXECUTIVE COMPENSATION AND SHARE OWNERSHIP 70 2.2.1. Compensation of the Executive Corporate Officer and Directors 70 2.2.2. Compensation of Executive Committee members other than the Chairman and Chief Executive Officer 84 2.2.3. Stock options and performance shares 86 2.2.4. 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 104 2.3. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 105 2.3.1. Capital ownership 105 2.3.2. Related party transactions and agreements 116 2.3.3. Special report of the Statutory Auditors on related party agreements and commitments 117 2.4. AUDIT REPORT ON THE CORPORATE GOVERNANCE REPORT 120
REPORT ON CORPORATE GOVERNANCE02 Corporate officers, executives and employees 2.1. CORPORATE OFFICERS, EXECUTIVES AND EMPLOYEES
SCOR SE’s shares are listed on Euronext Paris. The provisions relating to corporate governance applicable to SCOR SE include French legal provisions, as well as rules laid down by the French financial markets authorities. SCOR believes that its application of corporate governance principles is appropriate and in compliance with best corporate governance practices in effect in France as per AMF recommendations.
SCOR decided to adapt a provision of the AFEP-MEDEF corporate governance code as follows: ●● Section 8.5.1 of the AFEP-MEDEF corporate governance code related to the independence of the directors of the Company who hold a term in a Group subsidiary.
The Board of Directors has the power to appoint and remove, at any time and with or without cause, the Chairman and Chief Executive Officer, as well as to appoint separate persons to hold the positions of Chairman of the Board (Président du Conseil d’administration) and Chief Executive Officer (Directeur Général). Upon a proposal made by the Chairman and Chief Executive Officer, the Board of Directors may also appoint a Deputy Chief Executive Officer (Directeur Général Délégué) to assist the Chief Executive Officer in managing the business.
Furthermore, in addition to the Chairman and Chief Executive Officer of SCOR SE, two other persons effectively running SCOR SE and the Group have been appointed. Since January 1, 2016, the effective management of the Company and the Group has been overseen by at least two persons, pursuant to the requirements of the French Insurance Code.
Lastly, as per the French insurance code four key functions holders (compliance, risk management, actuarial, internal audit) have been appointed for SCOR SE and the Group. They are heard at least annually by the Board or one of its committees and they may raise any issues directly to the Board.
2.1.1.3. INFORMATION REQUIRED BY ARTICLE L. 225-37-5 OF THE FRENCH COMMERCIAL CODE
In accordance with European law governing European Companies and applicable French law, the principal responsibility of the Board of Directors is to determine the guiding principles of the Company’s business plan and strategy and to monitor their application. The Chairman and Chief Executive Officer (Président et Directeur Général) of SCOR SE has authority to manage the business of the Company, subject to the prior authorization of the Board of Directors or the Shareholders’ Meeting for certain decisions as required by law and by the Company’s bylaws (statuts) and subject to the Code des assurances which prescribes that at least two persons shall effectively run the Company.
Guillaume Sarkozy (1) April 15, 2009 April 27, 2017 M French
Member of the Strategic Committee and Corporate and Social Responsibility Committee
French – Age: 56 – AÉROPORTS DE PARIS 291, boulevard Raspail 75014 Paris, France
Augustin de Romanet, a French citizen, is a graduate of the Institut d'Études Politiques in Paris and a former student of the École Nationale d’Administration. He was previously Chief Executive Officer of Caisse des dépôts et consignations, between 2007 and 2012, and chaired the Fonds Stratégique d’Investissement between 2009 and 2012. Prior to that, he was Deputy Finance Director at Crédit Agricole S.A. and a member of the Executive Committee. Before taking up that position, Augustin de Romanet served as Deputy Secretary General to the Presidency of the Republic of France, between June 2005 and October 2006, and held positions in various ministerial offices. In particular, between 2002 and 2005, he was Chief of Staff to Alain Lambert, Minister Delegate for the Budget, Deputy Chief of Staff to Francis Mer, Minister for the Economy, Finance and Industry, Chief of Staff to Jean-Louis Borloo, Minister for Employment, Labor and Social Cohesion, and lastly, Deputy Chief of Staff to Prime Minister Jean-Pierre Raffarin. Awarded the Légion d’honneur in 2007, Augustin de Romanet has received a number of awards, notably “Capitalist of the Year” awarded by the Nouvel Économiste magazine in 2008 and “Financier of the Year” awarded by Minister of the Economy in 2012. Augustin de Romanet has been Chairman and Chief Executive Officer of Aéroports de Paris since 2012.
* Companies whose shares are listed on a regulated or organized market.
French – Age: 59 – SCOR SE 5, avenue Kléber 75116 Paris France
Michèle Aronvald, a French citizen, has 38 years of experience within SCOR Group. She has held various positions within the Group Finance Investment team: back and middle office manager, investment & treasury accounting manager, investment reporting manager and compliance investment reporting manager. She is currently Investments Accounting Process & Control Manager. She was employee director between 2003 and 2006.
●● 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)
Marguerite Bérard-Andrieu, a French citizen, is a graduate of the Institut d’Études Politiques de Paris, of Princeton University (Woodrow Wilson School of International and Public Affairs), and a former student at the École Nationale d’Administration (ENA). She began her career in 2004 as an auditor at the French Treasury in the Inspection Générale des Finances. From 2007 to 2010, she was an advisor to the President of the French Republic on employment and social affairs. From November 2010 to May 2012, she was the Chief of Staff of the French Minister for social affairs. Then, she joined BPCE group and was appointed Deputy Chief Executive Officer, member of the General Management Committee in charge of Strategy, Legal Affairs, the Group Company Secretary’s Office and Compliance. In May 2016, she was appointed member of the Management Board of BPCE, in charge of the Finance, Strategy, Legal Affairs and Group Company Secretary of BPCE group. Marguerite Bérard-Andrieu joined the management team of BNP Paribas in January 2018. After an interim period, she will be in charge of the retail bank in France. She is member of the Steering Committee of Institut Montaigne.
French – Age: 61 – COVEA 86, rue Saint-Lazare CS 10020 75320 Paris Cedex 09, France
●● Permanent representative of Azur-GMF Mutuelles Assurances Associées on the Board of Directors of La Sauvegarde (France) ●● Permanent representative of Assurances Mutuelles de France on the Board of Directors of la Sauvegarde (France) ●● Permanent representative of Assurances Mutuelles de France on the Board of Directors of Gespré Europe (France) ●● Permanent representative of Assurances Mutuelles de France on the Board of Directors of Assistance Protection Juridique (France)
●● Permanent representative of Assurances Mutuelles de France on the Board of Directors of Fidelia Assistance (France) ●● Director and Vice-Chairman of Bipiemme Assicurazioni S.p.A. (Italy) ●● Director and Vice-Chairman of Bipiemme Vita S.p.A. (Italy) ●● Director of Caser (Spain) ●● Member of the delegated commission of Caser (Spain) ●● Director of La Capitale Assurances Générales Inc. (Canada)
Thierry Derez, a French citizen, was a lawyer at the Appeal Court in Paris from 1981 to 1994, before joining the insurance group AM-GMF in 1995, first as Deputy Chief Executive Officer of GMF and then as Chairman and Chief Executive Officer of Assurances Mutuelles de France and of GMF in 2001. He was appointed Chairman and Chief Executive Officer of the AZUR-GMF group in September 2003. He is currently Chairman of the Board of Directors of Assurances Mutuelles de France, of GMF Assurances and Chairman and Chief Executive Officer of Garantie Mutuelle des Fonctionnaires (GMF). He was appointed as director of MAAF Assurances in November 2004 and became its Chairman and Chief Executive Officer in June 2005. Since June 2007, he has been the Chairman of the Board of Directors of MMA IARD Assurances Mutuelles, MMA IARD, MMA Vie Assurances Mutuelles and MMA Vie. Since 2008, he has been Chairman and Chief Executive Officer of Covéa.
Vanessa Marquette, a Belgian citizen, holds a law degree and an economic law degree from the Université Libre de Bruxelles. She also studied law at the University of Michigan Law School as well as at Davis University and Berkeley University. She has practiced as a lawyer of the Brussels Bar since 1995. She specializes in Banking Law and Financial Law and has particular expertise in the areas of Corporate Law, Insolvency Law and Security Interests and Private International Law. She is the partner and member of the Executive Committee of the business law firm Simont Braun, which she joined in 2005 after having practised law at the Brussels offices of Stibbe Simont Monahan Duhot and Freshfields Bruckhaus Deringer. Vanessa Marquette is an independent director of the Erasme Hospital. She is also a lecturer at the Université Libre de Bruxelles where she teaches International Financial Law.
Member of the Strategic Committee, Audit Committee, Compensation and Nomination Committee, Crisis Management Committee and Corporate and Social Responsibility Committee
●● Chairman of the Board of Directors of Crédit Suisse Asset Management (Switzerland) Ltd (Switzerland) ●● Director of Assura (Switzerland) ●● Director of Assepro AG (Switzerland)
●● Chief Executive Officer of Macif Sgam (France) ●● Chief Executive Officer of UMG Macif Santé Prévoyance (France) ●● Chairman and director of Foncière de Lutèce (France) ●● Director of Compagnie Foncière Macif (Permanent representative of Macif) (France) ●● Director of Macif Participations (France) ●● Member of the Supervisory Board of OFI Asset Management (France) ●● Director of OFI Holding (permanent representative of Macif) (France) ●● Member of the Supervisory Board of Inter Mutuelles Assistance (permanent representative of Macif) (France) ●● Non-voting director of Macifilia (France) ●● Non-voting director of Mutavie (France) ●● Non-voting director of Socram Banque (France) ●● Non-voting director of Ofivalmo Partenaires (France) ●● Member of the Executive Committee of Siem (France) ●● Member of the Steering Committee of Macifimo (France) ●● Ex officio member at the Board of Directors of Campus (GIE), as an observer (France) ●● Member of the Executive Board and Vice-Chairman of Association des Assureurs Mutualistes (AAM) (France)
●● Vice-Chairman and member of the Supervisory Board of Macifimo ADB, formerly GPIM (France) ●● Member of the Executive Board and member of the Board of Macif and Vice-Chairman of Gema (France) ●● Chairman of Inter Mutuelles Solutions ex Macifilia Courtage (France) ●● Chief Executive Officer of Macifilia (France) ●● Chief Executive Officer of Sferen (France) ●● Member of the Management Board of Macifin’ (France) ●● Member of the Management Board of Mutavie (France) ●● Director of Sferen (France) ●● Director of Macif Mutavie Finance (GIE) (France) ●● Director of Socram Banque (France) ●● Director of BPCE Assurances (permanent representative of Macif) (France) ●● Director of Ofi Asset Management (France) ●● Director of Ofivalmo Partenaires (permanent representative of Macif) (France) ●● Member of the Executive Committee of Siil (France) ●● Member of the Steering Committee of Sipemi (permanent representative of Macif) (France) ●● Director of Thémis (permanent representative of Macifilia) (France) ●● Director of Euresa Holding (Luxembourg) ●● Manager of GEIE Euresa (Belgium)
●● Chief Executive Officer of Malakoff Médéric Assurances (France) ●● Chairman of Totem MM1 (France) ●● Chairman of Totem MM2 (France) ●● Director of Quatrem (France) ●● Director of Auxia (France) ●● Director of Auxia Assistance (France) ●● Permanent Representative of Malakoff Médéric Prévoyance at the Board of Directors of OPPCI Vivaldi (France) ●● Permanent Representative of Malakoff Médéric Assurances at the Board of Directors of la Banque Postale Asset Management (France) ●● Sole director of GIE SI2M (France) ●● Chief Executive Officer of SGAM Malakoff Médéric (France) ●● Chief Executive Officer of la Caisse Mutuelle Assurance sur la Vie “CMAV” (France) ●● Chief Executive Officer of Malakoff Médéric Prévoyance (France) ●● Chief Executive Officer of Institution Nationale de Prévoyance des Représentants “INPR” (France) ●● Chief Executive Officer of Capreval (France) ●● Chief Executive Officer of Malakoff Médéric Retraite AGIRC (France) ●● Chief Executive Officer of Malakoff Médéric Retraite ARRCO (France) ●● Chief Executive Officer of Malakoff Médéric Mutuelle (France) ●● Chief Executive Officer of Malakoff Médéric Groupement paritaire de Prévoyance (France) ●● Chief Executive Officer of l’AS2M (France) ●● Chief Executive Officer of l’Association de Moyens Assurances (France) ●● Chief Executive Officer of l’Association de Moyens Retraite (France) ●● Chief Executive Officer of Malakoff Médéric Innovation Santé (France) ●● Chief Executive Officer of l’UGM Agilis (France) ●● Director of la Fondation Malakoff Médéric Handicap (France)
●● 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)
Thomas Saunier, a French citizen, is a graduate of the École Polytechnique, ENSAE and the French Institute of Actuaries. Actuarial Director and Director of Steering and Management Control at CNP Assurances from 2000 to 2003, he spent more than 10 years at Generali France, initially as Deputy Chief Executive Officer in charge of products, operations and information and finance systems. In 2005, he was promoted to Chief Executive Officer in charge of the individuals market, IT and services, before taking charge of the companies, professionals and individuals markets in 2011. Appointed CEO of the Malakoff Médéric group in an environment characterized, for all players in the social protection sector, by unprecedented challenges in the management of supplementary pensions and in the development of life and health insurance business, he took up his post within the group on June 1, 2016.
