page 3 1.1. Selected financial information 5 1.2. Information about the SCOR Group 8 1.3. Market and financial review 25
AND EXECUTIVE COMPENSATION page 43 2.1. Corporate officers, executives and employees 44 2.2. Executive compensation and share ownership 69 2.3. Major shareholders and related party transactions 100
AND RISK MANAGEMENT MECHANISMS page 111 3.2. Strategic risk 113 3.3. Underwriting risk related to the P&C and life reinsurance business 120 3.4. Market risk 130 3.5. Credit risk 134 3.6. Liquidity risk 137 3.7. Operational risk 140
page 143 4.1. Consolidated balance sheet 144 4.2. Consolidated statement of income 145 4.3. Consolidated statement of comprehensive income 146 4.4. Consolidated statement of cash flows 147 4.5. Consolidated statement of changes in shareholders’ equity 148 4.6. Notes to the consolidated financial statements 151 4.7. Information on holdings 221 4.8. Statutory Auditors 222 4.9. Auditing of historical consolidated financial information 223
APPENDIX A Report of the Chairman of the Board of Directors 236
APPENDIX G Commission regulation of April 29, 2004 – Correspondence table 311
This registration document was filed on March 3, 2017 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, 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; SCOR SE’s corporate and consolidated financial statements for the financial year ended December 31, 2014 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 20, 2015 under number D.15-0181.
Reinsurance is 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 natrural and man-made catastrophes: hurricanes, floods, volcanic eruptions, explosions, fires, plane crashes, etc.), and Life biometric risks (trends and shocks on mortality, longevity and morbidity 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.
SCOR SE and its consolidated subsidiaries (“SCOR” or the “Group”), form the world’s fourth largest reinsurer (1) serving more than 4,000 clients from its four organizational hubs (the ”Hubs”) located in Paris/London and Zurich/Cologne for Europe, Singapore for Asia and New York/Charlotte/Kansas City for the Americas.
(1) See Section 1.3.5.4 – Net investment income and investment income on invested assets. (2) See Section 1.3.9 – Calculation of financial ratios, for detailed calculation.
(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 Note 21 – Earnings per share for detailed calculation. (4) Closing stock price on December 30, 2016 (December 31, 2015, 2014). (5) In 2016, includes a EUR 301 million one-off cash in-flow from the repayment of a cedent’s fund withheld.
* Return on equity is based on the Group’s share of net income divided by average shareholders’ equity (calculated as shareholders’ equity at the beginning of the period adjusted for the effect of all movements during the period on a pro rata temporis basis). The ROE calculation method was adjusted in 2014 to take into account material foreign exchange rates movements that do not occur evenly throughout the reporting period. A daily weighted average is applied used for the currency or currencies that experienced such movements and simple weighted average is applied used for the other currencies. The ratio previously reported in the 2013 Registration Document was 11.5% for 2013.
P&C management Commissions * The Life technical margin is calculated as the percentage of net technical result plus income from funds held by ceding companies in relation to the net of gross and ceded earned premiums. The net technical result represents the result of the net reinsurance operations of the Life division including income and expenses either implied in the reinsurance and retrocession arrangements or fully related to these arrangements.
** The technical result calculation method was adjusted in 2014 to include revenues from Life reinsurance contracts that do not transfer significant reinsurance risk (presented in the investment income line of the 2013 Registration Document). The ratio previously reported in the 2013 Registration Document was 7.3% for the year ended December 31, 2013. This change has no impact on the 2012 ratio.
The statute of limitations for dividends is five years. Unclaimed dividends will be paid over to the French Treasury. See also Section 4.6 Note 21 – Earnings per share to the consolidated financial statements.
The Company was incorporated on August 16, 1855, as a limited partnership (société en commandite), under the name Compagnie Impériale des Voitures de Paris. In 1866, the Company was converted into a joint stock company (société anonyme) under the name Compagnie Générale des Voitures de Paris. The Company changed its name to SCOR SA on October 16, 1989 and in 1990, absorbed Société Commerciale de Réassurance, created in 1970, and took over the reinsurance business of the latter. On May 13, 1996, SCOR SA changed its name to SCOR. On June 25, 2007, SCOR changed its legal form to a European Company (Societas Europaea) and became SCOR SE. In 2012, the Company relocated from Paris-La Défense to Paris. On April 25, 2013, the Company’s term was extended for 99 years by decision of the Extraordinary Shareholders’ Meeting and will expire on April 25, 2112 unless extended or previously dissolved.
SCOR SE has been included in the EuroStoxx Select Dividend 30 index of the 30 highest dividend paying European companies since March 12, 2010.
French insurance and reinsurance regulator (Autorité de contrôle prudentiel et de résolution – ACPR). While the extent and nature of regulation varies from country to country, most jurisdictions in which SCOR’s insurance and reinsurance subsidiaries operate have laws and regulations governing solvency standards, levels of reserves, permitted types and concentrations of investments, and business conduct to be respected by insurance and reinsurance companies. The supervisory authorities with jurisdiction over the Group’s operations may conduct regular or unexpected examinations of the insurers’/reinsurers’ or asset managers’ operations and accounts and request specific information from the insurer or reinsurer. Certain jurisdictions also require registration and periodic reporting by holding companies that control a licensed insurer or reinsurer. This holding company legislation typically requires periodic disclosure concerning the corporate entity that controls the licensed insurer and other affiliated companies, including prior approval of transactions between the insurer, the reinsurer and other affiliated companies such as intercompany asset transfers and dividend payments by the authorized insurer or reinsurer. In general, these regulations are designed to protect the interests of insureds rather than shareholders.
Under the directive Solvency II and related European and French regulations, French companies, whose exclusive business is reinsurance, can only carry on said business after having obtained an official authorization, issued by the ACPR. Registered reinsurers in France can operate under certain conditions in the European Economic Area (EEA) under the freedom to provide services and/ or the freedom of establishment (branch).
SCOR group is regulated by the “Solvency II” European directive which applies since January 1, 2016, having been transposed into French law on April 2, 2015 through the ordinance No 2015-378 and related decree (No 2015-513, May 7, 2015) and arrêté (of May 7, 2015).
SCOR group is subject to supervision by the ACPR which has extensive oversight authority, including to review the Group’s solvency capital requirements well as the solvency capital requirement of each French insurance or reinsurance company.
For a detailed description of new governance requirements, see Section 2.
Many regulators worldwide are developing new solvency regulatory frameworks similar to the Solvency II regulations as developed by the European Union. For example, the Chinese regulator (CIRC) has recently implemented “C-Ross”, a regulatory regime imposing new capital requirements and heightened governance on the branches of foreign companies subject to CIRC supervision. For a detailed description of the statutory impact of these initiatives on the Group, see Section 3.2.3.
US companies of standard contractual clauses approved by the European Commission and specifying the obligations of data protection, or (ii) the use of internal rules of company (Binding corporate rules) approved by the national authorities of data protection for transfers within multinational groups. The Group thus remains confident in the use of the above mentioned ways to regularly transfer data across the Atlantic.
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 the rights of the individuals, 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.
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 European Company (Societas Europaea) status via a merger by absorption of SCOR Deutschland Rückversicherungs AG and SCOR Italia Riassicurazioni SpA.
For more information on the Hub structure, see Section 1.2.3.1 – Brief description of the Group and of the position of the issuer.
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 underwrited 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 May 29, 2013, SCOR acquired a 59.9% stake in the capital of MRM S.A., a listed real estate company subject to the French REIT régime (Régime des sociétés d’investissements immobiliers cotées or SIIC), as part of a cash capital increase, after the restructuring of MRM S.A. group’s banking and bond debts. This investment amounted to EUR 53.3 million.
In 2016, SCOR SE obtained the so-called “R3” authorization from the Insurance Regulatory and Development Authority of India (IRDAI) allowing the Group to open a Composite Branch office in India to conduct Life and P&C reinsurance business. The Indian branch is expected to start underwriting business in 2017.
The Group is a three engine group driven by SCOR Global Life, SCOR Global P&C and SCOR Global Investments. The Group’s organizational choices were guided by the principles of mobilization of skills and expertise, operating efficiency, structural simplicity, clear reporting lines and balance between teams from the Group’s different entities.
SCOR Global Life, the Group’s Life division, operates worldwide through the branches of two main global reinsurance companies (SCOR Global Life SE and SCOR SE) as well as insurance, reinsurance, distribution and distribution solutions subsidiaries in Germany, the UK, Ireland, Italy, Spain, Switzerland, Netherlands, Sweden, Belgium, Canada, the US, Latin America, Russia, South Africa, Australia, New Zealand, China, Singapore, Malaysia and South Korea.
SCOR Global Investments, the third division of the Group, manages the investment portfolio of the Group’s legal entities. It is composed of the Group Investment Office and SCOR Investment Partners SE, a portfolio management company, approved by the AMF. The Group Investment Office manages the interaction between the SCOR Group and SCOR Investment Partners in managing the risk appetite, monitoring investment risks and setting investment guidelines. SCOR Investment Partners manages directly the assets of many SCOR group subsidiaries and manages also the funds on the behalf of the Group and third party clients.
The Group’s subsidiaries, branches and offices are connected through a central network of applications and data exchange platforms, which allow local access to centralized risk analysis, underwriting or pricing databases and also gives access to information on local market conditions, to be shared among the Group’s subsidiaries, branches and offices. In addition, by regularly rotating personnel between the Group’s head offices in Paris and its non-French subsidiaries and branch offices, the Group encourages its underwriters, actuaries, modelers, claims experts and risk controllers to share and exchange experience across its various geographic markets and business lines.
SCOR SE wholly owns its operating subsidiaries (excluding the loaned securities held by directors).
SCOR SE also makes loans to its subsidiaries and issues them guarantees so that they can underwrite under favorable conditions, letting them benefit from its credit ratings. SCOR SE provides actuarial, accounting, legal, administrative, systems, internal audit, investment, and human resources support to Group subsidiaries. Finally, SCOR SE acts, as needed, as retrocessionaire for its two operational subsidiaries through proportional treaties which are renewed annually and form the basis for internal control within the Group through the annual allocation of 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 Note 4 – 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 (Societas Europaea) status on June 25, August 3 and July 25, 2007 respectively.
European Company status enables SCOR SE to strengthen its European and transnational identity, facilitate acquisitions in Europe, improve its flexibility in financial matters and capital allocation, simplify regulatory controls and reduce its local structures, by giving preference to branches, rather than local subsidiaries. The Group is thereby demonstrating its ambition to be a company with European roots and global reach.
Following the 2011 acquisition of the mortality reinsurance business of Transamerica Re, SCOR Global Life reorganized its activities in the US and merged SCOR Global Life Reinsurance Company of America into SCOR Global Life U.S. Reinsurance Company. SCOR Global Life U.S. Reinsurance Company was
(1) Paris/London Hub: South Africa, Europe including Russia and other than Germany, Austria, and Switzerland; Zurich/Cologne Hub: Switzerland, Germany, Austria and Israel and one subsidiary in Argentina; Singapore Hub: Asia and Australia; Americas Hub: North America and Latin America.
Following the 2013 acquisition of Generali U.S. Holding, Inc., Generali USA Life Reassurance Company, the primary operating company, relocated from Missouri to Delaware and was renamed SCOR Global Life USA Reinsurance Company.
SCOR has structured its operations around several regional management platforms, or Hubs: the Paris/London Hub (effective April 15, 2015), the Zurich/Cologne Hub (effective October 1, 2014), the Americas Hub and the Singapore Hub.
Each Hub has local, regional (1) and Group responsibilities, with the heads of each Hub reporting to the Group Chief Operating Officer. Each Hub typically includes the following functions: a director of legal and compliance, a director of Information technology support, a director of finance and a director of human resources. This organization enables: ●● SCOR’s operational structures and support functions to be optimized by creating service entities in charge of managing pooled resources, including information technology, human resources, legal and others in the Group’s main locations; ●● several Group functions to be carried out and managed in geographical locations other than Paris in order to benefit fully from the competencies within different hubs. The Hubs are not responsible for generating revenues or for underwriting or claims management. The local underwriting and claims management teams have direct reporting lines within the respective P&C and Life divisions. Hub shared service costs are then allocated to the divisions; and
The Hub structure is designed to facilitate access to local markets through a network of local subsidiaries, branches and representative offices, to better identify profit centers in each major reinsurance market, obtain a deeper understanding of the specific features of local risks and develop local management and underwriting expertise, and thereby improve customer service and maintain relationships with ceding companies. Since the acquisition of the mortality reinsurance business, including the operational assets and personnel, of Transamerica Re, and the acquisition of Generali U.S. Holding Inc., Charlotte, North Carolina, and Kansas City, Missouri, have become key locations for the Life division. As part of these integrations, Charlotte and Kansas City have joined New York as key competence centers for the Americas Hub.
SCOR GROup #1 1.2.3.2. LIST OF ISSuER’S SIGNIFICANT SuBSIDIARIES AND BRANCHES
●● Section 1.2.3.1 – Brief description of the Group and of the position of the issuer (regarding the role of SCOR towards its subsidiaries); ●● Section 4.6 Note 3 – Acquisitions and disposals; ●● Section 2.1.2 – Board of Directors (regarding the duties carried out in the subsidiaries by the managers of the Company); ●● Section 2.1.4 – Executive Committee (regarding the duties carried out in the subsidiaries by the managers of the Company); and
On September 21, 2016, A.M. Best affirmed the financial strength rating of “A” (Excellent) and the long-term issuer credit rating of “a+” of SCOR and its main subsidiaries. The outlook of these ratings remains positive.
On December 15, 2015, Moody’s raised the outlook of SCOR to “positive” from “stable”, and affirmed its insurance financial strength rating of “A1” and its “A3” (hyb) subordinated debt rating. According to Moody’s, this decision reflects “the continued improvement in SCOR’s market position and franchise, the rating agency’s expectation of continued high stability of SCOR’s earnings resulting from the Group’s diversified business model and lower exposure to the most volatile reinsurance segments than peers, as well as SCOR’s strong capitalization and risk management”.
On September 7, 2015, Standard & Poor’s (S&P) upgraded SCOR’s financial strength rating to “AA- stable outlook” from “A+ positive outlook” and raised the Group counterparty credit ratings to “AA-/A-1” from “A+/A-1” having taken into account the fact that, according to S&P’s statement, “the Group has demonstrated its very strong competitive position through resilience in pricing and technical profitability in its P&C book and has reinforced its leading position in the U.S. Life reinsurance market.”
For more information on risks arising from financial ratings, please see Section 3.2.4 – Downgrade risk.
Since 2002, SCOR has defined its strategy and principle orientations through the creation of several 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” (20162019 ). 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) have 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 new 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 and through best-in-class services and product innovation, and
It also affirms the Group’s consistent shareholder compensation policy set by the SCOR’s Board of Directors. SCOR aims to remunerate shareholders through cash dividends, and if relevant, does not exclude special dividends or share buy-backs. Overall the Board will aim to maintain a minimum dividend payout of 35% over the cycle, while pursuing low variation in the dividend per share from year to year.
SCOR’s risk appetite framework encompasses four concepts: risk appetite, risk preferences, risk tolerances, and footprint scenarios:
Reinsurance is a contract under which a company, the reinsurer, agrees to indemnify an insurance company, the ceding company, against all or part of the insurance risks underwritten by the ceding company under one or more insurance contracts. Reinsurance differs from insurance, primarily because of its higher level of mutualization by geography and by line of business.
In addition, reinsurers may also provide advisory services to ceding companies by: ●● helping them define their reinsurance needs and devise the most effective reinsurance program to better plan their capital needs and solvency margin; ●● supplying a wide panel of support services, particularly in terms of knowledge sharing, best practices and risk assessment, modeling and management tools; ●● providing expertise in certain highly specialized areas such as complex risk analysis and pricing; and
Although the frequency of losses under a quota share reinsurance contract is usually greater than on an excess of loss contract, it is generally simpler to predict the losses on a quota share basis and the terms and conditions of a quota share contract can be structured to limit the indemnity offered under the contract. A quota share reinsurance contract therefore does not necessarily imply that a reinsurance company assumes greater risk exposure than on an excess of loss contract.
The Group organizes its operations around four regional management platforms, or “Hubs” named Paris/London and Zurich/Cologne for Europe, Singapore for Asia and New York/ Charlotte/Kansas City for the Americas. Each of the Hubs has local, regional and Group responsibilities, with heads of each Hub reporting to the Group Chief Operations Department. Each Hub includes the following functions: a Legal and Compliance Officer, a Head of Information Technology, a Head of Finance, a Head of Human Resources and a Risk Manager. Hub shared service costs are allocated to the segments based on allocation keys. For a description of the Hub structure, see Section 1.2.3 – Organizational structure of SCOR.The SCOR Global P&C segment carries out its global operations through the subsidiaries and branches of its two main global reinsurance entities (SCOR Global P&C SE and SCOR SE) and through an operating insurance entity (SCOR UK Limited). Through those entities, their subsidiaries and branches, SCOR Global P&C is represented in three business regions EMEA, the Americas and Asia/Pacific and operates in four business areas: Property and Casualty Treaties; Specialty Treaties (including Credit and Surety, Decennial Insurance, Aviation, Space, Marine, Engineering, Agriculture risks and Alternative Solutions); Business Solutions (large corporate accounts underwritten through facultative insurance and reinsurance contracts and occasionally as direct insurance); and Business Ventures and Partnerships. In addition, SCOR Global P&C writes direct insurance, primarily on a business-to-business basis to cover certain large industrial P&C risks through the Business Solutions area of SCOR Global P&C and through the participation in Lloyd’s syndicates among which Channel 2015 for which SCOR is the sole capital provider. For a description of products and services, see Section 1.2.5.2 – Non-Life reinsurance.
SCOR’s cost center is referred to in this Registration Document as “Group Functions”. Group Functions is not an operating segment and does not generate revenues. The costs in Group Functions are Group-related and are not directly attributable to either the P&C or Life segment. Group Functions includes the cost of departments fulfilling duties for the benefit of the whole Group, such as Group Internal Audit, Group Finance Department (Tax, Accounting, Consolidation and Reporting, Financial Communication, Treasury and Capital Management, Financial Planning and Analysis), Group Chief Operations Departments (Legal, Communication, Human Resources, Information Technology) and Group Chief Risk Officer expenses (Actuarial, Risk Management, Prudential Affairs, Internal Modeling).
SCOR’s casualty treaties typically cover original risks of general liability, product liability or professional indemnity. Accordingly, they include treaties covering motor liability and general third-party liability. Motor liability reinsurance covers property damage, bodily injuries and other risks arising from the coverage of both drivers and passengers in private vehicles and commercial fleets.
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. Political risk insurance covers the risk of losses due to measures taken by a government or similar entity which endangers the existence of a sales contract or commitment made by a public or private company of the country in which the covered operations are performed.
Insurance for the space sector covers the launch preparation, launch, and the in-orbit operation of satellites, primarily commercial telecommunication and earth observation satellites.
Engineering insurance, which is divided into Construction All Risks and Erection All Risks insurance, includes basic Property and Casualty coverage and may be extended to the financial consequences of a delay in start-up (advanced loss of profits) caused by losses indemnifiable under Property and Casualty coverage.
The Group’s activity in the Business Solutions area covers all insurable risks of industrial groups and services companies (large corporate accounts). These risks are underwritten through facultative insurance and reinsurance contracts, and occasionally as direct insurance, in an international network around two main business departments: “Natural Resources” and “Industrial & Commercial Risks”.
Business Solutions is aimed at risk managed enterprises and professional buyers seeking global risk financing solutions. The risks shared with the ceding and/or captive insurance companies are high-value industrial or technically complex risks. In property and casualty lines, such as Property Damage & Business Interruption, Construction All Risks, Erection All Risks, Comprehensive General Liability, Product Liability or Professional Indemnity, the risks involve insured amounts which typically are beyond the ceding companies’ own means.
SCOR’s Business Ventures and Partnerships business area historically included the provision of capital to third-party businesses, including Lloyd’s syndicates. SCOR contributes to several Lloyd’s, including Channel 2015, for which SCOR is the sole capital provider.
Mortality protection represents more than 64% of the SCOR Global Life portfolio based on gross written premiums for the year ended December 31, 2016. SCOR Global Life actively underwrites mortality risk in all the geographical markets in which it operates.
Personal Accident insurance pays a lump sum benefit if the insured person dies or is seriously injured as a result of an accident.
Reinsurance can be written through professional reinsurance brokers or directly from ceding companies. The involvement of a broker in the placement of a reinsurance contract is a decision belonging to the ceding insurance company, which depends on local market practices, the cedent’s worldwide reinsurance market knowledge, the complexity of the risks the cedent intends to transfer and the corresponding available reinsurance capacity in the market, as well as the cedent’s capability and resources to structure market submission data, place risks and manage the placements. In most of the cases, reinsurance programs are syndicated to several reinsurers, which follow a leader, and in some instances a co-leader.
For the year ended December 31, 2016, SCOR’s largest brokers for Life were Aon Group with approximately 2% of the Group’s Life gross written premiums and Willis Group with approximately 1%. SCOR’s largest brokers for Non-Life were Aon Group with approximately 19% of the Group’s Non-Life gross written premiums, MMC with approximately 15% and Willis Group with approximately 10%.
SCOR GROup Information about the SCOR Group < #1 1.2.5.5. CApITAL SHIELD STRATEGY
SCOR Global Investments is the SCOR Group’s asset management division and consists of two entities: (i) the Group Investment Office and (ii) a regulated asset management company, SCOR Investment Partners.
The Group Investment Office manages the interaction between the SCOR Group and SCOR Investment Partners in managing the risk appetite, monitoring investment risks and setting investment guidelines. It is also responsible for portfolio monitoring and reporting, development of the Group’s strategic and operating plans, financial forecasts and performance analysis of SCOR’s investments.
The building was delivered in January 2017 and the moving-in is expected during the summer 2017.
SCOR also holds additional property investments as part of its asset management strategy.
For more information on the Group’s real estate, see Section 4.6 – Notes to the consolidated financial statements, Note 9 – Miscellaneous assets and Note 7 – Insurance business investments.
The R&D Centers are part of the Actuarial & Risk Department of SCOR Global Life. Their employees are based in Paris, Cologne,
At the forefront of risk modeling, particularly extreme risks in Life and Non-Life businesses, the Group devotes considerable resources to fundamental research and the promotion of scientific risk management techniques in various disciplines. As well as prize-winning internal research projects, conducted with the assistance of students from renowned schools and universities, SCOR has signed partnership agreements with the following institutions: ●● the Risk Foundation, in collaboration with Toulouse University’s Institut d’Économie Industrielle (IDEI) and Paris Dauphine University, is dedicated to the risk market and to value creation, with a research program specially focused on Long-Term Care. For SCOR, this implies costs of EUR 1.5 million spread over five years; ●● a Research Chair in Finance, in cooperation with the JeanJacques Laffont Foundation based in Toulouse, focuses on risk management, long-term investment, corporate governance and asset management strategy. For SCOR, the related cost is EUR 1.5 million spread over five years; ●● 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; and
Alongside these partnership agreements, the Group works to further scientific research in the field of risks through sponsorship initiatives (see Appendix D) conducted by its corporate foundation, the SCOR Corporate Foundation for Science.
In addition to the above, scientific risk management techniques are promoted, and knowledge shared, via the following: ●● 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 MBA offered by the École nationale d’assurance (ENASS); ●● as an expression of SCOR’s commitment to the knowledge and science of risk, in 2013 SCOR appointed a Group Scientific Advisor to the Chairman and Chief Executive Officer. This advisor is notably responsible for promoting scientific risk assessment techniques among the Group’s clients and in academic circles, and for developing research in major fields, in order to ensure sound management of the Group’s business portfolio and internal model.
The focus in 2016 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 2017. Accounting forecasts are developed from underwriting plans and comparative analyses are produced in standard reports. New reserving and financial modeling tools have been implemented over recent years. 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. Still with SGP&C, the development of a new Claims Platform has been delivered. In the Life business, the embedded value calculation has been revised and integrated in the internal model. Other front-office 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 done in the US.
The Group is promoting a paperless environment. Internally, global document-sharing processes have been set up for the Life and Non-Life divisions. With its clients, SCOR is able to automatically process claims, reinsurance and financial accounts received electronically in the standard formats defined by ACORD, an association created for the development of e-processing in insurance and reinsurance, without having to re-enter them. SCOR is also chairing the global Ruschlikon initiative, launched with major brokers and reinsurers to develop e-administration in the reinsurance industry.
Finally, the IT strategy is aligned with the SCOR business objectives. The mandate of SCOR IT under the past strategic plan has been largely completed with new solutions in the back-office and front-end areas to ensure operational excellence and business development. The recently announced strategic plan, “Vision in Action”, has identified new directions for SGP&C, SGL, SGI and the Corporate Functions, which have been analyzed to define the new strategy for the SCOR information system. The digital transformation of SCOR, steered by the Business Divisions in close partnership with the IT Department, will generate key evolutions of the SCOR information system, as planned in the ambitious “Digital SCOR” program.