Kory Sorenson, a British citizen, was born in the US. She speaks fluent French and has a DESS degree in corporate finance from the Institut d’Études Politiques de Paris, a master’s degree in applied economics from the University of Paris Dauphine, a bachelor’s degree in econometrics and political science from the American University in Washington, D.C. and a certificate in governance from Harvard Executive Education and another one from INSEAD. Kory Sorenson has over twenty-five years of experience in financial services, most of which has been focused on insurance and banking. She was Managing Director, Head of Insurance Capital Markets of Barclays Capital and also held senior positions in the insurance capital markets and debt capital markets divisions of Credit Suisse, Lehman Brothers and Morgan Stanley. She began her career in the treasury department of Total SA in Paris. Kory Sorenson is currently a non-executive director of several major companies.
●● 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)
American and British – Age: 59 – LEADERS’ QUEST Ltd 11/13 Worple Way, Richmond Upon Thames, Surrey – TW 10 6DG United Kingdom
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; ●● international experience and diversity of nationalities; ●● high proportion of female Board members.
The Board of Directors determines the broad lines of the Company’s business activities and ensures their implementation. 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 takes part in the sound and prudent management of the Company. 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.
REPORT ON CORPORATE GOVERNANCE 02Corporate officers, executives and employees 4. must not be a significant customer, supplier, or investment or corporate banker of SCOR or its Group, or for whom SCOR or its Group represent a significant part of such person’s business activities. For the quantitative assessment, a business relationship is deemed significant if it amounts to an annual sum of more than 5% of SCOR’s consolidated revenues, or more than 5% of the turnover, consolidated as necessary, of the director or the company with which he is affiliated. For the qualitative assessment, the criteria to qualify that a business relationship is deemed significant will be notably duration and continuity, economic dependence, exclusivity. The evaluation of how significant the relationship is with SCOR or its Group must be debated by the Board in consideration of the Compensation and Nomination Committee’s report; 5. must not have a close family relationship with one of the Company’s corporate officers; 6. must not have been an auditor for the Company within the last five years; 7. must not have been a director of the Company for more than twelve (12) years (the loss of independent director status in this regard will occur on the date at which this period of twelve years is reached); 8. must not represent a significant shareholder of the Company with the stipulation that: – a shareholder is deemed significant if he holds more than 5% of the shares or voting rights (calculation consolidating his various holdings),
– below this threshold, the Board, based on a report of the Compensation and Nomination Committee, systematically takes into account the structure of the Company’s capital and the existence of a potential conflict of interest when evaluating independence.
Augustin de Romanet Yes Yes Yes Yes Yes Yes Yes Yes Yes
Thierry Derez, Chairman and Chief Executive Officer of Covea (8.15% of SCOR’s capital and 8.40% of its voting rights as of December 31, 2017) is not deemed to be independent due to the exceeding of the 5% threshold presented in criterion 8 above.
They hold less than 5% of SCOR’s capital and the Board of Directors, upon the recommendation of the Compensation and Nomination Committee, stated that: ●● Malakoff Médéric Assurances, represented by Thomas Saunier, and Jean-Marc Raby can be considered as independent; ●● Claude Tendil can not be considered as independent. Although Generali Group holds less than 5%, Claude Tendil has been a director of the Company for more than twelve (12) years and for this reason cannot be deemed independent since the Shareholders’ Meeting held on April 27, 2017.
Directors may receive training, at their request, on the specific nature of the Company, its business lines and its business sector. 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.
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.
REPORT ON CORPORATE GOVERNANCE 02Corporate officers, executives and employees 2.1.2.3. PREVENTION OF RISKS OF CONFLICT OF INTERESTS
In the event a 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 proven general conflict of interest, each Director must immediately notify the Chairman of the Compensation and
Nomination Committee and if the situation has not been cured within one (1) month following the notification, resign from the Board of Directors.
The Company’s Board of Directors held five meetings in 2017 and they lasted on average two hours and a half.
The average attendance rate of the members of the Board was 100% (1). The following table displays the attendance of the members of the Board of Directors during 2017: Board members Attendance rate (%)
(1) Representing Malakoff Médéric Assurances, director. (2) Director whose term ended at the Shareholders’ Meeting on April 27, 2017. (3) Director appointed by the Shareholders’ Meeting on April 27, 2017.
They noted that several of the changes they had suggested in the course of the 2016 assessment had been taken into consideration, in particular to allocate more time to some meetings and to strengthen the international dimension of the Board.
The Board also discussed the main areas of improvements identified by the directors, in particular regarding the volume of the documents and the reporting of the committees to the Board.
There is no arrangement or agreement concluded with shareholders, clients, suppliers or others pursuant to which any member of the Board of Directors or any member of the Executive Committee has been appointed.
2.1.2.8. INFORMATION ON SERVICE CONTRACTS OF MEMBERS OF THE BOARD OF DIRECTORS AND THE EXECUTIVE COMMITTEE
The Strategic Committee is composed of Denis Kessler (Chairman), Marguerite Bérard-Andrieu, Thierry Derez, Vanessa Marquette, Bruno Pfister, Jean-Marc Raby, Augustin de Romanet, Thomas Saunier (as representative of Malakoff Médéric Assurances), Kory Sorenson, Claude Tendil and Fields Wicker-Miurin.
The Strategic Committee met on four occasions in 2017, each meeting lasting approximately two hours. The members of the Strategic Committee also met during a day-long seminar of the Strategic Committee.
Its work dealt with various aspects of the strategy of the Group, including the acquisition of 100% of the shares of MutRé S.A..
The average attendance rate of the Committee members was 100% (1). The following table states the attendance rates of the members of the Strategic Committee in 2017: Board members Attendance rate (%)
Due to the experience and positions held by its members during their career, the Committee has a high level of financial expertise (for further detail, see section 2.1.2.1 – Information concerning the members of the Board of Directors).
The Audit Committee has two main missions: ●● accounting and financial responsibilities, including the analysis of periodic financial statements, the review of the relevance of choices and correct application of accounting standards, the review of the accounting treatment of any material transaction, the review of the scope of consolidation, the review of significant off-balance sheet commitments, the control of the selection of Statutory Auditors, the review of any accounting and financial reporting documents before they are made public. The Group audit fees for services rendered during the year are subject to a quarterly review and approval by the Audit Committee, with a specific review for the services other than audit services. The Audit Committee approves the non-core audit fees to ensure that the auditors’ independence is not impaired; ●● ethical, internal control and compliance responsibilities: the Audit Committee is responsible for ensuring that internal procedures relating to the collection and auditing of data guarantee the quality and reliability of the Group’s financial statements. The Audit Committee is also in charge of reviewing agreements with related parties (conventions réglementées), analyzing and responding to questions from employees with regard to internal controls, the preparation of financial statements and the treatment of internal accounting books and records. It gives its opinion on the organization of Internal Audit, examines its annual work program, receives internal audit reports and stays informed regarding the implementation of recommendations. Finally, it examines the annual compliance plan and stays informed regarding the Company’s compliance activities.
The Audit Committee met on four occasions in 2017, each meeting lasting approximatively two hours and a half. The Chairman and Chief Executive Officer attended all the meetings in 2017.
●● ethical, internal control and compliance responsibilities: the review of the quarterly internal audit reports and of the 2017 internal audit plan, the annual review of the Group Policies (especially those required by Solvency II), the actuarial function report, the 2017 compliance plan and the annual review of compliance activities, the annual review of related party agreements, the review of the work of the Audit Committees of the main subsidiaries, the review of the quarterly legal and compliance dashboard and the review of the Company’s statement with regard to the UK Modern Slavery Act.
The Committee is responsible for examining, notably based on the Own Risk and Solvency Assessment (ORSA), the major risks with which the Company is confronted, both on the assets and liabilities side, and for ensuring that tools for monitoring and controlling these risks are in place. It examines SCOR’s risks and its Enterprise Risk Management (ERM) policy. It studies the Group’s strategic risks (including emerging risks) as well as the Group’s main technical and financial commitments (underwriting, reserving, market, concentration, counterparty, asset-liability management, liquidity and operating risks as well as relating to changes in prudential regulations).
The Risk Committee met four times in 2017, each meeting lasting approximately two to three hours.
REPORT ON CORPORATE GOVERNANCE02 Corporate officers, executives and employees 2.1.3.4. THE COMPENSATION AND NOMINATION COMMITTEE
The Compensation and Nomination Committee met twice in 2017, each meeting lasting approximately two to three hours.
(1) Chairman of the Compensation and Nomination Committee from April 27, 2017. (2) Member of the Compensation and Nomination Committee from April 27, 2017.
During its meeting on October 25, 2017, the Board of Directors decided to create a Corporate and Social Responsibility Committee.
It is composed of Fields Wicker-Miurin (Chairman), Michèle Aronvald (employee director), Thierry Derez, Vanessa Marquette, Bruno Pfister, Augustin de Romanet and Claude Tendil.
Its mission is to examine the corporate and social responsibility strategy and actions plans, to monitor their implementation and to propose any actions in this respect. It also examines the reports relating to Corporate and Social Responsibility submitted to the Board of Directors in accordance with applicable laws and regulations.
REPORT ON CORPORATE GOVERNANCE 02Corporate officers, executives and employees 2.1.3.6. THE CRISIS MANAGEMENT COMMITTEE
Paolo De Martin, an Italian citizen, graduated from Ca’ Foscari University, Italy, with a degree in Business Economics. He subsequently spent two years in the optical business as founder and managing partner of an eyewear manufacturer. He joined General Electric Company (GE) in 1995 as a finance trainee in London. In 1997, he joined GE’s internal auditing & consulting Group, charged with assignments in multiple GE businesses in the Americas, Europe and the Asia-Pacific region. In 2001, Paolo De Martin was promoted to Executive Manager for GE
REPORT ON CORPORATE GOVERNANCE 02Corporate officers, executives and employees 2.1.5. NUMBER OF EMPLOYEES
Switzerland, Israel and Germany. (3) The Americas Hub covers employees in the United States, Mexico, Brazil, Canada, Chile, Colombia and Argentina.
(6) From 2014 to 2017, the Lloyd's Channel Syndicate (132 employees at December 31, 2017) has been a subsidiary of SCOR Global P&C SE, managed independently from the Group in terms of human resources and therefore not aggregated in the Group figures.
(7) Starting from 2014, the former Transamerica Re employees were included in the divisions according to the global organization of the Group. From 2014 to 2017, Rehalto (45 employees at December 31, 2017) and Telemed (28 employees at December 31, 2017), wholly-owned subsidiaries of SCOR Global Life SE were managed independently from the Group in terms of human resources and are not aggregated financially (or from an HR perspective) at the level of the division.
(8) The “Group Functions and Support” division includes the Group’s Finance, Risk and Operations Departments as well as the departments directly managed by the Chairman and Chief Executive Officer. SCOR SE controls 59.9% of the capital of MRM (5 employees at December 31, 2017). Due to its specific activity, its business model and its organization, MRM’s human resources are managed independently from the Group.
REPORT ON CORPORATE GOVERNANCE02 Executive compensation and share ownership 2.2. EXECUTIVE COMPENSATION AND SHARE OWNERSHIP
For the principles and rules stated for the determination of the compensation and in-kind benefits attributable to Mr. Denis Kessler as Chairman and Chief Executive Officer for the 2017 reporting period, please refer to the 2017 Shareholders’ Meeting brochure to the combined general meeting.
In accordance with Article L. 225-100, II of the French Commercial Code, at the 2018 Shareholders’ Meeting, the shareholders will vote on the aforementioned compensation items (fixed, variable and exceptional elements) paid or awarded to Mr. Denis Kessler in respect of the financial year ended December 31, 2017.
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 2017, 2016 and 2015: Amount due Amount paid Amount due Amount paid Amount due Amount paid
The benchmark study conducted by Mercer in 2017 on behalf of the Compensation and Nomination Committee concludes that the compensation package of the Chairman and Chief Executive Officer is aligned with market practice. More specifically, the Chairman and Chief Executive Officer’s 2017 compensation is below the 3rd quartile (among a list of peers including the main global reinsurers selected by premium income and for which information on the pay of top management is available, i.e. Alleghany, Arch Capital Group, Axis Capital Holdings Limited, Endurance Specialty, Everest Re, Hannover Re, Munich Re, Partner Re, Reinsurance Group of America, Swiss Re and Validus Holdings).
Those compensation items are compliant with the principles and rules stated for the determination of compensation and in-kind benefits attributable to Mr. Denis Kessler, Chairman and Chief Executive Officer for the 2017 reporting period and as approved by the 2017 Shareholders’ Meeting.
EUR 1,200,000 Following the recommendation of the Compensation and Nomination Committee on its meeting of February 21, 2017, the Board of Directors on February 21, 2017 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.
Variable annual compensation This item is submitted to the shareholders for approval
This variable annual compensation is determined as follows: ●● 50% on the basis of the achievement of financial objectives, set at the beginning of each year by the Board of Directors on the recommendation of the Compensation and Nomination Committee; and
●● 50% on the basis of the achievement of personal objectives, set at the beginning of each year by the Board of Directors on the recommendation of the Compensation and Nomination Committee.
In accordance with the Group compensation policy applicable to all Partners within the Group, the variable annual compensation of the Chairman and Chief Executive Officer may benefit, in the event of outperformance, from a multiplier applied to personal objectives (capped at a maximum of 150% of the personal objectives target portion) and financial objectives (capped at a maximum of 130% of the financial objectives target portion) which may increase the variable annual compensation of the Chairman and Chief Executive Officer up to a ceiling of 140% of his target variable annual compensation.
●● 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”, improvement of the internal model, broadening and deepening of the Group’s talent pool and contribution to the fight against climate change. Regarding the personal objectives, the Board of Directors determined, on the proposal of the Compensation and Nomination Committee, that the personal objectives were achieved, leading to a percentage of achievement of 135%.
The personal objectives, their respective assessment and achievement rate are detailed in a table below.
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 other half of options will be exercisable after March 11, 2021, provided: (1) that the conditions set out in the enclosed Plan of March 10, 2017 are fulfilled and in particular that he remains a corporate officer of SCOR Group until March 10, 2021 inclusive, except as otherwise stated by the Plan; (2) that the Group’s ethical principles as described in its Code of Conduct are respected; therefore, in case of actual misconduct as per the Code of Conduct, for instance in the event of fraud, the beneficiary will lose all of his/her stock options benefits (clawback policy); (3) that the average solvency ratio over three years (from January 1, 2017 to December 31, 2019) is at least equal to the average of the SCOR Solvency strategic target over the period (the "Target Solvency Ratio").
Proportion of the options that can be exercised in line with this criterion
* 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.
These performance shares will be acquired after February 22, 2020, provided that he remains a corporate officer of SCOR Group until February 21, 2020 inclusive, except as otherwise stated by the Plan, and are 100% subject to the same performance conditions as those for the stock options.
It should be noted that SCOR is committed to the neutral impact of each stock option and performance share allocation in terms of dilution. In particular, 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 buy-back program and by cancelling the treasury shares thus acquired as the options are exercised. Moreover, performance share allocation plans are covered through the allocation of existing shares taken from the treasury shares held by the Company in the context of its share buy-back program, and not via the creation of new shares. Thus, there is no capital dilution due to the granting of stock options and performance shares. Finally, in compliance with the recommendations of the AFEP-MEDEF corporate governance code applicable to the executive corporate officer, he made a formal commitment not to use hedging instruments on the stock options and/or performance shares granted to him for the whole duration of the term of his office.
Directors’ fees EUR 55,000 In 2017, the Chairman and Chief Executive Officer received directors’ fees 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 2017, he attended five Board meetings (a single amount of EUR 3,000 was paid for the two Board meetings held on April 27, 2017), four Strategic Committee meetings and one seminar of the Strategic Committee, leading to a variable amount of EUR 27,000.
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 for which the latest version is compliant with the collective compulsory welfare plan, specific to SCOR, as modified with effect on July 1, 2014, which benefits to 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.
This guarantee is calculated according to a revenue of reference 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.
●● Achievement of the objectives of the ViA strategic plan for SCOR Global Life
Improvement of SCOR’s internal model An improved version of the internal model, including a fine modeling of operational risk, was approved by the Autorité de Contrôle Prudentiel et de Résolution and by the Central Bank of Ireland on February 16, 2017
More than 80% of employees underwent training in 2017 Four employees were promoted to Executive Global Partner and Senior Global Partner level in 2017 vs. three external recruitments, thus demonstrating the priority given to promotion of talents internally
●● In terms of investments: full divestment from the tobacco industry, divestment from companies deriving more than 30% of their turnover from coal, publication of the 1st ESG report on investments in June 2017
●● Creation of a committee dedicated to CSR at Board level
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.
Valuation of shares as per method used in the consolidated financial statements
Denis Kessler 125,000 03/05/2013 Presence condition until March 5, 2015 and performance conditions
SCOR Global P&C’s combined ratio ≤100% on average in 2013 and 2014 93% Yes
SCOR Global Life’s technical margin ≥3% on average in 2013 and 2014 7.2% Yes
Furthermore, the Chairman and Chief Executive Officer acquired performance shares during the 2017 year, but they will become available only in 2019. These performance shares were granted as part of the plan of March 4, 2015 and the plan of September 1, 2011. See Section 2.2.3.2 of this Registration
REPORT ON CORPORATE GOVERNANCE02 Executive compensation and share ownership 2.2.1.3. DIRECTORS’ FEES AND NUMBER OF SHARES HELD BY DIRECTORS
The Shareholders’ Meeting of the Company held on May 6, 2014 resolved that the annual maximum aggregate amount of directors’ fees shall not exceed EUR 1,152,000. Upon the proposal of the Compensation and Nomination Committee and within the limit of this amount, the Board of Directors’ meeting held on February 21, 2017 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 include a significant 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 directors’ fees. 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.
The Board of Directors decided to allocate the directors’ fees as follows: ●● partly in one fixed sum of EUR 28,000 annually payable at the end of each quarter. For non-French directors, an additional EUR 10,000 per year is allocated; ●● partly based on the effective presence of directors at the meetings of the Board of Directors and of its Committees, in an amount equal to EUR 3,000 per Board or per Committee meeting they attend, except for the Chairmen of the Audit Committee, Risk Committee, Compensation and Nomination Committee and Corporate and Social Responsibility Committee, who receive an amount equal to EUR 6,000 for each meeting of the Committee that they chair.
Moreover, natural persons being members of the Board except the Chairman and Chief Executive Officer and the employee director received EUR 10,000 in SCOR shares on September 19, 2017.
Fees paid to directors in 2017 and 2016 are broken down as follows: In EUR 2017 2016
(2) Directors appointed by the Ordinary and Extraordinary Shareholders’ Meeting of April 27, 2016. (3) Directors whose mandate ended at the Ordinary and Extraordinary Shareholders’ Meeting of April 27, 2016.
Moreover, some of the directors in place are, or have been, members of the Boards of Directors of subsidiaries of the Group and they have received directors’ fees for 2017 and/or 2016 as follows: SCOR UK Company Ltd
TOTAL 6,818,731 2.2.1.4. PRINCIPLES AND CRITERIA FOR THE DETERMINATION, THE ALLOCATION AND THE GRANT OF THE FIXED, VARIABLE AND EXCEPTIONAL ITEMS COMPRISING THE TOTAL COMPENSATION AND IN-KIND BENEFITS ATTRIBUTABLE TO MR. DENIS KESSLER AS CHAIRMAN AND CHIEF EXECUTIVE OFFICER FOR THE 2018 REPORTING PERIOD
Set out below is the compensation policy regarding the Chairman and Chief Executive Officer of SCOR SE for the 2018 reporting period, submitted for approval to the shareholders in accordance with the new provisions of Article L. 225-37-2 of the French Commercial Code introduced by the so-called Sapin II law of December 9, 2016 relating to transparency, anti-corruption measures and the modernization of the economy.
The Board of Directors of SCOR SE decided, at its December 12, 2008 meeting, to apply the AFEP (Association of French Privatesector Companies) and MEDEF (French Business Confederation) recommendations of October 6, 2008 on the compensation of executive corporate officers of listed companies to the compensation of the executive corporate officer of SCOR, considering that these are in line with SCOR’s corporate governance principles.
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.
Each element composing the compensation and benefits is analyzed individually and then collectively, in order to reach the appropriate balance between fixed and variable, individual and collective, short- and long-term components.
Consequently, market studies are regularly conducted by an external company for the Compensation and Nomination Committee, in order to put into perspective the amount and structure of the Chairman and Chief Executive Officer’s compensation compared to a panel of peers made up of the main global reinsurers selected by premium income and for which information on the pay of top management is available (Alleghany, Arch Capital Group, Axis Capital Holdings, Endurance specialty, Everest Re, Great West Lifeco, Hannover Re, Munich Re, Partner Re, Reinsurance Group of America, Swiss Re, Validus Holdings and XL Group).
More specifically, this variable portion depends on objectives applicable to financial and personal parameters representing expected performance, and there is no minimum guaranteed amount.
This variable annual compensation is determined as follows: ●● 50% on the basis of the achievement of financial objectives, defined at the beginning of each year by the Board of Directors on the recommendation of the Compensation and Nomination Committee; and
The personal objectives are essentially defined on the basis of the following categories: ●● Solvency; ●● Strategy; ●● Risk management; ●● Corporate Social Responsibility.
In accordance with the Group compensation policy applicable to all Partners within the Group, the variable annual compensation of the Chairman and Chief Executive Officer may benefit, in the event of outperformance, from a multiplier applied to personal objectives (capped at a maximum of 150% of the personal objectives target portion) and financial objectives (capped at a maximum of 130% of the financial objectives target portion) which may increase the variable annual compensation of the Chairman and Chief Executive Officer up to a ceiling of 140% of his variable annual target compensation.
The Board of Directors considers that long-term variable compensation, which is a significant component of the remuneration of all Group Partners (around 25% of the workforce), is particularly well suited to the function of Chairman and Chief Executive Officer, given the expected level of his direct contribution to the long-term, overall performance of the Company. This compensation policy favors stock options and performance shares over variable cash compensation, thereby promoting a strong alignment of the interests of beneficiaries with those of shareholders, both during the performance measurement period and beyond, through holding obligations.
The stock options can be exercised at the earliest four years after the grant date and are subject to performance conditions over three calendar years, i.e. 2018, 2019 and 2020 for the plans granted in 2018.
For 50% of the allocation: ●● The achievement over the period used to measure the performance conditions (three years), of a level of average return on equity (“ROE”) equal to the average of the Company’s strategic target ROE for the period (the “Target ROE”).
●● If the observed average ROE is lower or higher than the Target ROE, the shares will be acquired/the stock options may be exercised by the beneficiaries based on the sliding scale set out in the table below: Ratio between the observed average ROE and the Target ROE
For the remaining 50%: ●● Achievement, during the period used to measure the performance criteria (three years), of an average solvency ratio that is at least equal to the average of the Company’s strategic target solvency ratio over the period (the “Target Solvency Ratio”)*.
●● If the observed average solvency ratio is lower than the “Target Solvency Ratio”*, the shares will be acquired/the stock options may be exercised according to the sliding scale set out in the table below: Difference between the average solvency ratio and the Target Solvency Ratio*
In addition, notwithstanding the total or partial achievement of the performance conditions described above, the right to exercise all or some options would be subject, in any event, to the satisfying completion of training in regards to corporate social responsibility (CSR).
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 Chairman and Chief Executive Officer benefits from a severance pay scheme decided by the Board of Directors at its meeting on July 27, 2011 and approved by the Combined General Meeting of May 3, 2012.
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 performance condition (C_n), approved by the Board of Directors, upon the recommendation of the Compensation and Nomination Committee, will be met if both criteria below are fulfilled: (A) SCOR’s average return on equity “ROE” for the three financial years preceding the date of departure of the Chief Executive Officer exceeds 50% of the average of the strategic objective of ROE (defined in the strategic plan) of SCOR calculated on the same period (the “Target ROE”); (B) the average solvency ratio of SCOR for the three financial years preceding the date of departure of the Chief Executive Officer exceeds the average of the strategic solvency ratio target (defined in the strategic plan) of SCOR calculated over the same period (the “Target Solvency Ratio”); it being specified that in the event that 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.
(1) Death, Disability, Retirement or in the event of a forced departure resulting from other reasons than fault or negative performance.
Moreover, in accordance with the decision taken by the Board of Directors on March 21, 2006, repeated on December 12, 2008, May 4, 2011 and July 30, 2014, the Chairman and Chief Executive Officer benefits from specific life insurance to cover the risks inherent in the duties of Chairman and Chief Executive Officer of the Company, in an amount equivalent to three years of fixed and variable compensation; this insurance policy is taken out by the Company.
2.2.2. COMPENSATION OF EXECUTIVE COMMITTEE MEMBERS OTHER THAN THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
The Compensation and Nomination Committee is informed about the compensation policy of the members of the Executive Committee and proposes to the Board of Directors the conditions, the amount and the allocation of the stock-options programs and of the performance shares grant programs of the members of the Executive Committee. Regarding the variable portion of the compensation, it depends, on one hand, on the achievement of individual objectives and, on the other hand, on the achievement of the Group’s earnings objective, which is based on return on equity (or ROE).
REPORT ON CORPORATE GOVERNANCE 02Executive compensation and share ownership be determined by an independent expert using the “BlackScholes ” pricing model, and (iii) a cash payment compensating them for the performance shares of SCOR SE granted to them prior to their departure and which would not vest due to the terms and conditions of the applicable free share allocation plan. The amount of this cash payment is equal to the product of the number of shares concerned multiplied by the average value of the opening prices of the ordinary shares of SCOR SE on the Paris stock exchange during the 20 trading days preceding the date of the change in control.
Gross compensation of the Executive Committee members excluding the executive corporate officer (1) 8,792,838 9,868,958 9,787,318 9,587,353 9,439,199 8,804,606
(1) Compared to 2015, in 2016 the compensation of Executive Committee members includes Romain Launay, who joined the Executive Committee on March 1, 2016. Nicolas Tissot left the Executive Committee in 2016.
REPORT ON CORPORATE GOVERNANCE02 Executive compensation and share ownership 2.2.3. STOCK OPTIONS AND PERFORMANCE SHARES
The exercise of stock options allocated since 2008 is subject, as applicable, to the satisfaction of performance conditions. Thus, a third of the number of options awarded under the May 22, 2008 plan, half of the options awarded under the March 23, 2009 plan and all the options awarded since the March 18, 2010 plan are subject to the satisfaction of performance conditions. However all the options allocated since the March 23, 2009 plan to the Chairman and Chief Executive Officer are subject to the satisfaction of performance conditions. See Section 2.2.3.4 of this Registration Document and Section 2.2.3.4 of the 2016 Registration Document filed with the AMF on March 3, 2017 under number D.17-0123 for the details of the performance conditions applicable to the stock options.