See Section 1.2.6 – SCOR investments in tangible and intangible assets.
The growth rate of alternative capital appears to have slowed in the course of 2016, and such capacity remains predominantly focused on peak-zone catastrophe risks and other modelled perils, which negatively affects the pricing of inwards reinsurance business in the affected lines but also makes outwards retrocession more efficient. Similarly, the trend towards new “hedge fund re” vehicles appears to be attenuating. The risk transfer chain remains under pressure with all actors striving to achieve cost savings, often by squeezing out or putting pressure on other participants. It remains to be seen which innovations will prove to be sustainable in the Non-Life market following market-turning losses.
The occurrence of major external shocks, such as the British decision to leave the European Union and the unexpected outcome of the US presidential election, as well as the downturn in commodity prices, have significantly contributed to the change in the economic paradigm, where fears of extended low growth/ low inflation have given way to the theme of the return of inflation and changes to free trade.
Consequently, the bond markets, after having reached record low interest rate levels in July with -0.20% for German 10-year bonds and 1.35% for 10-year US bonds, have seen negative performances. At the end of 2016, the 10-year German rate is positive once again at 0.2% and the 10-year US yield stands at 2.45%.
The energy and finance sectors recorded the best performances, thanks to the rise in oil prices in the first instance and the steepening of yield curves plus deregulation hopes in the second. Thus, over the year, the performance of the MSCI World Energy index stands at 27.6%, and that of the MSCI World Financial index stands at 13.3%. Conversely, the health sector posted a negative performance, for example with the MSCI World Health Care index down by -6.32%.
On December 15, 2016, SCOR announced the launch of a new 3-year contingent capital facility. This takes the form of a contingent equity line, providing the Group with EUR 300 million coverage in case of extreme natural catastrophe or life events impacting mortality.
On July 28 and August 2, 2016 respectively, SCOR completed the calls of the entire balance of its EUR 350 million and CHF 650 million perpetual subordinated note lines.
The coupon was set at 3.625% (until May 27, 2028), and is reset every 10 years at the prevailing 10-year EUR mid-swap rate +3.90%. The notes mature on May 27, 2048. It is currently SCOR’s intention to use the proceeds for general corporate purposes. The proceeds from the notes are expected to be eligible for inclusion in SCOR’s regulatory capital, in accordance with applicable rules and regulatory standards, and as equity credit in the rating agency capital models.
SCOR GROup Market and financial review < #1 1.3.4. INFORMATION ON SCOR’S COMpETITIVE pOSITION
(1) By Net Reinsurance premiums written, source: “AM Best Special Report Global Reinsurance 2016”.
SCOR SE and its consolidated subsidiaries formed the world’s fourth largest reinsurer (1) in 2015, serving more than 4,000 clients.
See also Section 4.6 – Notes to the consolidated financial statements, Note 1 – Accounting principles and methods, Note 15 – Net contract liabilities and Note 24 – Insurance and financial risks.
– operating as a mixed Non-Life and Life reinsurer in China using the license received in 2011, enabling SCOR to add Life reinsurance services to the existing Non-Life activities, and
(1) See Section 1.3.9 – Calculation of financial ratios. (2) The return on invested assets’ calculation method was adjusted in 2014 to exclude revenues from Life reinsurance contracts that do not transfer significant reinsurance risk (presented in the investment income line of the 2013 Registration Document).
However, the impact of alternative retrocession coverage, Atlas VI (SCOR Global P&C) and Atlas IX (SCOR Global Life) (See Section 3.3.5 – Retrocession and other risk mitigation techniques) are not included in the net cost of retrocession as the products are accounted for as derivatives.
The total amount recorded in 2016 “other operating expenses” in relation to Atlas CAT bonds and the mortality transfer contract was EUR 35 million (2015: EUR 19 million).
The Group cost ratio (3) calculated as the total of all management expenses less certain non-controllable expenses (e.g. bad debts), legal settlements, acquisition expenses and amortization, divided by gross written premiums, was 5.0% for the year ended December 31, 2016, unchanged from 5.0% in 2015 (2014: 5.0%). Management expenses for the years ended December 31, 2016, 2015 and 2014 were EUR 815 million, EUR 776 million and EUR 649 million respectively, on a comparative basis.
2015 and 2014 operating income benefitted from the strong technical performance of SCOR Global Life, the robust profitability of SCOR Global P&C and a rather benign year in terms of natural catastrophes.
Return on equity was 9.5%, 10.6% and 9.9% for the years ended December 31, 2016, 2015 and 2014 respectively. Basic earnings per share were EUR 3.26, EUR 3.46 and EUR 2.75 for the years ended December 31, 2016, 2015 and 2014, respectively.
The business comprises traditional reinsurance transactions: Treaty, Business Solutions, and Specialty Lines reinsurance. SCOR Global P&C capitalizes on a long-standing franchise, experience, and an extensive data base comprising multi-line expertise.
2015 was characterized by an increasingly competitive market environment. SCOR Global P&C capitalized on the quality of its franchise and the active management of its portfolios, to secure renewals that bear witness to its strong competitive position.
In 2016, gross written premiums decreased by -1.5% compared to 2015. At constant exchange rates the growth is 1.2%.
In 2014, gross written premiums increased by 1.8% compared to 2013. At constant exchange rates the growth was 2.7% in line with the assumption of EUR 5 billion annual gross written premiums indicated in the January 2014 renewals disclosure.
SCOR Global P&C achieved a net combined ratio (2) of 93.1% in 2016 against 91.1% in 2015 and 91.4% in 2014.
In 2014, the combined ratio reflected very strong technical results, driven by the year-on-year improvement of the attritional ratio 56.9% (versus 57.7% in 2013) and the lower impact of natural catastrophes compared to 2013. Natural catastrophes had a 4.2% impact on the Group net combined ratio for the year end 2014 compared to a 6.4% impact in 2013.
The following table highlights losses due to natural catastrophes for the years 2016, 2015 and 2014: As at December 31
(1) Loss ratios are calculated on the basis of Non-Life claims, expressed as a percentage of Non-Life premiums earned. (2) Net of retrocession and reinstatement premiums (assumed and retrocession).
(3) 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.
(4) The impact of developments on the following 2015 catastrophes are included in the 2016 cat ratio: UK Flooding, Chennai Floods (India), US Northeast
(5) Including UK Flooding, Chennai Floods (India), US Northeast Winterstorms, Storm Niklas, US South & Midwest Weather, Chile Earthquake 2015, Typhoon Rainbow/Mujigae, Italy Snow & Windstorm, South Carolina Floods, Chilean Storm & Mudslides and Texas & Oklahoma Heavy Rain.
(6) Including European Hails (Ela), Japan Snowstorm, USA Floods (Warren Michigan), Cyclone Hudhud, Hurricane Odile, Chile Earthquake, Southern Alberta Hailstorm and Typhoon Rammasun.
(7) Andreas Hailstorm (July 2013) and South Africa Hailstorm’s development impacts are included in 2014 cat ratio.
Other natural catastrophes (less than EUR 10 million) 2014 19 15 15
SCOR Global Life operates through its unified global organization with a specialized market approach in three regions: Americas, EMEA (Europe, Middle East and Africa) and Asia Pacific. It underwrites Life reinsurance business in the following product lines: ●● Protection; ●● Financial Solutions; ●● Longevity.
SCOR Global Life ranks among the top five life reinsurers worldwide (1) and has grown by 6.4% in gross written premiums from EUR 7,698 million in 2015 to EUR 8,187 million in 2016 (a 8.3% increase at constant exchange rate (2)). SCOR Global Life has increased its new business premiums from new clients and with existing clients in all three regions and across all three product lines. Growth was recognized in the Protection product line in Americas, in the Financial Solutions product line in Asia Pacific and in the Longevity product line in Europe.
Protection The Protection business accounts for 79% of total gross written premiums in 2016 and remains the main driver for premium growth (5.3% growth in gross written premiums in 2016).
●● 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. SCOR Global Life has also expanded its geographical scope by introducing its LTC reinsurance coverage to several markets.
●● Critical Illness: SCOR Global Life is a market leader in the UK. It also leverages its experience and expertise from the UK to expand into selected Asian markets and South Africa.
In the Financial Solutions product line, accounting for 13% of 2016 gross written premiums, SCOR Global Life has built a recognized position in providing capital and solvency solutions. Since 2013, SCOR Global Life has been signing landmark transactions in Southern Europe, the US, Asia and Latin America. Regulatory environments have been in flux since late 2014, with the implementation of Solvency II in Europe and equivalent systems elsewhere (China, the US). These changes have led to a slowdown in concluding new business, in particular in the EMEA region. Insurers are expected to deploy new solutions as these new regulations come into force.
SCOR GROup #1 1.3.5.4. NET INVESTMENT INCOME AND INVESTMENT INCOME ON INVESTED ASSETS
The return on invested assets in 2016 was 2.9% as compared to 3.1% in 2015 and 2.9% in 2014. The evolution of investment income is essentially driven by the active portfolio management strategy implemented by SCOR Global Investments, which translated into substantial realized capital gains of EUR 207 million, mostly achieved on the real estate and fixed income portfolios and to a lesser extent on the other investments portfolio.
The following table presents a reconciliation of these figures with the IFRS figures as presented in Section 4 – Consolidated financial statements, Note 18 – Investment income.
Fair value through income on invested assets (4) 5 11 8
IFRS INVESTMENT INCOME NET OF INVESTMENT MANAGEMENT EXPENSES 694 692 597
During 2016, invested assets increased to EUR 19,226 million from EUR 17,963 mainly as a result of the Group’s strong operating cash flows, income generated by the invested assets portfolio in 2016, positive mark-to-market development and a positive FX impact.
In an uncertain economic and financial environment, affected by several significant political events, such as the Brexit referendum and the US election, SCOR maintained a prudent investment strategy throughout 2016. As a result, its liquidity, defined as cash, cash equivalents and short term investments remained almost stable at 11% of invested assets as at December 31, 2016 compared to 11% as at December 31, 2015.
Meanwhile, SCOR started to rebalance progressively its invested assets portfolio towards its new target asset allocation, and increased its exposure to corporate bonds, representing 38% of invested assets at the end of 2016 compared to 35% at the end of 2015. Over the same period of time, government bonds & assimilated were reduced from 28% to 25%. The fixed income portfolio continues to represent a significant portion of SCOR’s investments with 79% invested within this asset class (2015: 78%), and an average rating maintained at “AA-” at the end of 2016. The duration of the fixed income portfolio stood at 4.5 years at the end of 2016 compared to 3.9 years at the end of 2015.
SCOR’s exposure to equity securities decreased marginally to EUR 506 million as at December 31, 2016, representing 2% of invested assets (as at December 31, 2015: EUR 515 million, representing 3% of invested assets). This exposure is essentially made up of listed equities and convertible bonds.
Other investments, comprising mainly Insurance-Linked Securities (ILS), private equity and infrastructure funds and non-listed equities slightly decreased to EUR 467 million as at December 31, 2016 and represent 2% of invested assets (as at December 31, 2015: EUR 482 million, 3% of invested assets).
TOTAL INSURANCE BUSINESS INVESTMENTS AND CASH AND CASH EQUIVALENTS 1,688 15,350 1,661 575 913 819 21,006 8,505 29,511 127 187 29,825
Investments at fair value through income - - - 288 - 456 744 - 744 - - 744
Direct real estate unrealized gains and losses (4) - - - - 209 - 209 - 209 - - -
(1) Including Atlas CAT bonds, mortality swap and FX derivatives. (2) Other loans and receivables excluded from invested assets are certificates of deposit (CDs) maturing in more than three months and less than twelve months included in short-term investments as well as infrastructure loans and real estate loans. (3) Assets invested by third parties in mutual funds and non-controlling real estate investments fully consolidated by SCOR. (4) Fair value less carrying amount of real estate investments excluding EUR 10 million attributable to third-party investors.
The Group reconciles its strategic objectives with the protection of its capital via its “Capital Shield Strategy”, which articulates the Group’s risk appetite. This policy is based on an economic approach and aims to protect the Group against potential shock losses. The policy is built on the following four concepts: traditional retrocession, capital market solutions, solvency buffer and contingent capital facility.
However, SCOR makes every effort to limit collateral requirements related to financial covenants or the Group’s financial strength rating in its financial agreements.
For information on financial liabilities, including their related covenants, see Section 4.6 – Notes to the consolidated financial statements, Note 13 – Financial liabilities.
On July 28 and August 2, 2016 respectively, SCOR completed the calls of the remaining balance of its EUR 350 million and CHF 650 million perpetual subordinated note lines. On May 24, 2016, SCOR successfully placed a dated subordinated notes issue on the Euro market in the amount of EUR 500 million.