It should be noted that it is not possible to exercise these stock options during the 30 days before publication of the annual or half-year financial statements, or during the 15 days before the publication of SCOR’s quarterly financial results.
The potential volume of new shares from outstanding share-based compensation plans stood at 6,821,666 shares as of December 31, 2017, broken down as follows: Potential volume of new shares from outstanding share-based compensation plans linked to Group executive and employee compensation instruments 6,821,666
(1) The free share allocation plans currently in force only allocate outstanding shares. (2) Authorization granted by the Shareholders’ Meeting of April 27, 2017 in its 21st 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 19,416,429 on December 31, 2017, due to the addition of (i) outstanding free share allocation plans
●● of which number of potential new shares from outstanding options 5,467,076
●● of which number of potential new shares from outstanding free shares (1) -
●● of which number of potential new shares from outstanding warrants -
●● of which potential shares from other securities convertible or redeemable into new shares (2) 19,198,044
If free shares were taken into account in the calculation of the potential volume of new shares from outstanding share-based compensation plans and in the calculation of the fully diluted share capital, this theoretical volume (which corresponds to outstanding shares or new shares to be issued) would stand at 8.90% of the fully diluted share capital on December 31, 2017.
On April 27, 2016, the Shareholders’ Meeting authorized the Company’s Board of Directors, in its 19th resolution, under the provisions of Articles L. 225-177 to L. 225-186-1 of the French 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 French 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 27, 2016 and cancelled and replaced, for the unused portion thereof, the previous authorization of April 30, 2015.
On April 27, 2017, the Shareholders’ Meeting authorized the Company’s Board of Directors, in its 21st 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 27, 2017 and cancelled and replaced, for the unused portion thereof, the previous authorization of April 27, 2016.
Aside from the mandatory conditions (1) and (2), if the observed average ROE (condition (3)) is lower or higher than the Target ROE, the options will vest in accordance with the sliding scale set out in the table below: Ratio between the observed average ROE and the Target ROE Proportion of the options finally vested via this criterion
Aside from the mandatory condition (1), if the observed average ROE (condition (2)) is lower or higher than the Target ROE, the options will vest in accordance with the sliding scale set out in the table below: Ratio between the observed average ROE and the Target ROE Proportion of the options finally vested via this criterion
Aside from the mandatory condition (1), if the observed average solvency ratio (condition (2)) is lower than the Target Solvency Ratio, the options will vest in accordance with the sliding scale set out in the table below: Difference between the average solvency ratio and the Target Solvency Ratio Proportion of the options finally vested in line with this criterion
Achievement of the performance conditions attached to the 2015 stock options plans
In 2017, the Compensation and Nomination Committee acknowledged the validation of all the performance conditions attached to the 2015 stock option plans as defined in the 2015
This authorization was given for a period of 24 months from April 27, 2016, and canceled and replaced the previous authorization of December 18, 2015 for the unused portion thereof.
This authorization was given for a period of 24 months, i.e. until April 26, 2019.
Moreover, these resolutions set forth that each performance share allocation should have a neutral impact in terms of dilution. To achieve this, performance share allocation plans have to be covered through the allocation of existing shares taken from the treasury shares held by the Company under its share buy-back program, and not via the creation of new shares. Thus, there is no capital dilution related to the grant of performance shares.
Following the authorization given by the Extraordinary Shareholders’ Meeting on April 27, 2016, the Company’s Board of Directors’ meeting of February 21, 2017, on the proposal of the Compensation and Nomination Committee meeting of February 21, 2017, decided to grant performance shares to the Chairman and Chief Executive Officer and to the French tax resident members of the Executive Committee.
All the shares awarded to the Chairman and Chief Executive and to the Executive Committee members, are subject to the satisfaction of performance conditions defined as follows.
Aside from the mandatory conditions (1) and (2), if the observed average solvency ratio (condition (3)) is lower than the Target Solvency Ratio, the shares will vest according to the sliding scale set out in the table below: Difference between the average solvency ratio and the Target Solvency Ratio Proportion of the shares finally vested in line with this criterion
The final vesting of half of the shares granted is subject to the fulfilment of the following conditions: (1) that the terms and conditions set out in the Plan are fulfilled and in particular that the beneficiary remains employee or corporate officer of the SCOR Group until February 21, 2023 inclusive, except as otherwise stated by the Plan; (2) that the beneficiary respects the Group’s ethical principles as described in its Code of Conduct; (3) that the average SCOR ROE over six years (from January 1, 2017 to December 31, 2022) is equal to the average SCOR ROE strategic target (the “Target ROE”) over the same period.
The final vesting of the remaining half of the shares is subject to the fulfilment of the following conditions: (1) that the terms and conditions set out in the Plan are fulfilled and in particular that the beneficiary remains employee or corporate officer of the SCOR Group until February 21, 2023 inclusive, except as otherwise stated by the Plan; (2) that the beneficiary respects the Group’s ethical principles as described in its Code of Conduct; (3) that the average solvency ratio over six years (from January 1, 2017 to December 31, 2022) is at least equal to the average SCOR solvency strategic target over the same period (the “Target Solvency Ratio” (1)).
The terms and conditions of the LTIP provide for a vesting period of six years for all beneficiaries. There is no obligation to hold the shares after the vesting period.
Following the authorization given by the Extraordinary Shareholders’ Meeting on April 27, 2016, the Company’s Board of Directors’ meeting of October 24, 2017, on the proposal of the Compensation and Nomination Committee meeting of October 24, 2017, decided to grant on December 1, 2017 performance shares to certain Partners and to specific Non-Partners.
The provisions of these plans provide for a vesting period of three years for all beneficiaries.
All the shares awarded are subject to the satisfaction of performance conditions (for the description of performance conditions, refer to the section related to February 21, 2017 Long Term Incentive Plans).
In 2017, the Compensation and Nomination Committee acknowledged the validation of all the performance conditions attached to the March 5, 2015 performance share plan as defined in the 2015 Registration Document, bringing the share acquisition rate to 100%. 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.
Solvency ratio at the end of each quarter ≥150% for 2015 and 2016 years Ratio above 150% each quarter
Ratio between the observed average ROE over 2011-2016 and the Target ROE ≥100% 96.7% 90%
The plans for which shares have finally vested and for which the holding period ended before December 31, 2016, are not presented below.
Since the implementation of free share plans in 2004, 22,658,268 shares have been allocated, all types of plans included.
For a list of the stock options plans currently in force within the Group see Appendix C – 5. Notes to the corporate financial statements, Section 5.3.5 – Stock options.
As at the date of the Registration Document, the Company’s Board of Directors has not exercised this delegation of authority. This authorization was granted for a period of 18 months as from the date of the Ordinary and Extraordinary Shareholders’ Meeting of April 27, 2017.
REPORT ON CORPORATE GOVERNANCE02 Executive compensation and share ownership 2.2.4. 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
Transactions made in 2017 for a greater amount than EUR 20,000
Mrs. Michèle Aronvald Subscription of shares for a total amount of EUR 10,548 Sale of shares resulting from the exercise of stock options for a total amount of EUR 20,937
Mr. Jean-Marc Raby Acquisition of shares for a total amount of EUR 10,000 (1)
REPORT ON CORPORATE GOVERNANCE 02Major shareholders and related party transactions 2.3. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
As of December 31, 2017, SCOR’s shareholders are mainly institutional as they represent 81% of SCOR’s share capital. Institutional shareholders come mainly from Europe (67%), the United States (27%) and Asia (4%). The rest of the share capital is split between treasury shares (3%), employees (4%), retail (2%), brokerage (2%) and others (8%).
Distribution of capital (number of shares, % of capital and voting rights) – (i) shareholders with more than 2.5% of the registered capital and/or voting rights and (ii) shareholders who are members of the Board of Directors (on the basis of a study of identifiable share bearers (TPI) conducted by the Company as at December 31, 2017): As at December 31, 2017 Number of shares % of capital % voting rights (1)
Distribution of capital (number of shares, % of capital and voting rights) – (i) shareholders with more than 2.5% of the registered capital and/or voting rights and (ii) shareholders who are members of the Board of Directors (on the basis of a study of identifiable share bearers (TPI) conducted by the Company as at December 31, 2016): As at December 31, 2016 Number of shares % of capital % voting rights (1)
(1) The percentage of voting rights is determined on the basis of the number of shares at year-end, excluding the Company’s own treasury shares. (2) Member of the Board of Directors.
According to the CMi2i share analysis on December 31, 2017, and Nasdaq’s share analysis on December 31, 2016 and December 31, 2015, some of these companies are, in addition, shareholders via mutual funds and other investment funds.
To SCOR’s knowledge, the percentages of share capital and voting rights held by its directors and Executive Committee members were 3.97% of the capital and 4.09% of the voting rights as at December 31, 2017 (December 31, 2016: 4.07% of the capital and 4.24% of the voting rights).
On October 5, 2017, Allianz Global Investors Fund, a fund of Allianz Global Investors Europe GmbH, declared that it had exceeded the registered threshold of 2.5% of the capital and voting rights in SCOR SE and that it held 4,892,939 shares or 2.54% of the capital and 4,892,939 voting rights or 2.54% of the voting rights in SCOR SE.
Pursuant to Article 8 of the bylaws (“Rights attached to each share”), amended by the Company’s Ordinary and Extraordinary Shareholders’ Meeting on April 30, 2015 in its 28th resolution, each share entitles its holder to one vote at Shareholders’ Meetings and the voting rights attached to shares of the Company are in direct proportion to the proportion of the capital thereby represented and no double voting rights, as described by Article L. 225-123 of the French Commercial Code, can be allocated or attached, in any manner whatsoever, to any share. Therefore, the shareholders of the Company do not currently have different voting rights.
REPORT ON CORPORATE GOVERNANCE02 Major shareholders and related party transactions 2.3.1.5. AGREEMENT THAT ARE SUBJECT TO TERMINATION IN THE EVENT OF A CHANGE OF CONTROL
The table below provides for the evolution of SCOR SE’s share capital since the beginning of the financial year 2015: Operation
Cumulated amount of the share capital further to the operation (in EUR)
Situation on December 31, 2014 acknowledged by the Board of Directors on March 4, 2015
Cumulated number of shares composing the share capital further to the operation
Reduction of the share capital by cancellation of treasury shares to neutralize the dilutive effect resulting from the exercise of stock-options
April 30, 2015 Decided by the Board of Directors on April 30,
24 months 24th resolution (Aggregate ceiling of the capital increases) 81,513,827 shares 80,888,417 shares -
Such authorization allows the Company to trade on its own shares for any purposes permitted or which would become authorized under applicable laws and regulations, including for purposes of the following objectives: (i) 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, (ii) setting-up, implementation or hedging of any stock option plans, other plans for allocation of shares and, generally, any form of allocation to employees and/or corporate officers (mandataires sociaux) of the Company and/or of affiliated companies, including hedging of any Company stock option plan pursuant to the provisions of Articles L. 225-177 et seq. of the French Commercial Code, allocation of free shares of the Company in conjunction with the provisions of Articles L. 225-197-1 et seq. of the French Commercial Code, allocation of Company shares pursuant to a profit sharing scheme (participation aux fruits de l’expansion de l’entreprise) or allocation or transfer of Company shares within the framework of any employee savings plan (plan d’épargne salariale), including in conjunction with the provisions of Articles L. 3321-1 et seq., and L. 3332-1 et seq., of the French Labor Code, (iii) purchase of Company shares for retention and subsequent remittance in exchange or as payment, in particular in conjunction with financial or external growth transactions, without exceeding the limit set by paragraph 6 of Article L. 225-209 of the French Commercial Code in conjunction with a merger, spin-off or contribution, (iv) compliance with all obligations related to the issuance of securities granting access to capital, (v) 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.
The Shareholders’ Meeting set the maximum purchase price at 1.33 times the consolidated book net asset value per share (excluding acquisition fees) and granted all powers to the Board of Directors, with the option to sub-delegate under the conditions provided for by law, to implement this authorization.
The authorization described above, still in force on the filing date of this Registration Document, will expire at the time of the next Annual Shareholders’ Meeting held for the approval of the financial statements without, however, exceeding a maximum term of eighteen (18) months with effect from the date of the April 27, 2017 Ordinary and Extraordinary Shareholders’ Meeting, i.e. until October 26, 2018.
On December 31, 2017, SCOR held 5,866,249 shares compared with 7,679,482 shares at December 31, 2016. The par value of these treasury shares is EUR 46,208,280.88 and their book value is EUR 179,215,495.97. The average purchase price was EUR 34.77. The average sale price was EUR 34.81. The amount of fees was EUR 7,938.24.
As at December 31, 2017, the treasury shares owned by SCOR SE represented 3.03% of the share capital. On such date, the portfolio of treasury shares was allocated as follows: ●● 112,793 treasury shares allocated to the stimulation of the secondary market or provision of liquidity to the Company’s shares; ●● 4,060,854 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; ●● 1,692,602 treasury shares allocated to the cancellation of the shares repurchased.