On December 2, 2015, SCOR successfully placed a dated subordinated notes issue on the Euro market in the amount of EUR 600 million. On June 2, 2015, SCOR successfully placed a dated subordinated notes issue on the Euro market in the amount of EUR 250 million. SCOR also called the balance of the USD subordinated step-up floating-rate notes due 2029, and of the EUR subordinated step-up floating-rate notes due 2020, on June 25 and July 6, 2015 respectively.
SCOR uses real estate debts and other financial liabilities mainly to finance real estate investments and for general corporate purposes. Operational leverage is subject to asset and liability matching with little to no risk that the assets will be insufficient to service and settle the liabilities. Debt used for operational leverage is treated as operational debt and excluded by the rating agencies from financial leverage calculations. SCOR’s debt positions are non-recourse, the debtors’ claims are limited to assets underlying the financing. As at December 31, 2016, real estate financing and other financial liabilities amounted to EUR 491 million and EUR 10 million, respectively (December 31, 2015: EUR 534 million and EUR 8 million, respectively). This includes the real estate debt of MRM S.A. (company acquired by SCOR on May 25, 2013) in the amount of EUR 75 million (EUR 112 million as at December 31, 2015).
Total investments, including cash and cash equivalents, amounted to EUR 29.8 billion at December 31, 2016 compared to EUR 29.3 billion and EUR 26.1 billion at December 31, 2015 and 2014, respectively.
The Group is regulated by the “Solvency II” European Directive which applies since January 1, 2016. For more details on solvency regulations, see Chapter 1.2.1 – Introduction.
(1) Solvency ratio based on Solvency II requirements. The estimated ratio may differ from the final Group solvency results to be filed with the supervisory authorities by June 2017.
(2) Includes cash and cash equivalents from third parties. See Section 1.3.5.4 – Net investment income and investment income on invested assets.
Positive operating cash flows amounted to EUR 1,354 million in 2016 (EUR 795 million in 2015 and EUR 894 million in 2014). This increase is due to the generation of strong recurring cash flows in 2016 and one exceptional item: SCOR Global P&C received a non-recurring fund withheld settlement of approximately EUR 301 million.
The Group’s liquidity, defined as cash, cash equivalents (2), shortterm government bonds with maturities above three months and below twelve months and bank overdrafts, which is well diversified across a limited number of banks, stands at EUR 2.3 billion at the end of 2016, up from EUR 2.0 billion at the end of 2015 (EUR 0.9 billion at December 31, 2014) supported by very strong operating cash flow generation. The Group has commenced its strategy of redeployment of liquidity as described by the “Vision in Action” asset management policy.
See Section 4.4 – Consolidated statement of cash flows and Section 4.6 – Notes to the consolidated financial statements, Note 4 – Segment information for an analysis of the main cash flow statement items and Note 11 – Cash and cash equivalents, for a reconciliation between consolidated net income and operating cash flows.
The table below presents a detailed calculation of return on investments and return on invested assets: In EUR million As at 12/31/2016 As at 12/31/2015 As at 12/31/2014
(1) Average investments are the quarterly averages of the total investments as per the “Invested assets” reconciliation table included in Section 1.3.5.4 – Net investment income and investment income on invested assets, adjusted for funds withheld.
The table below presents a detailed calculation of the Group cost ratio: In EUR million Year ended 12/31/2016
Effect of changes in foreign exchange rates (3) (90) 261 97
(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 foreign exchange rates movements, and simple weighted average is applied used for the other currencies.
The table below presents a detailed calculation of the life technical margin: In EUR million Year ended 12/31/2016
No material change has occurred in the Group’s financial or commercial situation since the end of the 2016 financial year.
CORpORATE GOVERNANCE AND ExECuTIVE COMpENSATION #2 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 is in compliance with best corporate governance practices in effect in France in light of AMF recommendations.
Denis Kessler joined the Group on November 4, 2002, with the objective of turning the Company around in the face of a very difficult financial situation. The Board of Directors considered that, in order to achieve this, it was preferable to entrust him with the powers of Chairman of the Board of Directors and of Chief Executive Officer. When his term was renewed in May 2011, the Board of Directors considered that Denis Kessler had demonstrated the benefit of combining the offices of Chairman of the Board of Directors and Chief Executive Officer during the turnaround period experienced by SCOR between 2003 and 2007, and then during the economic crisis between 2007 and 2011. The Board of Directors thus felt it was in the best interests of SCOR, its shareholders and all its employees, for Denis Kessler to be re-appointed as Chairman and Chief Executive Officer and to continue the development of the Group. Since 2011, SCOR’s results have demonstrated the success of this form of governance and on September 7, 2016 the Board of Directors announced publicly that it had decided unanimously to propose to the Shareholders’ meeting the extension of Denis Kessler’s director term for a four year duration, in order for him to be re-appointed by the Board as the Group’s Chairman and Chief Executive Officer.
Pursuant to the French Insurance Code, SCOR SE appoints four key function holders.
2.1.1.3. INFORMATION REQuIRED BY ARTICLE L. 225-100-3 OF THE FRENCH COMMERCIAL CODE
The information referred to in Article L. 225-100-3 of the French Commercial Code is made public in the Annual Financial Report which is included in this Registration Document (see Appendix H for the correspondence table to the Annual Financial Report).
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 Company’s shareholders for certain decisions as required by law and by the Company’s bylaws (“statuts”) and pursuant to the Code des assurances which prescribes that the effective management shall be made up of at least two persons.
Under SCOR SE’s bylaws, each director must own at least one ordinary share for the duration of his or her entire term of office and under the Board Internal Charter, each director shall agree to acquire shares with a value of at least EUR 10,000 and to hold them throughout his or her term as Director. Under French law, a director may be an individual or a legal entity for which an individual is appointed as permanent representative, except for the Chairman, who must be an individual. Pursuant to Article L. 225-20 of the French Commercial Code, the permanent representative of a legal entity is subject to the same conditions, obligations and civil and criminal liabilities as if he or she was director in his or her own name, without prejudice to the joint and several liability of the legal entity he or she represents. Of the twelve members of the Board of Directors, eleven are individuals and one, Malakoff Médéric Group, is a legal entity (represented by Guillaume Sarkozy as permanent representative).
The following table displays the changes in the composition of the Board of Directors.
The term of office of the directors appointed or renewed, as set forth in SCOR SE’s bylaws, shall not exceed four years. Under SCOR SE’s bylaws, directors may hold office until the age of 77. A director who reaches the age of 77 while in office has to retire at the expiration of his or her term of office, as determined at the Shareholders’ Meeting. Directors are elected by the shareholders and serve until the expiration of their respective term, or until their resignation, death or removal, with or without cause, by the shareholders. Vacancies on the Board of Directors may, under certain conditions, be filled by the Board of Directors, pending the next Shareholders’ Meeting.
CORpORATE GOVERNANCE AND ExECuTIVE COMpENSATION #2 2.1.2.1. INFORMATION CONCERNING THE MEMBERS OF THE BOARD OF DIRECTORS
Date of first appointment: November 4, 2002 Expiration of term: 2017
French – Age: 64 – SCOR SE 5, avenue Kléber 75016 Paris, France
●● Member of the Supervisory Board of Yam Invest N.V. (Netherlands)
Chairman of the Compensation and Nomination Committee and Crisis Management Committee
Date of first appointment: May 15, 2003 Expiration of term: 2017
MAIN pOSITION ●● Chairman of the Board of Directors of Generali IARD (France)
●● Chairman of the Board of Directors of Generali France Assurances (France)
●● Chairman of the Board of Directors of Europ Assistance Italie (Italy)
Claude Tendil, a French citizen, began his career at the Union des Assurances de Paris (UAP) in 1972. He joined the Drouot Group in 1980 as Chief Operating Officer. He was promoted in 1987 to Chief Executive Officer, before being appointed Chairman and Chief Executive Officer of Présence Assurances, a subsidiary of the AXA Group. In 1989, he was appointed Director and Chief Executive Officer of Axa-Midi Assurances, Chief Executive Officer of AXA from 1991 to 2000, then Vice-Chairman of the management board of the AXA Group until November 2001. During this same period, he was also Chairman and Chief Executive Officer of the AXA Group’s French insurance and assistance companies. Claude Tendil was appointed Chairman and Chief Executive Officer of the Generali Group in France in April 2002 until October 2013, when he became the Chairman of the Board of Directors, holding this position until June 2016.
MAIN pOSITION ●● Investments Accounting Process & Control Manager, SCOR Group Finance Investment
Michèle Aronvald, a French citizen, has 37 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.
MAIN pOSITION ●● Member of the Management Board in charge of the Group finance, strategy, legal affairs, Group company secretary of BPCE Group (France)*
●● Deputy Chief Executive Officer and Permanent representative of BPCE, director of CE Holding Participations (France)
●● Permanent representative of CE Holding Promotion, director of Nexity (France)
●● Permanent representative of BPCE, Chairman of the SAS and Chairman of the Board of Directors of BPCE Domaines (France)
●● Permanent representative of GCE Participations, director of Demain SA (France)
Member of the Strategy Committee, Risk Committee and Compensation and Nomination Committee
French – Age: 60 – COVEA 86 rue Saint-Lazare CS 10020 75320 Paris Cedex 09, France
MAIN pOSITION ●● Chairman and Chief Executive Officer of COVEA (SGAM) (France)
OTHER pOSITIONS ●● Chairman of the Board of Directors and Chief Executive Officer of Garantie Mutuelle des Fonctionnaires (France)
●● Chairman of the Board of Directors of MAAF Assurances SA (France)
●● Chairman of the Board of Directors of MMA IARD (France)
●● Chairman of the Board of Directors of Covéa Coopérations (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 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)
●● Permanent representative of La Sauvegarde on the Board of Directors of AME Réassurance (France)
CORpORATE GOVERNANCE AND ExECuTIVE COMpENSATION Corporate officers, executives and employees < #2 pOSITIONS THAT ExpIRED DuRING THE LAST FIVE YEARS (CONTINuED) ●● Director and Vice-Chairman of Bipemme Assicurazoni S.p.A. (Italy)
●● Chairman of the Board of Directors of Assurances Mutuelles d’Europe (Belgium)
Thierry Derez, a French citizen, was a lawyer registered with the Paris bar, 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.
MAIN pOSITION ●● Partner and managing partner of Simont Braun (Belgium)
Date of first appointment: April 27, 2016 Expiration of term: 2018
Swiss – Age: 57 – ROTHSCHILD BANK AG Zollikerstrasse 181 CH-8008 Zurich, Suisse
MAIN pOSITION ●● Executive Chairman of the “Wealth Management & Trust” of Rothschild & Co Group, function which includes Chairman of the Board of Directors of Rothschild Bank AG (Switzerland)
Bruno Pfister, a Swiss citizen, lawyer at the Geneva Bar and MBA graduate from UCLA Anderson School of Management, was Vice-Chairman of the Swiss Insurance Association, Chairman and Group CEO of Swiss Life AG, member of the Divisional Executive Board of Credit Suisse and Chief Financial Officer and member of the Executive Board of Liechtenstein Global Trust. He is Executive Chairman of the “Wealth Management & Trust” of Rothschild & Co Group function which includes the Presidency of the Board of Directors of Rothschild Bank AG.
CORpORATE GOVERNANCE AND ExECuTIVE COMpENSATION Corporate officers, executives and employees < #2
French – Age: 58 – MACIF 17-21 place Étienne Pernet 75015 Paris, France
●● Member of the Executive Board and Vice-Chairman of Association des Assureurs Mutualiste (AAM) (France)
●● Member of the Board of Directors of Société de Distribution Aéroportuaire (SDA) (France)
●● Chairman of the Board of Directors of Airport Council International (ACI) Europe (Belgium)
●● Director and Vice-Chairman of the Board of Directors of TAV Havalimanlari Holding A.S. (TAV Airports) (Turkey)
pOSITIONS THAT ExpIRED DuRING THE LAST FIVE YEARS ●● Chairman of the Board of Directors of Egis (France)
●● Chairman of the Supervisory Board of Société Nationale Immobilière (France)
●● Chief Executive Officer of Caisse des dépôts et consignations (France)
●● Member of the Supervisory Board of NV Luchthaven Schiphol (Netherlands)
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 Economiste 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.
●● Permanent representative of Malakoff Médéric Assurances on the Board of Directors of La Banque Postale Asset Management (France)
pOSITIONS THAT ExpIRED DuRING THE LAST FIVE YEARS ●● Non-executive General Manager of Malakoff Médéric Group (France)
●● Chairman of the Board of Directors of Quatrem SA (France)
●● Chairman of the Board of Directors of Auxia SA (France)
●● Permanent representative of Malakoff Médéric Prévoyance on the Board of Directors of OPCI Vivaldi (France)
●● Chief Executive Officer of SGAM Malakoff Médéric – LMG (France)
●● Chairman of the Management Board of Malakoff Médéric Assurances SA (France)
●● Chairman of the Board of Directors of Malakoff Médéric Innovation SAS (France)
●● Chairman of the Board of Directors of Holding FGA SAS (France)
●● Member of the Supervisory Board of Holding Fondateurs SAS (France)
●● Member of the Supervisory Board of Holding Accueil Mutuelles SAS (France)
Date of first appointment: April 25, 2013 Expiration of term: 2019
●● Director of Control Risks International Ltd pOSITIONS THAT ExpIRED DuRING THE LAST FIVE YEARS ●● Director of CDC Group Plc (UK)
●● Member of the Board of HMG Ministry of Justice (UK)
●● Member of the Board of the Batten School of Leadership, University of Virginia (US)
CORpORATE GOVERNANCE AND ExECuTIVE COMpENSATION #2 2.1.2.2. FuNCTIONING OF THE BOARD OF DIRECTORS
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.
In accordance with the provisions of the regulation governing the election of an employee candidate for the position of director of SCOR SE adopted by SCOR SE’s Board of Directors on April 3, 2007, the Board of Directors of SCOR SE has an employee director, elected by the Shareholders’ Meeting on the proposal of the Board of Directors following a two-round election by universal suffrage, involving all of the Group’s employees. Once appointed by the Shareholders’ Meeting, the employee director has the same rights and obligations as the other members of the Board of Directors (including the right to vote on any decision of the Board of Directors). It is not a director representing employee within the meaning of French rules which shall not apply to SCOR SE actually because of the non crossing of the thresholds included in these rules. Since April 27, 2016 the position of employee director has been occupied by Michèle Aronvald. Her mandate term is a two year period.
The Board of Directors’ meeting held on March 31, 2004 adopted a Board Internal Charter (the “Board Internal Charter”) in order to enhance or specify the rules governing the Board. This Board Internal Charter was amended by successive decisions of the Board of Directors and the last one dated October 26, 2016. It is available on the website of the Company (www.scor.com). The main provisions of the Board Internal Charter are provided below: Functioning and duties of the Board of Directors of the Company
The Board meets at least four times a year. In accordance with legal provisions, it approves the financial statements, proposes dividends, and makes investment and financial policy decisions. Beyond the cases provided by law, some operations are subject to the prior approval of the Board: any major organic growth investments or internal restructuring operations, any significant operation falling outside of the strategy announced by the Group and any project regarding a sale or acquisition, merger or asset contribution higher than one hundred million euros (EUR 100 million). The Board’s duties and responsibilities are set out in SCOR SE’s bylaws.
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 qualitifed 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.
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, except for those directors whose mandate expires during the shareholders’ general meeting held in 2017 for approving the accounts of the financial year ended in 2016 for whom the loss of independent status occurs on the term of their mandate).
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),
The table below presents the results of the detailed review, criterion by criterion, of the independence of each director carried out by the Board of Directors in 2016, based on the proposal of the Compensation and Nomination Committee, with regard to the criteria stated above: Denis Kessler, Chairman of the Board No No No Yes No Yes Yes Yes No
Michèle Aronvald No No Yes Yes Yes Yes Yes Yes No
Claude Tendil, member of the Board of Directors since 2003, is deemed to be independent according to the Guide d’application du Code AFEP-MEDEF as described in the criterion 7 above.
The Board of Directors, upon the recommendation of the Compensation and Nomination Committee, has also studied the criteria relating to any significant business ties that directors might have with the Company as a customer, supplier, or investment or corporate banker. In particular, it has checked that none of the current directors have business activities with SCOR that generate revenues greater than the threshold indicated in the Board Internal Charter.
Moreover, the three following directors are a shareholder or represent a shareholder of SCOR: ●● Malakoff Médéric Group (3.05% of SCOR’s capital and 3.18% of voting rights as of December 31, 2016), represented by Guillaume Sarkozy; ●● Jean-Marc Raby, Chief Executive Officer of Macif and Sferen (1.49% of SCOR’s capital and 1.55% of its voting rights as of December 31, 2016); ●● Claude Tendil, Chairman of the Board of Directors of Generali IARD, Generali Group (0.69% of SCOR’s capital and 0.72% of its voting rights as of December 31, 2015).
He is also in charge of assisting the Board concerning the smooth operation of the Company’s corporate governance and advising the Board on the operations on which the Board is convened to deliberate. He may include any subject he deems necessary on the agenda of the Board of Director’s meetings.
CORpORATE GOVERNANCE AND ExECuTIVE COMpENSATION Corporate officers, executives and employees < #2 2.1.2.4. MEETINGS OF THE BOARD OF DIRECTORS
During its meetings in 2016, the main topics which were discussed were: ●● financial and compliance matters: approval of the quarterly, half-year and annual financial statements, approval of the half-year interim report, hybrid debt issuance, 2016 budget and operating plan, 2015 embedded value, review of the 2015 Registration Document and approval of the report of the Chairman of the Board, annual review of the Group Policies; ●● risk matters: quarterly review of the risk dashboard, approval of the regulatory reports (solvency report and internal control report), implementation of Solvency II, review of the follow-up letters (“lettres de suite”) received from the ACPR, review of
(1) The attendance rate does not take into account the directors whose term ended on April April 27, 2016.
Fields Wicker-Miurin, a member of the Compensation and Nomination Committee, managed this assessment by sending a questionnaire to the directors and by leading in-depth individual interviews with them. The questionnaire was about the composition of the Board, its organization, its functioning and the functioning and composition of its Committees. All the directors completed this questionnaire. Fields Wicker-Miurin
CORpORATE GOVERNANCE AND ExECuTIVE COMpENSATION #2 presented her report during the meetings of the Compensation and Nomination Committee and of the Board of Directors held on February 21, 2017.
The directors expressed their satisfaction on the organization, functioning and composition of the Board and its Committees. The grades are at a very high level and are globally on the rise compared to last year. Directors praised the governance quality, in particular regarding the compliance with the AFEP-MEDEF code, the diversity of compentencies and the balance of directors’ profiles; all made easy thanks to a suitable selection process of the newcomers, the appropriate role repartition between the Board and the management and the efficient communication between the Chairman and the directors outside the Board’s meetings. They also highlighted the quality of the Strategy Committee’s offsite seminar, as well as the inputs of the Committee’s preparatory work in the Board’s decision making process.
The board also discussed the main areas of improvements identified by the directors, in particular regarding the follow-up process of the Strategic plan implementation or the inclusion of topics specific to the reinsurance business to the Board’s agenda.
2.1.2.6. NEGATIVE DISCLOSuRES ABOuT MEMBERS OF THE BOARD OF DIRECTORS AND THE ExECuTIVE COMMITTEE
No loans or guarantees have been granted or established in favor of the directors by SCOR or by any other Group company.
To our knowledge, there are no conflicts of interest between the duties of the directors and members of the Executive Committee with regard to SCOR and their private interests.
2.1.2.8. INFORMATION ON SERVICE CONTRACTS OF MEMBERS OF THE BOARD OF DIRECTORS AND THE ExECuTIVE COMMITTEE
SCOR’s Board of Directors has established five Committees in order to examine specific topics, to prepare the Board’s proceedings and to make recommendations to it.
The Strategy Committee is composed of Denis Kessler (Chairman), Marguerite Bérard-Andrieu, Thierry Derez, Vanessa Marquette, Bruno Pfister, Jean-Marc Raby, Augustin de Romanet, Guillaume Sarkozy (as representative of Malakoff Médéric Group), Kory Sorenson, Claude Tendil and Fields Wicker-Miurin.
The Strategy Committee met on three occasions in 2016, each meeting lasting approximately two hours. The members of the Strategy Committee also met during a day-long seminar of the Strategy Committee.
The average attendance rate of the Committee members was 93.9% (1). The following table states the attendance rates of the members of the Strategy Committee in 2016: Committee members Attendance rate (in %)
The Audit Committee is composed of Kory Sorenson (Chairman), Marguerite Bérard-Andrieu, Vanessa Marquette, Bruno Pfister and Fields Wicker-Miurin. Each of its members is independent.
Due to the experience and positions held by its members during their career, the Committee has a high level of financial expertise.
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 average attendance rate of the Committee members was 90% (1). The following chart states the attendance of the Audit Committee’s members in 2016: Committee members Attendance rate (in %)
Fields Wicker-Miurin 100 * Member of the Audit Committee until April 27, 2016. ** Member of the Audit Committee from April 27, 2016.
The Risk Committee is composed of Bruno Pfister (Chairman), Thierry Derez, Vanessa Marquette, Kory Sorenson, Claude Tendil and Fields Wicker-Miurin. Each of its members is independent except for Thierry Derez.
The Risk Committee met four times in 2016, each meeting lasting approximately two to three hours.
The Committee discussed the following matters: main exposures and main risks of the Group, the Group’s risk appetite, the capital shield policy and its effectiveness, the Solvency II project, the review of the follow-up letters (“lettres de suite”) received from the ACPR, the review of the 2016 solvency report and internal control report, the review of the Group Policies required by Solvency II, the 2016 internal model results, the review of the 2016 ORSA report, the cyber risks and the changes in prudential regulations.
Fields Wicker-Miurin 100 * Member of the Risk Committee from April 27, 2016. ** Member of the Risk Committee until April 27, 2016.
Except the employee director and Thierry Derez, each of its members is independent.
The Committee discussed the following matters: ●● compensation matters: Update of the Group compensation policy, share and stock option allocation plans, Compensation of the Chairman and Chief Executive Officer and of the other members of the Executive Committee, review of the “say on pay”, HR review and outlook, review of the succession plan of the key executives of the Group, review of the rules for granting directors’ fees; ●● governance matters: Renewal of the Board of Directors of SCOR SE, process for the selection of new directors, review of the independence, fitness and properness of the directors, assessment of the Board and its Committees and follow-up, review of the cost of the governance within the Group in 2015, renewal of the D&O program, review of the Board Internal Charter, review of the fit and proper policy, review of professional gender equality and equal pay.
Fields Wicker-Miurin 100 * Member of the Compensation and Nomination Committee from April 27, 2016. ** Member of the Compensation and Nomination Committee until April 27, 2016. *** Member of the Compensation and Nomination Committee from October 26, 2016.
This session met once in 2016, under the chairmanship of the Lead Independent Director. On this occasion, non-executive directors have been informed of the discussions within the Compensation and Nomination Committee related to the performances of the Chairman and Chief Executive Officer, on its remuneration for 2015 and on the principles determining its remunerations for 2016. Non-executive directors have also discussed the possible follow-up actions to the annual Board evaluation, in particular concerning the volume reduction of the documents presented to the Board and the duration of the Strategy Committee meetings, considered too short.
Pursuant to Article L. 322-3-2 of the French Insurance Code, insurance and reinsurance companies must apply, since January 1, 2016, the “Four Eyes Principle”, which specifies that they must be effectively run by at least two separate persons. The persons effectively running SCOR SE and the Group were designated by SCOR SE’s Board of Directors on November 3, 2015. In addition to Denis Kessler, Chairman and Chief Executive Officer of SCOR SE, they include Victor Peignet, Chief Executive Officer of SCOR Global P&C, and Paolo De Martin, Chief Executive Officer of SCOR Global Life.
See Section 2.1.2.1 – Information concerning the members of the Board of Directors.
CORpORATE GOVERNANCE AND ExECuTIVE COMpENSATION Corporate officers, executives and employees < #2 department and developed its “Global Marine” department. In September 2002, Benjamin Gentsch was appointed Chief Executive Officer of Converium Zürich, then Executive VicePresident in charge of Specialty Treaties. In September 2007, he was appointed Chief Executive Officer of SCOR Switzerland and Deputy Chief Executive Officer of SCOR Global P&C. In March 2016, he was appointed non executive director of Intercona Re.
Simon Pearson, a British citizen, is a Fellow of the Institute of Actuaries. After graduating in 1987 with an Honors degree in Economics from the University of York, Simon started his actuarial career with a mid-sized UK mutual life insurer, NPI. Qualifying as an actuary in 1992, Simon held a number of actuarial management positions covering pricing and product development, reserving, embedded value and financial reporting. Simon joined the UK life subsidiary of Gerling Global Re in 1999, becoming the Appointed Actuary in 2001. At the beginning of 2004, Simon became the Chief Executive Officer of the UK subsidiary of the newly established Revios. Upon the integration of Revios into SCOR, he became a member of the SCOR Global Life senior management team at the end of 2006. In 2008, Simon was promoted to manage SGL’s Northern Europe region covering the UK, Ireland and Scandinavia. In August 2011, Simon was appointed SGL Head of EMEAA covering Europe, the Middle East, Africa and Asia-Pacific. In November 2014, he was appointed Deputy Chief Executive Officer of SCOR Global Life and Chief Executive Officer of SCOR Global Life Europe, Middle East & Africa (EMEA).