Description of the new share repurchase program 2018/2019 submitted for authorization to the Ordinary and Extraordinary Shareholders’ Meeting to be held on April 26, 2018
This resolution is intended to authorize a new share repurchase program under the following conditions: 1. This authorization would allow the Board of Directors, with the option to sub-delegate under the conditions provided for by applicable regulation, 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).
3. 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; – setting-up, implementation or hedging of any stock option plans, other plans for allocation of shares and, generally, any form of allocation to employees and/or corporate officers (mandataires sociaux) of the Company and/or of affiliated companies, including hedging of any Company stock option plan pursuant to the provisions of Articles L. 225-177 et seq. of the French Commercial Code, allocation of free shares of the Company in conjunction with the provisions of Articles L. 225-197-1 et seq. of the French Commercial Code, allocation of Company shares pursuant to a profit sharing scheme (participation aux fruits de l’expansion de l’entreprise) or allocation or transfer of Company shares within the framework of any employee savings plan (plan d’épargne salariale), including in conjunction with the provisions of Articles L. 3321-1 et seq., and L. 3332-1 et seq., of the French Labor Code; – purchase of Company shares for retention and subsequent remittance in exchange or as payment, in particular in conjunction with financial or external growth transactions, without exceeding the limit set by paragraph 6 of Article L. 225-209 of the French Commercial Code in conjunction with a merger, spin-off or contribution; – compliance with all obligations related to the issuance of securities granting access to capital; – cancellation of any shares repurchased, within the limits established by law, in conjunction with a reduction in share capital approved or authorized by the Shareholders’ Meeting.
5. 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.
6. The maximum purchase price would be set at 1.33 times the consolidated book net asset value per share (excluding acquisition fees); on an indicative basis, pursuant to Article R. 225-151 of the French Commercial Code, on the basis of the book net asset value per share as at December 31, 2017 (i.e. EUR 33.01), of the resulting maximum purchase price (i.e. EUR 43.90) and of the Company share capital as established by the Board of Directors on February 21, 2018 (without taking into account the number of treasury shares held by the Company), the theoretical maximum number of shares which may be acquired amounts to 19,350,031 and the theoretical maximum amount allocated to the share buy-back program pursuant to this resolution amounts to EUR 849,466,361 (excluding acquisition fees).
8. All powers would be granted to the Board of Directors, with the option to sub-delegate under the conditions provided for by law, to implement this resolution including to carry out all stock exchange orders, enter into any agreements with a view, inter alia, to keeping share purchase and sale records, to establish all documents, including information documents, to proceed with any adjustments anticipated by this resolution,
REPORT ON CORPORATE GOVERNANCE 02Major shareholders and related party transactions to carry out all declarations and formalities with the French Financial Markets Authority (Autorité des marchés financiers) and others and, more generally, to do whatever may be necessary.
9. This authorization would be granted for a period expiring at the time of the next Annual Shareholders’ Meeting held as from the Shareholders’ Meeting dated April 26, 2018 without, however, exceeding a maximum term of eighteen (18) months with effect from the date of such General Meeting, i.e. until October 25, 2019. It would supersede the unused portion of the authorization granted by the shareholders at the Ordinary and Extraordinary Shareholders’ Meeting of April 27, 2017, in its 12th resolution.
In accordance with Article L. 225-37-4 of the French Commercial Code, no agreements were concluded during the year 2017 directly or through a third party between, on the one hand, SCOR SE Chief Executive Officer, one of SCOR SE directors or one of its shareholders holding a fraction of the voting rights greater than 10% and, on the other hand, another company in which SCOR SE owns directly or through a third party more than half of the capital unless such agreements were ordinary transactions carried out under arm’s length conditions.
In our capacity as Statutory Auditors of your Company, we hereby report on certain related party agreements and commitments referred to in article L. 225-38 of the French commercial code (Code de commerce) and on the information referred to in article R. 322-7 of the French insurance code (Code des assurances).
We are required to inform you, on the basis of the information provided to us, of the terms, the conditions and the reasons for the Company’s interest of those agreements and commitments indicated to us, or that we may have identified in the performance of our engagement. We are not required to comment as to whether they are beneficial or appropriate or to ascertain the existence of any such agreements and commitments. It is your responsibility, in accordance with article R. 225-31 of the French commercial code (Code de commerce), to evaluate the benefits resulting from these agreements and commitments prior to their approval.
In accordance with Article RS. 225-40 of the French Commercial Code, we have been notified of the following related party agreements and commitments which received prior authorization from your Board of Directors.
Amendment to the SCOR SE regulation on the supplementary retirement plan of article 39 of the French General Tax Code for the benefit of Denis Kessler as Chairman and Chief Executive Officer of SCOR SE.
The purpose of this plan is to define the conditions of application of the supplementary retirement plan put in place by the Company for the benefit of: ●● all the managers, within the meaning of the professional agreement of March 3, 1993, who worked in the Group on the day the plan came into effect; ●● Executives of the Group who do not hold a contract of employment who, under their mandate, are covered by the general social security system ARRCO and AGIRC supplementary pension plans, who are employed by the Company on the day of the effective date of this plan.
On November 5, 2014, the Board of Directors authorized an amendment to the Supplementary Retirement Plan Regulations providing for: ●● A cap at 45% of the beneficiary’s reference income the amount of the pension that may be received under that plan; and
●● the gradual increase of the beneficiaries’ rights to 5% of the reference salary per year, as is put forth by the AFEP-MEDEF code.
●● Addition of a third paragraph to Article 5 – Title III: “In case of absence of any married spouse(s), separated or divorced not remarried, the spouses under another legal regime of cohabitation will be eligible for the survivor’s pension according to the same principles.“
We have been notified of the following related party agreements and commitments which received prior authorization from your Board of Directors after closing.
The Board of Directors, at its meetings of May 4 and July 27, 2011, in accordance with articles L. 225-38 and L. 225-42-1 of the French commercial code (Code de commerce), and upon the recommendation of the Compensation and Nomination Committee, renewed the commitments for the benefit of the Chairman and Chief Executive Officer, which had been decided by the Board of Directors on March 21, 2006 and amended on December 12, 2008. These commitments to the Chairman and Chief Executive Officer have been approved under the 5th resolution adopted at the Mixed Shareholders’ Meeting of May 3, 2012.
Pursuant to a decision dated July 26, 2012, taken in accordance with article L. 225-42-1 of the French commercial code and with the provisions of article L. 225-40 of the French commercial code, the Board of Directors of the Company has authorized, based on the recommendations of the Compensation and Nomination Committee of July 25, 2012, and in accordance with the decision of the Board of Directors dated May 3, 2012 and the subsequent commitments made by the Chairman and Chief Executive Officer during the Mixed Shareholders’ Meeting of May 3, 2012, the adoption of an amendment to the regulated agreement relating to the commitments made for the benefit of the Chairman and Chief Executive Officer, the terms of which are outlined below, with respect notably to the compensation elements taken into account for the indemnity to be granted to M. Denis Kessler in case of his forced departure from the SCOR Group, as well as the performance conditions which this indemnity is subject to.
The Board of Directors will note whether or not the performance condition (C_n) has been met on the recommendation of the Compensation and Nomination Committee.
The aforementioned regulated commitments are referred to in Section 2.3.2 – Transactions with related parties and regulated agreements in Chapter 2 – Report on Corporate Governance in accordance with Article L. 225-37-4, 8° of the French Commercial Code.
REPORT ON CORPORATE GOVERNANCE02 Audit report on the corporate governance report 2.4. AUDIT REPORT ON THE CORPORATE GOVERNANCE REPORT
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, 2017. As such, the corresponding information is audited.
Emerging risks may adversely affect SCOR’s reinsurance business due to either a change in interpretation of the contracts leading to extensions of covers beyond what policyholders had expected (e.g. due to the inapplicability or interpretation of certain clauses) or by increasing the frequency and/or severity of claims. Such risks may also lead to higher fluctuations than expected in macroeconomic indicators such as interest rates and price level, or disruptions in financial markets, further impacting SCOR’s business. In addition, emerging risks may also have a direct impact on SCOR’s operations, for instance by generating unexpected additional expenses. Examples of emerging risks include: cyber-attacks, antimicrobial resistance, non-controlled bio-experiments, genetic testing, climate change, autonomous machines, extreme social unrest and Eurozone break-up.
The main strategic risks to which SCOR is exposed are described below.
This uncertain environment and the potential market volatility may have an adverse effect on SCOR, from both an investment and reinsurance business viewpoint.
3.2.1.2. SCOR IS EXPOSED TO SIGNIFICANT AND PROTRACTED DEVIATIONS OF INFLATION FROM ITS TREND
SCOR’s assets are also exposed to increased inflation or inflationary expectations, accompanied by a rise in the yield curve with a subsequent reduction in the market value of its fixed income portfolios. Increased inflation could also have a negative impact on the solvency of bond issuers; a widening of credit spreads would lead to a loss of value for the issuers’ bonds. Finally, depending on the macroeconomic environment, an increase in inflation could also reduce the value of SCOR’s equity portfolio. Any negative fluctuations in equity values would lead to a similar decrease in shareholders’ equity.
Although the risk of inflation is relatively higher in the current context of exceptionally accommodating monetary policies, theoretically, the risk of deflation cannot be excluded. The Group’s liabilities could be exposed to a protracted period of deflation which could exert a negative pressure on reinsurance prices and decrease the value of new premiums.
Reinsurance is a highly competitive sector. As is the case for all other reinsurers, SCOR’s position in the reinsurance market is based on several factors, such as its financial strength as assessed by the rating agencies, its underwriting expertise, its reputation and experience in the lines written, the countries in which it operates, the premiums charged, as well as the quality of the proposed reinsurance products and services offered, particularly in terms of claims settlement and payment. The Group competes for business in the European, American, Asian and other international markets with numerous international and domestic reinsurance companies, some of which have a larger market share than SCOR, greater financial resources, state backing, and, in certain cases, higher ratings from the rating agencies.
As in previous years, 2017 continued to see significant M&A activity among (re)insurers.
Within the reinsurance industry, such external growth activity could potentially enhance these players’ competitive position, e.g. in terms of being able to offer greater capacity or broader product offerings, which could permit them to gain market shares at SCOR’s expense.
The Solvency II regime applies since January 1, 2016, in the European Union. It was transposed into national laws in all relevant European jurisdictions over recent years. Actual implementation by supervisory and regulatory authorities could vary between these jurisdictions, which could place SCOR at a competitive disadvantage with regard to other European financial services groups.
The IAIS is developing a new approach to evaluating and mitigating systemic risk in the insurance sector and SCOR may be impacted by the revised systemic risk framework scheduled to become effective in 2020, with the risk of a higher capital requirement, a Higher Loss Absorbency (HLA), and greater regulatory burdens such as the establishment of resolution plans.
This team analyses rating agencies’ methodologies, reports published on the reinsurance market, on SCOR and on its main competitors, in order to anticipate any potential rating actions. It also monitors specific qualitative and quantitative Key Performance Indicators developed by the four main rating agencies, and performs analyses of selected deterministic scenarios (for more details on ‘footprint scenarios’ process, see Appendix A – Internal control and risk management procedures). It also monitors the capital adequacy level as measured by the capital models developed by rating agencies.
3.2.5.2. MANAGEMENT OF VALUATION RISKS RELATED TO SCOR’S INTANGIBLE ASSETS AND DEFERRED TAX ASSETS
RISK FACTORS AND RISK MANAGEMENT MECHANISMS03 Strategic risks 3.2.6. OTHER STRATEGIC RISKS
Risks related to capital are managed via specific principles and processes throughout the Group. SCOR ensures maximum capital fungibility within the Group through: ●● a reduced number of subsidiaries enhancing fungibility while supporting local business presence. It is facilitated by the “Societas Europaea” (SE) structure supported by an efficient branch set-up in Europe, enabling integrated supervision at Group parent company level through SCOR SE, focusing on communication with a limited number of supervisors with whom SCOR can share its global strategy, while taking advantage of diversification benefits; ●● an integrated supervision of regulatory constraints at Group level and an optimal capital allocation.
SCOR 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.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS03 Underwriting risks related to the P&C and Life reinsurance businesses 3.3. UNDERWRITING RISKS RELATED TO THE P&C AND LIFE REINSURANCE BUSINESSES
SCOR mitigates its underwriting risks related to the P&C and Life reinsurance businesses through the purchase of risk-mitigation covers, both on the traditional retrocession market and on the capital markets via alternative risk transfer solutions (e.g. the multi-year securitization of catastrophic and pandemic risk in the form of Insurance-Linked Securities (“ILS”) and the issuance of contingent capital facilities). However, there is a risk that SCOR may not be able to transfer its liabilities through the purchase of such instruments on economically viable terms and conditions in the future. For further details on retrocession and other risk mitigation techniques within SCOR, see Section 3.3.1.4 – Management of underwriting risks related to the P&C business and 3.3.2.7 – Management of underwriting risk related to Life reinsurance business and Appendix A – Internal control and risk management procedures – paragraph on capital shield strategy.
Consistent with the Group’s strategy of selective market and business division development, SCOR seeks to maintain a portfolio of business risks that is strategically diversified geographically, by line and class of business and over time (short and long-tail). The Group’s insurance risk exposure is mitigated by diversification across a large portfolio of reinsurance contracts. The volatility of risks is reduced by careful business selection, implementation of underwriting guidelines, the use of retrocession and other risk transfer arrangements and proactive claims handling as well as underwriting, claims and administration audits at ceding companies.
SCOR’s property business underwritten by the P&C division is exposed to multiple insured losses arising from single or multiple events, which can be catastrophic, being either caused by nature (e.g. hurricane, typhoon, windstorm, flood, hail, severe winter storm, earthquake) or man-made (e.g. explosion, fire at a major industrial facility, act of terrorism). Any such catastrophic event can generate insured losses in one or several of SCOR’s lines of business.
A terror event could also have an impact on SCOR’s life portfolio. Although in past events the life claims incurred have been relatively small compared to the non-life claims, a terrorist act might claim a large number of insured lives.
The amount of information available on casualty catastrophes is limited. In contrast to property catastrophes, which are short term in nature (limited number of days between insured event and loss emergence), at which point reasonable estimates of the size of the loss can be calculated, most casualty catastrophes emerge gradually and the full extent of the losses is often not known for decades.
●● Most of SCOR’s facultative underwriters work in the Business Solutions domain of its P&C division, which operates worldwide. This business area is dedicated to large corporate businesses and is geared to provide the clients of the P&C division with solutions for coverage of large conventional risks.
– Pricing guidelines and parameters apply to all treaties priced within the P&C division. There are additional guidelines related to Natural Catastrophes and others specific to certain products which include Agriculture and Credit & Surety. These guidelines seek to ensure that the analyses provide: i) best estimate of the costs and profitability of a treaty as well as the uncertainty surrounding estimates; ii) assistance with underwriting decisions and iii) the suitable outputs needed for the risk management process, in particular the internal model, such as probability distributions for losses/Net Present Value (NPV),
RISK FACTORS AND RISK MANAGEMENT MECHANISMS 03Underwriting risks related to the P&C and Life reinsurance businesses cash flow patterns for premium/losses, etc. They are set to provide consistency and continuity across the organization but also to take into account differences between markets and lines of business as well as the geographical location of the client and the risks insured. Parameters are revised at least once a year to consider, as the case may be, changing market conditions and environment. Contracts that meet certain risk thresholds are subject to mandatory peer reviews that have to be performed and documented before pricing is completed. SCOR’s P&C division uses a data system that allows management to monitor and review the results from pricing tools.
●● The underwriting teams are supported by the P&C division’s Underwriting Management function located in Paris and represented in the three Hubs. This function provides worldwide treaty and facultative underwriting guidelines, policies regarding the delegation of capacity, underwriting support to specific lines of business or individual risks when required, ceding company portfolio analysis and risk surveys and is responsible for monitoring and referral of non-standard business and for authorizing exceptions to the underwriting guidelines.
●● Business opportunities going beyond the stipulations of the guidelines thus defined are subject to special referral procedures at two levels: (1) by the Underwriting Management function; and, where applicable, by the Legal Department and/or the Finance department; (2) and for cases which may have a significant impact on the balance sheet (thresholds and/or conditions defined in a procedure or specific guidelines) by the Group Risk Management Department and the Chief Executive Officer of the P&C division.
●● The Risk Modeling & Global Natural Hazards Department is in charge of monitoring accumulations. A “CAT” sub-group of the P&C Risk and Capital Committee meets regularly to review accumulations and decide on or arbitrate the allocation of CAT capacities by country. Earthquake and storm risks gross exposures are measured using proprietary external models from industry-leading catastrophe model suppliers, including Risk Management Solutions RiskLink® (“RMS”) and AIR Worldwide Catrader® (“AIR”). These tools enable the Group to quantify its exposure in terms of a probable maximum loss (“PML”) at various levels of probability for each peril and geographic location. The overall aggregate annual PML per peril, allowing for potential multiple events, provides the information required to determine the level of retrocession and other alternative risk transfer solutions (e.g. catastrophe bonds) that are needed to ensure that the net aggregate exposure is optimized for the Group’s risk appetite and remains within predefined tolerance limits.
●● The adequacy of the P&C division’s reserves is controlled based on specific procedures. For further information on how risks related to reserves are managed, see Section 3.3.4 – Risks related to reserves.
●● A quarterly review of technical results is performed by business area (Property and Casualty Treaties, Specialty Lines, Business Solutions (Facultative), Business Ventures and Partnerships) and region. The review enables the analysis of technical results by underwriting year, by nature and by line of business.
●● The P&C division’s Risk Management organizes the quarterly P&C Risk and Capital Committee, which is responsible for highlighting the main risks to which the division is exposed, regarding both assets and liabilities.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS03 Underwriting risks related to the P&C and Life reinsurance businesses 3.3.2. LIFE REINSURANCE
SCOR’s Life division is also exposed to risks related to policyholder behavior, including risks such as lapsation and adverse selection at policy issue.
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 division.
In addition to the transversal risk management mechanisms described in the introduction to this section, SCOR’s Life division also implements mechanisms to mitigate certain risks specific to the division: ●● Claims deterioration risks are mitigated through yearly renewable terms for parts of the mortality business, and through premium adjustment clauses for some Disability, Long-Term Care (LTC) and Critical Illness (CI) products. In the case of LTC, the premium adjustments are designed to offset worsening incidence or increasing longevity of disabled lives. In the case of CI, premium adjustments mitigate potential negative impacts on future claims patterns due to a general deterioration in health and improved medical diagnosis.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS 03Underwriting risks related to the P&C and Life reinsurance businesses
SCOR’s Life division is organized in order to be able to assess and control its risks at each level of its business.
●● Maximum underwriting capacities are established to limit the Life division’s exposure on various types of treaties underwritten, proportional and non-proportional, covering individual or Group policies. These capacities are reviewed each year, taking into account the capacities obtained by the retrocession coverage. These limits include: maximum commitment per life accumulated for all SCOR exposures, maximum annual commitments for non-proportional cover per life or per event, maximum commitment per country for non proportional exposures by event. Aggregate portfolio exposures are continually monitored. Specialized software allows an accumulation control of insured lives and is fed with single risk information as received by the client companies. Based on this system, risks under which the accumulated exposure exceeds the Life division’s retention are identified and retroceded. The retention limits are reviewed regularly. The exposure is monitored throughout the year against SCOR’s defined risk limits and used for decisions on mitigating measures. Monitoring of peak exposures is included in Life regular risk reporting. See Section 3.3.5 – Retrocession and other risk mitigation techniques for further information on how these instruments are managed.
●● The adequacy of SGL reserves is monitored based on specific procedures. For further information on how risks related to reserves are managed, see Section 3.3.4.2 – Management of reserving risks.
●● Risks specific to the management of contracts are mitigated by specific controls supported by SCOR’s IT systems which include numerous automatic controls and additional tools.
●● The Life division’s Risk Management Department organizes quarterly meetings of the Life Risk Committee which is responsible for reviewing the main risks to which the division is exposed.
P&C and Life reinsurance activities take place in two different market environments. The two business divisions are subject to a range of external constraints and benefit from a high diversification effect. The overall balance between the two business areas within the Group therefore provides stability. However, in some cases, changes in the P&C and Life activities are linked to each other as well as to those of the financial markets. This exposes SCOR to possible accumulation of risks between its lines of business and/or asset classes.
Unforeseen events, such as natural catastrophes or man-made catastrophes, can make SCOR’s claims experience vary significantly from one year to the next, which can have a significant impact on its profitability and financial position. These types of risk primarily affect Non-Life business areas. However, in cases where SCOR faces a large number of casualties, the possibility of the losses also affecting its Life lines of business cannot be excluded. Similarly, unforeseen events such as terrorist attacks may materially impact the P&C business area, but also the Life business area, in the case of attacks resulting in many fatalities. Although in past events the Life claims incurred have been comparatively small in relation to the Non-Life claims incurred, a terrorist act might claim a large number of insured lives.
3.3.3.2. MANAGEMENT OF INTERDEPENDENCE AND ACCUMULATION RISKS BETWEEN SCOR’S AREAS OF BUSINESS
External consulting firms are mandated to review certain aspects of the reserves calculation and thereby support the internal analysis and validation.
When a claim is reported to the ceding company, its claims department establishes a reserve corresponding to the estimated amount of the ultimate settlement for the claim. The estimate is based on the cedent’s own evaluation methods. The ceding company reports the claim and its suggested reserve amount to the Group entity with which it concluded its reinsurance contract. The Group records the ceding company’s suggested reserve and is free to establish greater or smaller reserves based on the review and analysis by P&C’s claims team. Greater or smaller potential reserves are based upon the consideration of many factors, including the level of the commitments, seriousness of the claims and the P&C division’s assessment of the ceding company’s claims’ management.
In determining its best estimates, the Group takes into consideration its past experience, current internal data, external market indices and benchmarks and other relevant information. The contracts’ liabilities established by the Group with respect to individual risks or classes of business may be greater or less than those established by ceding companies due to the use of different mortality tables or other assumptions.
Retrocession procedures are centralized within the retrocession teams of the P&C and Life divisions: ●● within the P&C division, the Underwriting Management and Retrocession Department establishes and implements the external retrocession plan for P&C business. This department is responsible for proper application of the plan, for monitoring the solvency of the retrocessionaires, the related counterparty risks and, when necessary, recovery of balances due; ●● within the Life division, scenarios are established within the Actuarial & Risk department in order to define the need for retrocession coverage. The retention and the retrocession structure are revised every year.
An analysis of the share of retrocessionaires in contract liabilities by rating of the retrocessionaires and collateral from retrocessionaires in favor of SCOR at December 31, 2017 and 2016 is presented in Section 4.6 – Notes to the consolidated financial statements, Note 15 – Net contract liabilities and Note 19 – Net retrocession result.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS03 Market risks 3.4. MARKET RISKS
Market risk is the risk that the fair value or future cash flows of a financial instrument fluctuates because of changes in market prices or macro-economic variables. This includes interest rate risk and currency risk, further described below, as well as equity risk and real estate risk, to which SCOR is exposed to through its investments. Market risk also includes credit spread risk on these invested assets. For further information on credit risk (counterparty default), see Section 3.5 – Credit risks.
The following types of foreign exchange risk have been identified by SCOR: Transaction risk
The Group’s investment strategy is prudent, with the majority of assets held in cash and fixed income securities. It is defined in line with the Group’s risk appetite and its risk tolerance limits and considers the economic and market environment, and the ALM process.
Interest rate risk is managed within the Group primarily at two levels. At the level of each entity, the Group takes into account the regulatory and accounting constraints. At the Group level, SCOR reviews its consolidated investment portfolios in order to identify the overall level of risk and return. It uses analytical tools which guide both its strategic allocation and local distribution of assets. Sensitivity to changes in interest rates is analyzed on a weekly basis.
With regards to equity investments, the Group’s objective is to develop and manage a high-quality diversified portfolio.
SCOR has adopted an active strategy to select core buildings and takes environmental quality into account during the decisionmaking process.
SCOR applies strict limits in terms of asset concentration by asset class but also within a single asset class and actively diversifies its portfolio (by type of investment, by issuer, by country and by sector). These limits also enable to limit counterparty default risk arising from investments, as described in the Section 3.5.2 – Management of credit risks.
For information on the ratings of the debt securities owned by SCOR, see Section 4.6 – Notes to the consolidated financial statements, Note 7 – Insurance business investments.
The interest rate sensitivities for shareholders’ equity presented in the table below include movements on the bond portfolio, cash and cash equivalents, structured notes, the impact of changes in interest rates on variable rate financial liabilities and the Guaranteed Minimum Death Benefit business.
SCOR conducted an analysis of the sensitivity of net income and shareholders’ equity to the price of equity securities. The analysis considers the impact on both equities at fair value through the income statement and on equities classified as available for sale. For equities classified as available for sale, the impact on impairment is computed by applying the accounting policy and application guidance set out in Section 4.6 – Notes to the consolidated financial statements, Note 7 – Insurance business investments, to theoretical future market value changes. SCOR estimates that, excluding any impairment arising from duration, a further uniform decline of 10% from December 31, 2017 market values would generate no further impairment of equity securities (2016: EUR 0 million; 2015: EUR 1 million). It should be noted that this figure should not be scaled up or down as the impairment rules are not a linear function of market value. For example, a scenario with a market value decline of 20% would not double the potential further equity impairment.
Both Life and P&C businesses have minimal sensitivity to equity price movements.
For currency translation risk, the following sensitivity analysis (1) considers the impact on equity of a 10% movement in the exchange rates of the Group’s two largest translation risk currency exposures, USD and GBP relative to the EUR.
SCOR is exposed to the risk of losing all or part of any cash deposited with a banks in the event that such a bank is no longer able, due to insolvency, to honor its commitments (e.g. following liquidation). The current main risk for the Group is the significant concentration of deposits in a small number of banks. This risk is a direct result of the selection of the most stable banks.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS 03Credit risks 3.5.1.6. OTHER CREDIT RISKS
SCOR mitigates the credit risk related to bond and loan portfolios by careful analysis and selection of issuers, and by a policy of geographic sector diversification. SCOR maintains its investment policy in high-quality assets and in countries with the lowest sovereign risk.