(5) The Singapore Hub covers China, Hong Kong, India, Japan, Korea, Malaysia, Singapore, Taiwan and Australia. (6) SCOR Global Life SE controls 100% of the capital of ReMark. Due to its specific activity, its own business model and its own organization, ReMark is managed independently from the Group in terms of human resources.
(8) Starting from 2014, the former Transamerica Re employees are included in the divisions according to the global organization of the Group. From 2013 to 2016, Rehalto (32 employees at December 31, 2016) and Telemed (27 employees at December 31, 2016), are fully-controlled subsidiaries of SCOR Global Life SE, managed independently from the Group in terms of human resources and are not aggregated financially (and then socially) in the division.
The compensation structure of the Chairman and Chief Executive Officer is as follows: ●● a fixed gross annual sum of EUR 1,200,000, payable in twelve monthly instalments. The fixed compensation of the Chairman and Chief Executive Officer has not changed since January 1, 2008; and
All the characteristics of the compensation structure of the Chairman and Chief Executive Officer is described in detail within the Say on Pay table of Section 2.2.1.2 – Compensation of the Chairman and Chief Executive Officer for the financial year ended December 31, 2016.
The Chairman and Chief Executive Officer, on the proposal of the Compensation and Nomination Committee and validation of the Board of Directors, is eligible, on an annual basis, to stock option and performance share plans.
Reminder of the specific award conditions applicable to the executive corporate officer in respect of legal requirements and the AFEP-MEDEF principles: The executive corporate officer is required to hold on the market a number of shares of the shares freely assigned to him for the whole duration of his term of office.
Therefore, the Board of Directors’ meeting of April 3, 2007 decided that for all the allocations after that date, the executive corporate officer is required to hold as registered shares at least 10% of the shares resulting from the exercise of stock options granted and at least 10% of the performance and free shares granted until the termination of his duties.
The stock options and performance shares granted to the Chairman and Chief Executive Officer cannot exceed either 10% of the share capital or 10% of the total allocations.
For 2016, the Board of Directors has validated an allocation of 125,000 free performance shares, 75,000 free performance shares in the LTIP Plan and 25,000 stock options. The conditions of these allocations are detailed in the Say on Pay table in Section 2.2.1.2 – Compensation of the Chairman and Chief Executive Officer for the financial year ended December 31, 2016.
Like all the Group’s senior executives working in France and employed by the Group as at June 30, 2008, the Chairman and Chief Executive Officer is entitled to a supplementary pension plan.
The conditions of these benefits are described within the Say on Pay table in Section 2.2.1.2 – Compensation of the Chairman and Chief Executive Officer for the financial year ended December 31, 2016.
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 2016, 2015 and 2014: In EUR
Executive is aligned with market practice. More specifically, the Chairman and Corporate Executive Officer’s 2015 compensation is below the 3rd quartile (among a list of peers including the main global reinsurers according to the revenues criterion and for whom executives’ compensation information are 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).
Compensation elements due or attributed for the financial year ended 12/31/2016
EUR 1,200,000 Following the recommendation of the Compensation and Nomination Committee on its meetings of February 9, 2016 and February 22, 2016, the Board of Directors on February 23, 2016 decided that the Chairman and Chief Executive Officer will receive a fixed gross annual sum of EUR 1,200,000, payable in twelve monthly instalments. The fixed compensation of the Chairman and Chief Executive Officer has not changed since January 1, 2008.
●● 50% on the basis of the achievement of personal objectives, defined 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 will increase the variable annual compensation of the Chairman and Chief Executive Officer to a ceiling of 140% of his variable annual target compensation.
The variable compensation for any given year is paid in year y+1, as soon as the financial statements of the Company for such given year are approved by the Board of Directors.
The new strategic plan “Vision in Action” was very well received by the market when it was presented in September 2016, its first objectives have been achieved, and the share price has been experiencing a significant increase since the announcement
Strategy Continued balancing of geographical mix by reinforcing the weight of Asia and of the US in SCOR’s total volume of premiums at constant exchange rates (52.6% in 2015)
The respective weight of Asia and of the United States in the total volume of SCOR premiums at constant exchange rates has risen to 53.6% in 2016 (from 52.6% in 2015)
Strategy Implementation of the Lloyd’s syndicate (Channel) strategic plan in accordance with the forecasted underwritten premiums
84% of employees underwent training in 2016, and five employees were promoted to EGP and SGP level in 2016 vs. just one external recruitment
Stock option and free share allocation plans or other long-term compensation
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 be acquired according to the progressive scale set out in the table below: Ratio between the observed average ROE and the Target ROE
The other half of options will be acquired after the expiration of an acquisition period set at 4 years, i.e. on March 11, 2020, provided: (1) that the conditions set out in the enclosed Plan of March 10, 2016 are fulfilled and in particular that quality of Chairman and Chief Executive Officer of the SCOR Group remains until March 10, 2020 inclusive, except as otherwise provided by the Plan; (2) that you respect the Group’s ethical principles as described in its Code of Conduct; 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 2 years (from January 1, 2016 to December 31, 2017) is at least equal to the average of the SCOR Solvency strategic target over the period (the “Target Solvency Ratio”).
The Compensation and Nomination Committee will determine the level of achievement of the performance conditions.
These performance shares are fully subject to the same performance conditions as those for the stock options. Nevertheless, the period on which the evaluation of the performance conditions is based varies between performance shares (3 years-vesting period) and the LTIP performance shares (6 years-vesting period). For the latter, this grant allows for a projection beyond the planned term of office of the Chairman and Chief Executive Officer, constituting a very long-term incentive.
Directors’ fees EUR 55,000 In 2016, 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 2016, he attended 5 Board meetings, 3 Strategy Committee meetings and 1 seminar of the Strategy Committee, leading to a variable portion of EUR 27,000.
Moreover, the Chairman and Chief Executive Officer benefits from a death or permanent disability insurance in case of an accident, also underwritten for the senior executives of the Company, on January 1, 2006. It is specified that this collective insurance is renewed or renegotiated on an annual basis so that the Chairman and Chief Executive Officer will benefit from any policies that may replace the existing one.
(A) SCOR financial strength by S&P rating must be maintained (minimum) “A” on average over the two prior years; (B) SCOR Global P&C’s net combined ratio must be less than or equal to 102% on average over the two prior years; (C) SCOR Global Life’s technical margin must be higher than or equal to 3% on average over the two prior years; (D) The SCOR Group’s ROE must be higher than (or equal to) 300 basis points above the risk-free rate on average over the two prior years.
No amount is payable in respect of the year ended 12/31/2016
The Ordinary and Extraordinary Shareholders’ Meeting of May 3, 2012, in its fifth resolution, approved, in accordance with the provisions of Article L. 225-42-1 of the French Commercial Code, the following commitments made by the Board of Directors in favor of the Chairman and Chief Executive Officer: Like all the Group’s senior executives based in France and employed by the Group as at June 30, 2008, the Chairman and Chief Executive Officer is entitled to a guaranteed pension plan of 50% of his benchmark compensation, less any pension benefits acquired under other collective and mandatory pension schemes. Moreover, this amount may under no circumstances exceed 45% of the benchmark compensation, pursuant to the AFEP-MEDEF corporate governance code. It should be noted that, given his seniority within the Company, the Chairman and Chief Executive Officer reached the ceiling of 45% set by the plan. In this context, the legal provision which limits the annual increase in potential rights to 3% of the compensation of the beneficiary is not applicable to him.
No retirement benefit (or commitment) has been paid to the Chairman and Chief Executive Officer.
The total pension benefits provision relating to the Chairman and CEO amounts to EUR 22 million based on his reference compensation. The provision has decreased by EUR 1.5 million from December 31, 2015.
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 vested during the financial year.
Number of shares becoming available during the period Date of plan Vesting conditions
Each of the performance conditions set out below has been fully met, bringing the share acquisition rate to 100%. In addition to the performance conditions described below, the absolute appliance of Group’s ethical principles as described in the Code of Conduct of SCOR Group was required.
SCOR financial strength by S&P rating minimum “A” in 2012 and 2013 A+ Yes
SCOR Global P&C’s combined ratio ≤ 102% on average in 2012 and 2013 94% Yes
SCOR Global Life’s technical margin ≥ 3% on average in 2012 and 2013 7.5% Yes
CORpORATE GOVERNANCE AND ExECuTIVE COMpENSATION #2 2.2.1.3. DIRECTORS’ FEES AND NuMBER OF SHARES HELD BY DIRECTORS
Fees paid to directors in 2016 and 2015 are broken down as follows: In EUR 2016 2015
Article 10 (“Administration”) of SCOR SE’s bylaws requires that directors own at least one share of the Company during the term of their directorship.
The table below presents the acquisitions, sales, subscriptions or exchanges of SCOR SE shares as well as transactions involving securities linked to SCOR SE carried out by directors and the executive corporate officer in 2016.
Mr. Bruno Pfister Acquisition of shares for a total amount of EUR 10,000
Mr. Jean-Marc Raby Acquisition of shares for a total amount of EUR 10,000
In the event of a change in control of the Group, if a member of the Executive Committee is dismissed (except for serious or gross misconduct) or if he decides to resign within a twelve-month period, he will benefit from (i) a cash payment equal to the amount of fixed and variable compensation paid to him by the
Executive Committee members that are not employed in France benefit from the collective pension schemes in place in their entity and do not have any specific plan except for members with Swiss contracts who benefit from a specific guaranteed pension plan similar to the one granted to the Executive Committee members employed in France and hired before June 30, 2008.
For COMEX members under French Contracts and hired before June 30, 2008 or under Swiss contracts, the amount of the additional pension guaranteed by the Group varies from 5% to 50% (with a maximum growth of 5% per year) of the average compensation over the last five years, depending on seniority acquired in the Group at retirement. The additional pension guaranteed by the Group is calculated after deductions of the pensions paid out through the compulsory schemes and thus shall in no case exceed 45% of the benchmark compensation.
Gross compensation of the Executive Committee members excluding the executive corporate officer (1) 9,787,318 9,587,353 9,439,199 8,804,605 7,577,305 6,600,867
(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. Moreover, the compensation of Executive Committee members disclosed for 2014 did not include the compensation of Philippe Trainar and Gilles Meyer, who left the Executive Committee during 2014.
The table below presents the stock option plans granted to the Executive Committee and the executive corporate officer as at December 31, 2016: Number of shares underlying granted
(1) The options exercised were in the context of a full donation. The shares have not been sold by the executive corporate officer.
Stock options granted to the top ten non-officer employees and exercised by them
(3) This collective free share plan is for employees of the Company that are residents in France, under the collective agreement signed on July 3, 2014 as part of the negotiations with the social partners of France, concerning the profit-sharing arrangement established by the July 28, 2011 amending social security finance act for 2011. This plan provides for an identical allocation of five free shares without a presence condition or a performance condition.
The potential volume of new shares from outstanding share-based compensation plans stood at 7,915,286 shares as of December 31, 2016, broken down as follows: Potential volume of new shares from outstanding share-based compensation plans linked to Group executive and employee compensation instruments 7,915,286
●● of which number of potential new shares from outstanding free share plans (free shares allocated but not vested) (1) -
(1) The free share allocation plans currently in force only allocate outstanding shares. (2) Authorization granted by the Shareholders’ Meeting of April 27, 2016 in its 19th 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
●● of which number of potential new shares from outstanding options 6,416,036
●● of which potential shares from other securities convertible or redeemable into new shares (2) (3) 44,588,510
(1) The free share allocation plans currently in force only allocate outstanding shares. (2) 25,390,466 shares underlying the warrants issued on December 20, 2013 to UBS under the contingent capital facility with an exercise period expiring on April 28, 2017.
If, despite the absence of the dilutive effect mentioned above, free shares were taken into account in the calculation of the potential volume of new shares from outstanding share-based compensation plans, the fully diluted share capital would stand at 253,953,580 at December 31, 2016.
Thus, as at December 31, 2016, the potential volume of new shares from outstanding share-based compensation plans linked to Group executive and employee compensation instruments stands at 3.25% of the fully diluted share capital.