3.5.2.5. MANAGEMENT OF CREDIT RISK RELATED TO CASH DEPOSITS AT BANKS
RISK FACTORS AND RISK MANAGEMENT MECHANISMS03 Credit risks 3.5.2.6. MANAGEMENT OF OTHER CREDIT RISKS
The following table provides an overall analysis of the aging of financial assets and receivables as at December 31, 2017: In EUR million Current months > 36 months Total
The following table provides an overall analysis of the aging of financial assets as at December 31, 2016: In EUR million Current months > 36 months Total
Assets have been categorized within the above aging analysis according to their original due date. The due date for each of these instruments may vary depending on the type of asset. Insurance receivables business credit terms are typically based on normal terms of trade, as specified within contracts. Insurance eceivables include estimates, which are presented as current. The availablefor -sale investments and fair value through income categories presented above include fixed income securities and equity securities. For fixed income securities, amounts are only presented as non-current if the security has not been redeemed on the date of maturity and therefore the amount receivable is past due. For equity securities, due to the absence of a contractual date of redemption, these instruments are presented as current. Other assets presented in the above aging analysis, including derivative instruments, loans and receivables, cash and cash equivalents and other accounts receivable, are presented in a similar manner as those instruments described above, depending on the existence of a redemption date.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS 03Liquidity risks 3.6. LIQUIDITY RISKS
Liquidity risk arises when available liquidity is not sufficient to meet liquidity needs. This liquidity shortfall can result either from: ●● a deviation from planned liquidity needs over either the short term, or the medium/long term; ●● a deviation from estimated liquidity capacities, e.g. due to adverse business conditions.
External sources of liquidity in normal markets include a variety of short and long-term instruments, such as repurchase agreements, commercial paper, medium and long-term debt, junior subordinated debt securities, capital securities and raising additional funds in the equity markets. For further information on SCOR’s debt, including related financial covenants, see Section 4.6 – Notes to the consolidated financial statements, Note 13 – Financial liabilities.
SCOR assesses liquidity risks arising from both short-term and long-term liquidity needs. SCOR manages these risks via different mechanisms which consider: ●● actions to be taken by the insurance or reinsurance business areas to take into account both short term and long-term liquidity risk (see maturity profiles in Section 3.6.3 – Maturity profiles); and
●● the appropriateness of the composition of the assets in terms of their nature, duration and liquidity in order to meet the obligations as they fall due.
The technical reserves of SCOR Global P&C are established on an undiscounted basis (except workers compensation in the US, payments in annuity on Motor Liability as well as Medical Malpractice). The table below includes the estimated maturity profiles of the Non-Life insurance liabilities based on payment patterns derived from historical data.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS 03Liquidity risks 3.6.3.2. SCOR GLOBAL LIFE
The table below reflects gross cash outflows: Life insurance contract liabilities In EUR million < 1 year 1 – 5 years 6 – 10 years > 10 years Total 3.6.4. FINANCIAL LIABILITIES
Maturity profiles have been based on undiscounted contractual maturities and include contractual interest payments (including those from cross-currency and interest rate swaps). In the case of perpetual debt, or debt which is subject to multiple optional reimbursement dates, the analysis below has been prepared based on the assumption that the Company does not make use of any of the early optional reimbursement dates. Perpetual debts are classified in the column “over 5 years” (no maturity date).
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 the entity 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 expose SCOR to fines, class actions with compensation payments, accounts reinstatements or business restrictions.
For further details on current main regulatory developments which may have an impact on SCOR, see Section 3.2.3 – Risks related to legal and regulatory developments.
Any of these could generate a reputational risk, give rise to a breach of SCOR’s legal responsibility, and may result in regulatory sanctions depending on the level of sensitivity of the data or system that is successfully attacked. The cyber attack could also assist external fraudsters resulting in a financial loss.
At Group level, experienced staff members collect relevant information and analyses on operational risks, on a qualitative and quantitative basis. When relevant, they develop key indicators, with support from Group Risk Management. The Group has also implemented regular risk reporting mechanisms in order to provide for an overview of risks across the Group, as well as mitigate and monitor risks identified.
In addition, through its assignments, Group Internal Audit (GIA) contributes to the oversight of operational risk management.
4.1. CONSOLIDATED BALANCE SHEET 154 4.2. CONSOLIDATED STATEMENT OF INCOME 155 4.3. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 156 4.4. CONSOLIDATED STATEMENT OF CASH FLOWS 157 4.5. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY 158 4.6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 161 4.7. INFORMATION ON HOLDINGS 232 4.8. STATUTORY AUDITORS 233 4.8.1. Principal Auditors 233 4.8.2. Alternative Auditors 233 4.8.3. Resignation or non-renewal of Auditors 233 4.8.4. Fees paid by the Group to the Auditors 233 4.9. AUDITING OF HISTORICAL CONSOLIDATED FINANCIAL INFORMATION 234
Goodwill arising from insurance activities Note 5 788 788 Goodwill arising from non insurance activities Note 5 71 Value of business acquired Note 6 1,412 1,612 Insurance business investments Note 7 28,360 28,137 Real estate investments 701 770 Available-for-sale financial assets 17,089 16,553 Investments at fair value through income 1,157 812 Loans and receivables 9,299 9,815 Derivative instruments 114 187 Investments in associates Note 2 75 114 Share of retrocessionaires in insurance and investment contract liabilities Note 15 2,037 1,362 Other assets 9,490 9,592 Accounts receivable from assumed insurance and reinsurance transactions Note 8 5,875 6,174 Accounts receivable from ceded reinsurance transactions Note 8 146 103 Deferred tax assets Note 17 533 683 Tax receivables 193 164 Miscellaneous assets Note 9 1,328 1,092 Deferred acquisition costs Note 10 1,415 1,376 Cash and cash equivalents Note 11 1,001 1,688 TOTAL ASSETS 43,234 43,293
CONSOLIDATED FINANCIAL STATEMENTS 04 Consolidated statement of comprehensive income 4.3. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Net cash flows provided by/(used in) operations Note 11 1,144 1,354 (1) 795
Disposals of consolidated entities, net of cash disposed of 3 (3) 8 (3) 2
Cash generated by issuance of financial liabilities Note 13 19 620 (6) 933
Effect of change in foreign exchange rates on cash and cash equivalents (84) (29) 87
Cash and cash equivalents at January 1 Note 11 1,688 1,626 860
(5) Of which EUR 2 million of dividends paid by MRM to non-controlling interests (EUR 2 million paid in 2016 and EUR 2 million paid in 2015). (6) Cash generated by issuance of financial liabilities includes net proceeds from subordinated notes issuance of EUR 497 million. See Note 13 – Financial liabitilties.
(9) Cash received in respect of margin calls linked to cross-currency swaps for EUR 134 million following significant fluctuations in the EUR/CHF exchange rate during the year.
Taxes recorded directly in equity - - - 5 - - - - 5
Comprehensive income net of tax - - 22 62 - 603 - 3 690
Comprehensive income net of tax - - (62) 344 - 642 - - 924
(1) Movements presented above relate to the issuance of shares related to the exercise of stock options for EUR 21 million (EUR 10 million in share capital and EUR 11 million in additional paid-in capital). This resulted in the creation of 1,221,843 new shares during the financial year ended December 31, 2015. These movements were offset by a reduction in Group capital through the cancellation of treasury shares for EUR 24 million (EUR 10 million in share capital and EUR 14 million in additional paid-in capital).
NOTE 8. ACCOUNTS RECEIVABLE FROM AND PAYABLE ON ASSUMED AND CEDED INSURANCE AND REINSURANCE TRANSACTIONS 191
The consolidated financial statements as at and for the year ended December 31, 2017 will be presented for approval at the 2018 Annual Shareholders’ Meeting.
SCOR’s consolidated financial statements for the financial years ended December 31, 2017, 2016 and 2015 have been prepared in compliance with IFRS issued by the International Accounting Standards Board (IASB) as adopted by the European Union (“EU”) and effective as at December 31, 2017. The term “IFRS” refers collectively to International Accounting Standards (IAS) and International Financial Reporting Standards (IFRS) and to the interpretations of the Standing Interpretations Committee (SIC) and the IFRS Interpretations Committee (IFRIC), mandatorily applicable as at December 31, 2017. See Note 1.3 – IFRS Standards applied for the first time and IFRS Standards published but not yet effective for a detailed overview on the new and amended International Financial Reporting Standards applicable in 2017 that are relevant to SCOR and adopted by the Group as endorsed by the European Union and the standards relevant to SCOR and expected to have a significant impact that were issued by the IASB during the period but have not yet been adopted by the European Union.
Certain reclassifications and revisions have been made to the financial information in respect of the prior year to bring it in line with the current year presentation.
At each period end, the entity must translate the items on its balance sheet which are denominated in a foreign currency into the functional currency, using the following procedures: ●● monetary items and non-monetary items measured at fair value through income are translated at end of period exchange rates and the resulting gains and losses are recorded in the statement of income; ●● other non-monetary items are translated: – at the exchange rates in effect on the transaction date for items measured at historical cost, or
Assumed and ceded reinsurance transactions are contracts that transfer significant reinsurance risk at the inception of the contract. Reinsurance risk is transferred when the Group agrees to compensate a cedent if a specified uncertain future event (other than a change in financial variables) adversely affects the cedent. Any contracts that do not meet the definition of a reinsurance contract under IFRS 4 – Insurance Contracts, are classified as investment and financial reinsurance contracts or derivative contracts as appropriate.
The reinsurance entities of the Group record accounts transmitted by ceding companies upon receipt. At year end, estimates are made for those accounts not yet received from ceding companies. Under this method, the amounts recorded in the financial statements reflect as closely as possible the actual reinsurance commitments of the Group. This method is applied to the majority of the contracts signed during the year.
NOTE 1.3. IFRS STANDARDS APPLIED FOR THE FIRST TIME AND IFRS STANDARDS PUBLISHED BUT NOT YET EFFECTIVE
The amended International Financial Reporting Standards and Interpretations as adopted by the European Union applicable for the first time for annual periods beginning January 1, 2017, did no materially impact SCOR’s consolidated financial statements.
●● On September 12, 2016, the IASB published an Amendment to IFRS 4 – Insurance contracts, in order to address the temporary consequences of different effective dates of IFRS 9 and of the expected new Standard on insurance contracts. The European Union endorsed this amendment on November 3, 2017. Applying IFRS 9 before the new Standard on insurance contract would potentially increase volatility in profit or loss. The amendment introduces two independent options to address such additional accounting volatility: a temporary exemption from applying IFRS 9 (“Deferral Approach”), and reclassifying the increased volatility from income or loss to other comprehensive income (“Overlay Approach”). The Deferral Approach would result in continued application of IAS 39 and some additional disclosures about the fair value of assets not meeting the “solely payments of principal and interest” criterion and information about their credit risk exposure until the new insurance contracts Standard becomes effective, however no later than January 1, 2021. This option is restricted to companies whose predominant activity is to issue insurance contracts. The Overlay Approach would result in applying IFRS 9 from January 1, 2018, but allows companies that issue insurance contracts to remove from profit or loss the increased volatility caused by changes in the measurement of financial assets upon application of IFRS 9. SCOR has assessed it would meet the predominance criteria and will defer the application of IFRS 9. SCOR’s predominant activity is issuing (re)insurance contracts, which is reflected in the significance of liabilities arising of (re)insurance activities representing more than 90% of total liabilities. Liabilities related to (re)insurance activities amounted to EUR 32.9 billion compared to total liabilities of EUR 35.2 billion as at December 31, 2015. For calculating the predominance ratio, subordinated debt, accounts payable on assumed and ceded reinsurance transactions, pension liabilities and deferred tax liabilities have been considered in addition to the contract liabilities in scope of IFRS 4.
●● On May 18, 2017, the IASB published IFRS 17 – Insurance Contracts. The Standard will replace the current guidance in IFRS 4 – Insurance Contracts, and is applicable from January 1, 2021. Earlier application is permitted, subject to endorsement by the EU and provided that IFRS 9 – Financial Instruments and IFRS 15 – Revenue from Contracts with Customers are applied at the same time. IFRS 17 will significantly change the accounting for insurance contracts as currently applied. IFRS 17 introduces a current fulfilment measurement approach as the general model for all insurance and reinsurance contracts. Insurance obligations will be the sum of current fulfilment cash flows and the unearned profit for a contract or group of contracts. Current fulfilment cashflows comprise the discounted expected future cash in- and outflows in the boundary of a contract or
●● On January 1, 2018, IFRS 15, Revenue from contracts with customers will become applicable. The IASB issued the Standard in May 2014 and deferred the effective date to January 1, 2018 in September 2015. The EU endorsed IFRS 15 and the amended effective date on September 22, 2016. Clarifications to IFRS 15 were issued in April 2016. This amendment was endorsed by the European Union on October 31, 2017. IFRS 15 replaces IAS 11 – Construction contracts, IAS 18 – Revenue and related interpretations. The new Standard provides a comprehensive framework for recognizing revenue from contracts with customers. Revenues resulting from insurance contracts, financial instruments and leasing contracts are not in scope of IFRS 15 and consequently the impact of IFRS 15 on SCOR will be only limited.
SCOR Global Life Australia Pty Ltd Australia 100 100 100 100 Full
SCOR Global Life Reinsurance Ireland dac Ireland 100 100 100 100 Full
Aggregate net book value (in SCOR) of individually immaterial associates 75 114
The table above is based on 2017 and 2016 provisional financial information.
During the first quarter of 2017, the Group partially sold its participation in Asefa for EUR 3 million (interest held decreased from 19.97% to 9.97%), but retained its significant influence.
During the third quarter of 2017, Château Mondot SAS ceased being accounted for under the equity method for the carrying value of EUR 32 million and is fully consolidated as SCOR obtained control (See Note 3 – Acquisitions and disposals).
On September 11, 2013, as part of its policy to diversify its capital protection tools, SCOR Global Life entered into a risk transfer contract with Atlas IX Capital Limited (“Atlas IX Series 2013-1”), providing the Group with protection against extreme mortality events in the US, such as pandemics, natural catastrophes and terrorist attacks. The risk transfer contract provided USD 180 million of extreme mortality protection, for a risk period extending from January 1, 2013 to December 31, 2018.
On November 27, 2017, SCOR executed the built-in early redemption option and terminated the Mortality Risk Transfer Contract Atlas IX (Series 2013-1) effective on January 1, 2018. With this early termination, the covered risk period ended on December 31, 2017 instead of on December 31, 2018 as originally scheduled (See Note 7.9 – Derivatives instruments).
On January 13, 2016, SCOR successfully sponsored a new catastrophe bond, Atlas IX Series 2016-1, which will provide the Group with multi-year risk transfer capacity of USD 300 million to protect itself against US Named Storm and US and Canada
On January 6, 2014, SCOR announced having successfully issued a fully collateralized sidecar, Atlas X Reinsurance Limited (“Atlas X”). It provides the Group with an additional three-year capacity of USD 55.5 million from a new panel of investors.
Atlas X is an Irish-domiciled special purpose reinsurance vehicle. Atlas X and SCOR Global P&C SE have entered into a quota share retrocession agreement, effective January 1, 2014, under which Atlas X reinsures a proportionate share of SCOR’s diversified catastrophe portfolios in specific countries. This agreement was accounted for as a reinsurance contract and was terminated on December 31, 2016.
In 2017, the Group entered into the following acquisition: Château Mondot
The allocation required significant assumptions and the use of external expertise and it is possible that the preliminary estimates may change materially as the purchase price allocations are finalized. If such amounts were to be adjusted, this could have an impact on the fair value of the net assets acquired. The accounting of the acquisition of Château Mondot must be finalized within 12 months of the effective acquisition date.
The assets and liabilities acquired have been recorded at their fair values for purposes of the opening balance sheet and included in the consolidated accounts of SCOR using the Group’s accounting principles in accordance with IFRS during the third quarter of 2017.
The fair value of the assets acquired and liabilities assumed as at December 31, 2017 are as follows: Château Mondot – Fair value of assets acquired and liabilities assumed In EUR million Allocation
(1) Of which EUR 43 million are related to internal operation with the Group and will be eliminated through the intercompany consolidation process.
Financial liabilities (as well as other assets) are valued at their carrying amount, approximating their fair value.
The main impact results from the consideration paid (EUR 178 million) and is presented in investment activities.
SCOR Global Investments is the asset management division of the Group. Its role is complementary to the two reportable operating segments as it manages SCOR Global P&C’s and SCOR Global Life’s investment assets associated with their contract liabilities. SCOR Global Investments also manages third-party assets, however these activities are currently considered not material. Therefore, SCOR Global Investments is not considered a separate reportable operating segment for the purposes of IFRS 8 – Operating segments.
Change in unearned premiums reserves (26) (165) - (191) (15) (86) - (101) 21 (143) - (122)
Other income and expense excl. revenues associated with financial reinsurance contracts (13) (36) - (49) (3) (56) - (59) (2) (63) - (65)
The following table sets forth the operating results for the Group’s operating segments and its corporate cost center for the financial years ended December 31, 2017, 2016, and 2015.
Revenues associated with financial reinsurance contracts 7 - - 7 8 - - 8 8 - - 8
Gross benefits and claims paid (7,399) (4,564) - (11,963) (6,684) (3,164) - (9,848) (6,364) (3,135) - (9,499)
Gross commission on earned premiums (1,050) (1,422) - (2,472) (1,053) (1,404) - (2,457) (1,022) (1,327) - (2,349)
Capital gains/(losses) on the sale of investments 22 246 - 268 70 144 - 214 34 136 - 170
(1) Technical results are the balance of income and expenses allocated to the insurance and reinsurance business.
For SCOR Global Life, in 2017 the underlying US mortality claim experience has been higher than expected, but was offset by the benefits from active in-force management and the strong reserve position set up at the time of the Transamerica Re and Generali US acquisitions.
NOTE 4.1. GROSS WRITTEN PREMIUMS AND INSURANCE CONTRACT LIABILITIES BY GEOGRAPHIC REGION
The distribution of gross written premiums by geographic region for SCOR Global Life, based on market responsibility, is as follows: In EUR million 2017 2016 2015
Goodwill arising from insurance activities 49 739 788 49 739 788
Cash and cash equivalents at December 31 (1) 509 492 1,001 682 1,006 1,688 861 765 1,626
Net cash flows provided by operating activities amounted to EUR 1,144 million in 2017 (2016: EUR 1,354 million and 2015: EUR 795 million, respectively). In 2017, SCOR Global P&C provided strong cash flow, despite of having commenced payments on the 2017 cat events. SCOR Global Life showed elevated technical business cash flow in the last quarter of 2017 due to two large transactions.
After initial recognition, goodwill is measured at cost less any accumulated impairment.
The goodwill impairment test for SCOR Global Life compares the carrying amount of the goodwill with the future profits available from the life reinsurance portfolio of the division. A best estimate of the future profits is represented by the surplus of the contract liabilities for the assumed reinsurance contracts portfolio reduced for the share of retrocessionaires in reinsurance contract liabilities under IFRS over the economic value of the Life technical provisions measured under Solvency II principles as published in the 2016 Solvency and financial condition report of SCOR Group. SCOR’s Life technical provisions are calculated as the sum of best estimate liabilities and risk margin. The best estimate liability is valued as the net present value of future cash flows. The risk margin is derived by applying a cost of capital calculation considering the time value of future solvency capital requirements as calculated by the approved internal model.
(1) Disposals and amortization of VOBA in 2017 include EUR 6 million (2016: EUR 68 million) resulting from the derecognition of VOBA due to fully amortized treaty terminations. Regular amortization related to business in force amounts to EUR (41) million for the year ended December 31, 2017 and EUR (35) million for the year ended December 31, 2016.
The IFRS 4 liability adequacy testing, which includes VOBA recoverability, showed no indicators of impairment for the financial years ended December 31, 2017, 2016 and 2015.
The fair value through income category includes financial assets held for trading purposes and those designated at fair value through income upon initial recognition. Gains and losses from changes in the fair value of financial assets classified in this category are recognized in the statement of income in the period in which they occur.
The Group’s insurance business investments and cash by nature and level of valuation technique are presented below: As at December 31, 2017
In EUR million Total Level 1 Level 2 Level 3 Cost or amortized cost
Total insurance and cash include mutual funds that the Group manages and controls and which are also open to external investors. As at December 31, 2017, the carrying amount of assets under management eliminated in “Other liabilities” for consolidation purposes was EUR 2,210 million (December 31, 2016: EUR 1,742 million). Cash and cash equivalents include cash held on behalf of third parties as part of SCOR’s asset management activity for the amount of EUR 145 million as at December 31, 2017 (December 31, 2016: EUR 177 million).
Available-for-sale investments include EUR 59 million of investments which are measured at cost (December 31, 2016: EUR 56 million). These investments primarily include equity securities and funds which are not listed.
●● Level 2: models prepared by internal and external experts using observable market inputs.
Further detail on the valuation of these derivative instruments is included below within the paragraphs on derivative instruments.
At each reporting date, the Group assesses whether there is any objective evidence of impairment. The amount of impairment is recorded by asset category, as set forth below.
For available-for-sale equity securities which are listed on an active market, a line-by-line analysis is performed when there has been a decline in fair value as compared to the initial purchase price of more than 30%, or a consistent unrealized loss over a period of more than 12 months. The different factors considered in this analysis include the existence or inexistence of significant adverse changes in the technological, market, economic or legal environment in which the issuer operates. After consideration of these factors, if a security remains unimpaired, the Group ultimately considers objective evidence of impairment, as per IAS 39, by reference to three further key criteria being the existence or not of: ●● a consistent decline of more than 30% for 12 consecutive months; or
For securities not considered to be traded on an active and liquid market, especially investments in closed-end funds, SCOR performs a line-by-line analysis based on the expected lifecycle of these instruments and their business model. A security is considered impaired if: ●● there is a magnitude of decline of more than 50%; or
Income and expense recognized in statement of income - - - (38) (1) (38)
Income and expense recognized in statement of income - - - (35) (1) (35)
(1) Movements in derivative instruments are due to the change in fair value of Atlas IX Series 2015-1, Atlas IX Series 2016-1 and Atlas IX Series 2013-1 (Extreme Mortality Risk Transfer Contract) derivatives recorded in other operating expenses.
In 2016, increases in real estate investments related to the acquisition of a new building, under construction, and renovation work on existing buildings for a total of EUR 85 million. SCOR sold four buildings, resulting in a gain on sale of EUR 69 million.
Real estate financing is presented in Note 13.2 – Real estate financing.
As part of its real estate investment activities described above, SCOR leases its investment property. The leases generally conform to the local market conditions and have annual indexation clauses for the rental payments. The estimated minimum future rental income is as follows: In EUR million
As part of its real estate investment activities the Group committed to purchasing several properties through contracts of sale before completion. As at December 31, 2017, SCOR has off balance sheet commitments of EUR 87 million (December 31, 2016: EUR 157 million).
The following table summarizes the debt and equity securities and unrealized gains/(losses) by class of securities classified as available for sale and at fair value through income: As at December 31, 2017 As at December 31, 2016
In EUR million Net book value Net unrealized gains/(losses) Net book value
(1) During 2017 and 2016, SCOR had no exposure to the sovereign debt of Portugal, Ireland, Italy, Greece or Spain.
Short-term investments include EUR 8 million that are carried at fair value at December 31, 2017 (December 31, 2016: EUR 593 million). Other loans and receivables are carried at cost, which approximates their fair value at December 31, 2017 and 2016.
●● the hybrid instrument is not measured at fair value through income.
Atlas IX – extreme mortality risk transfer contract - 8 - - (3) (5) - -
The significant unobservable inputs used in the valuation model are: Unobservable inputs Atlas IX Series 2015-1 Atlas IX Series 2016-1
Expected loss US Named Storm based on AIR model 1.87% 3.03%
Amounts recorded in the statement of income include transaction costs that are expensed at inception as other operating expense. Changes in fair value through income as presented above are recognized as other operating expenses or other operating income.
On November 27, 2017, SCOR executed the built-in early redemption option and terminated the Atlas IX mortality risk transfer contract (Series 2013-1) effective on January 1, 2018. With this early termination, the covered risk period ended on December 31, 2017 instead of on December 31, 2018 as originally scheduled. The final payment of interests and an additional termination payment of 1% of the outstanding notional amount of USD 180 million (USD 1.8 million) were made to Atlas IX Capital Limited on December 29, 2017.
SCOR has entered into interest rates swaps to cover its exposure to financial liabilities with variable interest rates relating to real estate investments. The fair value of these swaps is obtained from the banking counterparty and is based on market inputs. As part of the usual analysis of accounts processes these third-party valuations are checked for reasonableness against internal models. The total notional amount relating to these swaps is EUR 263 million as at December 31, 2017 (December 31, 2016: EUR 266 million). Net interest paid under these swaps amounted to EUR 7 million in 2017 (2016: EUR 15 million).
CHF 250 million issued in 2013, see Note 13 – Financial debt), SCOR entered into cross-currency swaps which exchange the principals and the coupons on the notes from CHF into EUR, and mature on June 8, 2018 and November 30, 2018 respectively.
On August 2, 2016, SCOR repaid a CHF 650 million perpetual debt issued in 2011 and the related cross-currency swap matured.
At December 31, 2017 and 2016, one forward currency contract is designated as a hedge of a net investment (see Note 12 – Information on share capital, capital management, regulatory framework and consolidated reserves).
Gross receivables from ceding companies 277 410 687 359 455 814
Estimated premiums receivable from cedents, net of commission 2,837 2,361 5,198 2,956 2,414 5,370
Amounts payable on assumed insurance and reinsurance transactions (562) (195) (757) (533) (259) (792)
Liabilities for cash deposits from retrocessionaires (340) (334) (674) (370) (334) (704)
Accounts receivable from and payable to cedents and retrocessionaires are mostly due in less than one year. A complete aging of financial assets is included in the Registration Document in Section 3.5.2 – Management of credit risks.
Miscellaneous assets consist of: In EUR million As at December 31, 2017 As at December 31, 2016
Change in scope of consolidation 136 Gross value at December 31, 2017 448 Cumulative amortization and impairment at December 31, 2015 (114) Foreign exchange rate movements 5 Amortization for the period (17) Impairment for the period Cumulative amortization and impairment at December 31, 2016 (126) Foreign exchange rate movements 3 Amortization for the period (8) Impairment for the period Cumulative amortization and impairment at December 31, 2017 (131) CARRYING AMOUNT AS AT DECEMBER 31, 2015 162 CARRYING AMOUNT AS AT DECEMBER 31, 2016 175 CARRYING AMOUNT AS AT DECEMBER 31, 2017 317
The Group conducted its annual assessment of the amortization periods and amortization methods of these finite useful life intangible assets and concluded that both the amortization periods and existing amortization methodology are appropriate. The amortization expense recognized for other intangible assets with finite useful lives was EUR 8 million, EUR 17 million, and EUR 14 million, for the years ended December 31, 2017, 2016, and 2015 respectively.
Further intangible assets with an indefinite useful life amounted to EUR 13 million as at December 31, 2017 (December 31, 2016: EUR 14 million).