Pursuant to provisions of Article L. 225-184 of the French Commercial Code, information provided in this section constitutes the special report of the Board of Directors on the allocation of share subscription options in order to inform the General Meeting of transactions completed under the provisions of Articles L. 225-177 to L. 225-186-1 of the same code.
Moreover, it should be noted that SCOR is committed to the neutral impact of each stock option allocation in terms of dilution. To achieve this, SCOR’s policy is to systematically neutralize, insofar as possible, the potential dilutive impact that could result from the issuance of new ordinary shares following the exercise of stock options, by covering the exposure resulting from the issuance of stock options through the purchase of ordinary shares under its share buyback program, and by cancelling the treasury shares thus acquired as the options are exercised. Thus, there is no dilution of capital with regard to the granting of stock options.
The Company’s Board of Directors’ meeting of February 23, 2016, on the proposal of the Compensation and Nomination Committee meetings of February 9, 2016 and February 22, 2016, decided to allocate 25,000 stock options to the Chairman and Chief Executive Officer and 340,000 stock options to the other members of the Executive Committee on March 10, 2016.
The level of these performance conditions will be assessed and validated annually by the Compensation and Nomination Committee.
Following the authorization by the Shareholders’ Meeting on April 27, 2016, the Company’s Board of Directors’ meeting of October 26, 2016, on the proposal of the Compensation and Nomination Committee meeting of October 26, 2016, decided to allocate, on December 1, 2016 a specific plan to Senior Global Partners hired after February 23, 2016.
The final vesting of half of the options granted is subject to the fulfilment of the following conditions: (1) that the conditions set out in the Plan of December 1, 2016 are fulfilled and in particular that the beneficiary remains employee or Corporate Officer of the SCOR Group until December 1, 2020 inclusive, except as otherwise provided 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 3 years (from January 1, 2016 to December 31, 2018) is equal to the average SCOR ROE strategic target (the “Target ROE”) over the period.
Between 0 and up to -35 percentage points Linear degressive scale
The table below presents the total number of stock options allocated in 2015 and 2016 by category within the Group: Total number of stock options allocated in 2016
Achievement of the performance conditions of the stock options plans vested in 2016
Pursuant to provisions of Article L. 225-197-4 of the French Commercial Code, information provided in this section constitutes the special report of the Board of Directors on the allocation of existing free shares in order to inform the General Meeting of transactions completed under the provisions of Articles L. 225-197-1 to L. 225-197-6 of the same code.
On December 18, 2015, in its first resolution and on the proposal of the Compensation and Nomination Committee, the Extraordinary Shareholders’ Meeting of the Company, authorized the Company’s Board of Directors, under the provisions of Articles L. 225-197-1 to L. 225-197-6 of the French Commercial Code, to grant, on one or more occasions, to employees of the Company and of companies or groups affiliated to it pursuant to Article L. 225-197-2 of the French Commercial Code, as well as to corporate officers, as referred to in Article L. 225-197-1-II of the French Commercial Code, excluding the Chairman and Chief Executive Officer for any free share allocations approved under this resolution in 2015, free allocations of existing Company shares. The Extraordinary Shareholders’ Meeting resolved that the Company’s Board of Directors would identify the beneficiaries of such share allocations, and define the associated conditions and criteria.
This authorization was given for a period of twenty-four months from December 18, 2015, the date of the Shareholders’ Meeting, and canceled and completely replaced the previous authorization of April 30, 2015, in order to give French tax resident employees the opportunity to take advantage of the “Macron Law” benefits.
On April 27, 2016, the Shareholders’ Meeting of the Company, in its twenty-fifth resolution, authorized the Company’s Board of Directors, under the provisions of Articles L. 225-197-1 to L. 225-197-6 of the French Commercial Code, to grant, upon a proposal of the Compensation and Nomination Committee, on one or more occasions, to employees of the Company and of companies or groups affiliated with it pursuant to Article L. 225-197-2 of the French Commercial Code, as well as the executive corporate officer, free allocations of existing or yet-to-be-issued shares of the Company and resolved that the Company’s Board of Directors would determine the identity of the beneficiaries of the allocation and the conditions and criteria for the allocation of the shares.
The Ordinary and Extraordinary Shareholders’ Meeting also decided that (i) the total number of free shares granted under this authorization may not exceed 3,000,000 shares, (ii) the allocation of shares to their beneficiaries will be definitive only after a vesting period of a minimum set at three years (iii) the beneficiaries will no longer be subject to an obligation to hold the shares, that the Shareholder’s meeting decided to delete.
Following the authorization given by the Extraordinary Shareholders’ Meeting on December 18, 2015, the Company’s Board of Directors’ meeting of February 23, 2016, on the proposal of the Compensation and Nomination Committee meetings of February 9, 2016 and February 22, 2016, decided to grant performance shares to the Chairman and Chief Executive Officer, to the French tax resident members of the Executive Committee, and to the other French tax resident Partners.
In agreement with the Board of Directors, the Chairman and Chief Executive Officer has granted, under a non-qualified plan, on February 23, 2016, 240,000 performance shares to the non-French tax residents members of the Executive Committee, and 754,328 performance shares to the other non-French tax resident Partners of the Group and to Specific Non Partners (503 beneficiaries).
Refer to the Section 2.2.3.1 of the present Reference Document for the details of the performance shares granted to the members of the Executive Committee.
Partners and Senior Global Partners and half of the allocations awarded to the other Partners (below Senior Global Partners), are subject to the satisfaction of performance conditions.
The final vesting of half of the shares granted to Executive Global Partners or Senior Global Partners and half of 50% of the shares granted for other Partners (below Senior Global Partners) is now subject to the fulfilment of the following conditions: (1) that the conditions set out in the Plan of February 23, 2016 are fulfilled and in particular that the beneficiary remains employee or Corporate Officer of the SCOR Group until February 23, 2019 inclusive, except as otherwise provided 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 three years (from January 1, 2016 to December 31, 2018) is equal to the average SCOR ROE strategic target (the “Target ROE”) over the same period.
Aside from the mandatory conditions (1) and (2), if the observed average ROE (condition (3)) is lower or higher than the Target ROE, the shares will vest according to the progressive scale set out in the table below: Ratio between the observed average ROE and the Target ROE Proportion of the shares finally vested via this criterion
(1) If the strategic plan sets a target or “optimal” interval, the measurement below this interval is considered for calculation purposes as being the Target Solvency Ratio.
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 progressive 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
Following the authorization given by the Extraordinary Shareholders’ Meeting on April 27, 2016, the Company’s Board of Directors’ meeting of October 26, 2016, on the proposal of the Compensation and Nomination Committee meeting of October 26, 2016, decided to grant on December 1, 2016 performance shares to certain French tax resident Partners hired after February 23, 2016, included employees of Designate partner status with promises at hiring.
The Chairman and Chief Executive Officer, under the authority given by the Board of Directors’ meeting held on October 26, 2016 for the implementation of this plan, allocated on December 1, 2016, 10,700 performance shares to 9 French tax resident Partners.
Members of the Executive Committee 40,000 1 340,000 7 40,000 1 380,000 8
Achievement of the performance conditions of the free shares plans vested in 2016
In 2016, the Compensation and Nomination Committee acknowledged the validation of all the performance conditions attached to the 2014 performance share plans as defined in the 2014 Registration Document, bringing the share acquisition rate to 100%.
In addition of the performance conditions described below, the absolute appliance of Group’s ethical principles as described in the Code of Conduct of SCOR Group is required.
Solvency ratio at the end of each quarter ≥ 150% in 2014 and 2015 Ratio above 185% each quarter
The plans in which shares have finally vested and for which the holding period ended on December 31, 2015, are not presented below.
For a list of the stock options plans currently in force within the Group see Appendix C – 5. Notes to the corporate financial statements, Note 12 – Stock options.
CORpORATE GOVERNANCE AND ExECuTIVE COMpENSATION #2 2.3. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
As of December 31, 2016, SCOR’s shareholders are mainly institutional as they represent 82% of SCOR’s share capital. Institutional shareholders come mainly from Europe (64%), the United States (31%) and Asia (4%). The rest of the share capital is split between treasury shares (4%), employees (4%), retail (3%), brokerage (3%) and others (4%).
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 12/31/2016 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. (3) BlackRock Inc’s aggregated number of shares, including BlackRock Institutional Trust Company, amounted to 10,545,559 representing 5.48%
(3) BlackRock Inc’s aggregated number of shares, including BlackRock Institutional Trust Company, amounted to 9,772,590 representing 5.07% of the capital and 5.25% of the voting rights.
(4) Employee shares carrying voting rights, excluding sold or transferred employee shares. (5) This shareholding notably includes performance shares granted in accordance with the authorizations of the SCOR SE Shareholders’ Meeting, prior to the publication of Law No. 2015-990 of August 6, 2015 and held as registered shares by employees as at December 31, 2015. Employee shareholdings, as defined in Article L. 225-102 of the French Commercial Code, amount to 0.34% of the capital and 0.35% of voting rights.
Distribution of capital (number of shares, % of capital and voting rights) – (i) shareholders with more than 2.5% of the registered capital and/or voting rights and (ii) shareholders who are members of the Board of Directors (on the basis of a study of identifiable share bearers (“Titres aux Porteurs Identifiables” – “TPI”) conducted by the Company as at December 10, 2014; there has been no significant change in the distribution of capital between December 10, 2014 and December 31, 2014): As at 12/31/2014 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. (3) Including sold or transferred employee shares.
The results of the TPI study conducted as at December 31, 2016 are presented in the following table: TPI Date December 2013 December 2014 December 2015 December 2016
SCOR discloses below the threshold declarations sent by the significant shareholders in 2016. SCOR is not responsible for ensuring the completeness of these declarations.
On April 11, 2016, Sompo Japan Nipponkoa Holdings, Inc. declared that it had sold its entire interest in SCOR SE.
2.3.1.2. STATEMENT AS TO THE ABSENCE OF DIFFERENCES BETWEEN THE VOTING RIGHTS OF VARIOuS SHAREHOLDERS
Until January 3, 2009, pursuant to Article 8 of the bylaws (“Rights attached to each share”), for two years after the Company’s reverse stock split, as decided by the Company’s Ordinary and Extraordinary Shareholders’ Meeting on May 16, 2006 in its seventeenth resolution, each share with a par value of EUR 0.78769723 entitled the holder to one vote and each share with a par value of EUR 7.8769723 entitled the holder to ten votes, so that the number of votes attached to the shares remained proportional to the percentage of share capital they represented.
According to the decision of the Shareholders’ Meeting of the Company on April 27, 2016, in its 19th resolution, the Board of Directors of the Company decided on April 27, 2016, to carry out a share capital reduction of EUR 5,298,350.89 by the cancellation of 672,638 treasury shares to reduce the share capital from EUR 1,517,523 092.82 to EUR 1,512,224,741.93, divided into 191,980,457 ordinary shares. The reason for the capital reduction was to avoid any dilutive effect of the exercise of stock options on the share capital.
According to the decisions of the Extraordinary Shareholders’ Meetings of the Company on April 27, 2016, in its 17th resolution, and of the Board of Directors of SCOR SE on October 26, 2016, 9,599,022 warrants (“Warrants”) were issued on December 16, 2016. The features of these Warrants are specified in the paragraph – Amount of convertible securities, exchangeable securities or securities with subscription warrants – below.
According to the decisions of the Extraordinary Shareholders’ Meetings of the Company (i) May 16, 2006 in its fifth resolution, (ii) May 24, 2007 in its 21st resolution, (iii) May 7, 2008 in its 19th resolution, (iv) April 15, 2009 in its 22nd resolution, (v) April 28, 2010 in its 19th resolution and (vi) May 4, 2011 in its 28th resolution to authorize the Board to grant to executives and employees options to subscribe for or purchase shares and to acknowledge, if necessary, at its first meeting following the year end of the Company, the number and amount of new shares issued during that period following the exercise of options, the Board of Directors of SCOR SE acknowledged, on February 21, 2017, the capital increase of EUR 4,364,724.88 by the creation of 554,112 shares with a par value of EUR 7.8769723 each.
Due to the exercise of 187,849 stock options since December 31, 2016, at the date of the Registration Document, the registered share capital of SCOR SE is EUR 1,518,069,148.17 divided into 192,722,418 shares with a par value of EUR 7.8769723 each.
See Section 4.6 – Notes to the consolidated financial statements, Note 23 – Commitments received and given.
See Section – Amount of convertible securities, exchangeable securities or securities with subscription warrants for a description of the warrants issued on December 20, 2013.
Delegations of authority granted by the Extraordinary Shareholders’ Meeting of April 27, 2016
Except for the delegation granted pursuant to the 17th and 21th resolution, which is granted for an 18-month period, the delegations of authority granted by the Shareholders’ Meeting of April 27, 2016 are each granted for a 26-month period as from the date of the Shareholders’ Meeting, i.e. until June 26, 2018, when they will be deemed to have expired if the Board of Directors has not used them.
Except for the authorization granted pursuant to the 16nd resolution, which is granted for a 26-month period, the authorizations granted by the Shareholders’ Meeting of April 27, 2016 are each granted for a 24-month period as from the date of the Shareholders’ Meeting, i.e. until April 26, 2018, when they will be deemed to have expired if the Board of Directors has not used them.
The total number of shares authorized at the date of the Registration Document, including the shares that could be issued in connection with the implementation of (i) stock option plans, (ii) securities granting access to the capital and (iii) the current delegations and authorizations is 107,018,217.
On December 31, 2016, SCOR held 7,679,482 shares compared with 6,661,000 shares at December 31, 2015. The par value of these treasury shares is EUR 60,491,066.99 and their book value is EUR 223,310,647. The average purchase price was EUR 29.92. The average sale price was EUR 29.482. The amount of fees was EUR 106,526.40.
Amount of convertible securities, exchangeable securities or securities with subscription warrants
●● Appendix C – 5 – Notes to the corporate financial statements, Note 5 – Shareholders’ equity.
See: ●● Section 2.2.3 – Stock options and performance shares; ●● Section 2.3.1.5 – Share capital; ●● Section 4.6 – Notes to the consolidated financial statements, Note 14 – Provisions for employee benefits; ●● Section 4.6 – Notes to the consolidated financial statements, Note 16 – Stock options and share allocations; and
CORpORATE GOVERNANCE AND ExECuTIVE COMpENSATION #2 2.3.2. RELATED pARTY TRANSACTIONS AND AGREEMENTS
In accordance with Article L. 225-102-1 of the French Commercial Code, during the year 2016 there have been no agreements concluded directly or through a third party between, on the one hand, the Chief Executive Officer, one of the directors or one of the shareholders holding a fraction of the voting rights greater than 10%, of SCOR SE and, on the other hand, SCOR SE or another company in which SCOR SE owns directly or through a third party more than half of the capital or, with executives and directors in common with SCOR SE, unless such agreements are 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).
In addition, we are required, where applicable, to inform you in accordance with Article R. 225-31 of the French Commercial Code (Code de commerce) concerning the implementation during the year of the agreements and commitments already approved by the General Meeting of shareholders.
We performed those procedures which we considered necessary to comply with professional guidance issued by the national auditing body (Compagnie Nationale des Commissaires aux Comptes) relating to this type of engagement. These procedures consisted in verifying that the information provided to us is consistent with the documentation from which it has been extracted.
Agreements and commitments already approved by the General Meeting of shareholders
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 Compensations and Nominations 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 fifth resolution adopted at the Mixed Shareholders’ Meeting of May 3, 2012, and are described in Appendix A – Report of the Chairman of the Board of Directors on the conditions for preparing and organizing the work of the Board of Directors and on internal control and risk management procedures in accordance with article L. 225-37 of the French commercial code (Code de commerce).
Pursuant to a decision dated July 26, 2012, taken in accordance with article L. 225-42-1 of the French commercial code (Code de commerce) and with the provisions of article L. 225-40 of the French commercial code (Code de commerce), the Board of Directors of the Company has authorized, based on the recommendations of the Compensations and Nominations Committee of July 25, 2012, and in accordance with the decision of the Board of Directors dated May 3, 2012 and the subsequent commitments made by the Chairman and Chief Executive Officer during the Mixed Shareholders’ Meeting of May 3, 2012, the adoption of an amendment to the regulated agreement relating to the commitments made for the benefit of the Chairman and Chief Executive Officer, the terms of which are outlined below, with respect notably to the compensation elements taken into account for the indemnity to be granted to Mr Denis Kessler in case of his forced departure from the SCOR Group, as well as the performance conditions which this indemnity is subject to.
Mr. Denis Kessler, as Chairman and Chief Executive Officer of your Company.
Amendment to the additional pension plan subject to article 39 of the French tax code (Code général des impôts).
At its meeting of March 18, 2008, the Board of Directors of the Company authorized pursuant to article L. 225-38 of the French commercial code (Code de commerce), the execution of an additional pension plan, which was ultimately executed on May 15, 2008.
The compensation used to calculate pension benefits due to an eligible person is based on the average compensation of such person during the last five years of his or her employment (or professional activity, as the case may be), as adjusted on the date of departure by the evolution of the INSEE’s annual average index for consumer prices.
At its meeting of November 5, 2014, the Company’s Board of directors approved an amendment to the settlement of supplementary pension plan that provides for: ●● cap to 45% of the beneficiary reference income the amount of rent that may be received under the plan; and
3.2. STRATEGIC RISK 113 3.2.1. Risks related to the macroeconomic environment affecting SCOR’s strategy 113 3.2.2. Risks related to the competitive environment 114 3.2.3. Risks related to legal and regulatory developments 115 3.2.4. Downgrade risk 116 3.2.5. The valuation of SCOR’s intangible assets and deferred tax assets may significantly affect its shareholders’ equity and the price of its securities 117 3.2.6. Other Strategic Risks 118 3.3. UNDERWRITING RISK RELATED TO THE P&C AND LIFE REINSURANCE BUSINESS 120 3.3.2. Life reinsurance 124 3.3.3. Interdependence and accumulation risks between SCOR’S areas of business 126 3.3.4. Risk related to reserves 127 3.3.5. Retrocession and other risk mitigation techniques 129 3.4. MARKET RISK 130 3.4.1. Market risk – an overview 130 3.4.2. Management of market risk 131 3.4.3. Sensitivity to market risk 132 3.5. CREDIT RISK 134 3.5.1. Overview of credit risk 134 3.5.2. Management of credit risk 135 3.6. LIQUIDITY RISK 137 3.6.1. Overview of liquidity risk 137 3.6.2. Management of liquidity risk 138 3.6.3. Maturity profiles 138 3.6.4. Financial liabilities 139 3.7. OPERATIONAL RISK 140 3.7.1. Overview of operational risk 140 3.7.2. Management of operational risk 142
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, 2016. As such, the corresponding information is audited.
SCOR may also be exposed to emerging risks, which include new threats or constantly changing current risks with a high degree of uncertainty. They may arise from the numerous changes to the environment in which the Group operates, such as changes in professional practices, or in legal, jurisdictional, regulatory, social, political, economic, financial and/or environmental conditions.
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: cyberattacks, antimicrobial resistance, non-controlled bio-experiments, climate change, electromagnetic fields, extreme social unrest and Eurozone break-up.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS Strategic risk < #3 3.2. STRATEGIC RISK
3.2.1.1. DIFFICuLT CONDITIONS IN THE GLOBAL CApITAL MARKETS AND DIFFICuLT ECONOMIC CONDITIONS MAY MATERIALLY ADVERSELY AFFECT SCOR’S BuSINESS AND OpERATING RESuLT
The global economy may suffer from a sharp shift in US monetary policy, which could spur a rise in interest rates along the entire yield curve. Financing conditions could thus deteriorate across sectors and economies. In particular, emerging and developing economies may suffer from capital outflows in the wake of any US monetary normalization.
For further information on P&C long-tail reserve deterioration, refer to Section 3.3.1 – P&C reinsurance.
Furthermore, the Group’s reputation is sensitive to reinsurance sector information. It can be affected by adverse events concerning competitors but also by its own business activity, such as financial difficulties following a major market event. Loss of reputation due to internal risks would also weaken SCOR’s competitive position.
After a very active 2015 in terms of M&A, the first half of 2016 was very calm, however, in September 2016 M&A activity in the insurance and reinsurance sector picked up again.
The Solvency II regime applies since January 1, 2016, in the European Union. It has been transposed in French law in 2015. 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.
In November 2016, the Financial Stability Board (FSB) published the updated list of systemic direct insurers (G-SIIs) based on a recommendation by the International Association of Insurance Supervisors (IAIS). As the IAIS is continuing to work on its methodology for assessing systemic (re)insurers, there is a risk that SCOR will receive such a designation in subsequent updates. The impact of receiving such a designation is a risk of a higher capital requirement, a Higher Loss Absorbency (HLA), and greater regulatory burdens such as the establishment of resolution plans. On the other hand, there is a possibility that G-SIIs could benefit from a market perception of an implicit state guarantee. Were SCOR’s competitors to receive such a designation and SCOR were not, there could be a risk of SCOR’s market perception weakening relative to these peers.
In the meantime, the International Association of Insurance Supervisors (IAIS) has been developing a common framework for internationally active insurance groups (IAIGs), the ComFrame. The IAIS intends to develop Insurance Capital Standards (ICSs) to be applied by all IAIGs with implementation in 2020. This development could jeopardize the extent of recognition of diversification effects or the use of internal models, and could have an impact on capital management. Moreover, these standards involve risks in terms of competition on a level playing field if they are not implemented simultaneously and consistently across different jurisdictions.
Similarly, changes in tax legislation and regulations, or in their interpretation, may have a negative impact on SCOR’s results, e.g. due to the inability to recognize deferred tax assets in the future.
For further information on risks related to current legislation and regulations and their impact on SCOR’s operations, see Section 3.7.1.4 Risks related to external events.
SCOR monitors the legal and supervisory developments which could have an impact on the Group and its entities, ensuring in particular that it takes an active position vis-à-vis the requirements to which it is exposed or could be exposed in the different jurisdictions where it operates and that it prepares in due time for their implementation.
In particular, developments in prudential regulations (such as Solvency II, ComFrame or the regulations on systemic risk) are monitored at Group level by the Prudential and Regulatory Affairs Department. Regulations relating to corporate law and business compliance are monitored by the General Secretariat and, within it, the Legal Department.
In the case of a large number of LOCs being drawn simultaneously, SCOR could encounter difficulties in providing the total amount of required cash or fungible assets, thus exposing the Group to a liquidity risk.
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 – 2. 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. THE VALuATION OF SCOR’S INTANGIBLE ASSETS AND DEFERRED TAx ASSETS MAY SIGNIFICANTLY AFFECT ITS SHAREHOLDERS’ EQuITY AND THE pRICE OF ITS SECuRITIES
Details of intangible assets, related impairment testing policy and recent acquisitions are included in Section 4.6 – Notes to the consolidated financial statements, Note 1 – Accounting principles and methods, Note 3 – Acquisitions and disposals, Note 5 – Goodwill, Note 6 – Value Of Business Acquired and Note 17 – Income taxes.
3.2.5.2. MANAGEMENT OF VALuATION RISKS RELATED TO SCOR’S INTANGIBLE ASSETS AND DEFERRED TAx ASSETS
See Section 3.7 – Management of operational risk for further details on SCOR’s Internal control system approach, Appendix A – Report of the Chairman of the Board of Directors, Section 2.4.1 – Group functions for a description of some of the departments involved in the management of intangible assets and Appendix A – Report of the Chairman on the internal control, Section 2.7 – Financial reporting for further details on the production of SCOR’s technical and financial results, including intangible assets.
For further details on the management of valuation risks related to goodwill and Value of Business Acquired, see Section 3.2.6.2 – Management of risks related to acquisitions.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS #3 3.2.6. OTHER STRATEGIC RISKS
SCOR may be exposed to other less significant strategic risks further described below.
Capital may not be completely fungible between different regulated legal entities, which may have negative consequences
In addition, ongoing regulatory developments and discussions on global standards may impact SCOR in the future.
Adverse capital and credit market conditions may significantly affect SCOR’s ability to access capital and/or liquidity and increase its cost of capital
Disruptions to financial markets, and more particularly credit market conditions, could also affect SCOR’s ability to access liquidity. Please see Section 3.6 – Liquidity risk, for further details.
Since August 2011, the majority of the mortality reinsurance business in the US related to the former Transamerica Reinsurance Co. flows into SCOR via retrocession from AEGON companies. Not all underlying reinsurance agreements between cedents and AEGON have been novated; an AEGON insolvency might reduce or terminate cedent premiums passed on to SCOR, and impair the value of business acquired (“VOBA”) and have a material adverse effect on SCOR.
SCOR adheres to high internal standards for acquisition processes, governance and integration, based on an approach approved by its Executive Committee.
The main risk the Group faces in relation to insurance and reinsurance contracts is that the actual amounts of claims and indemnity payments, or the timing thereof, differ from estimates. The frequency of claims, their severity, the actual payments made, the development of long-tail claims (whether they be litigated or not), and long-term mortality trends as well as external factors such as those listed below, are all beyond the Group’s control. Additionally, the Group is dependent on the quality of underwriting of its cedents for certain reinsurance treaties, and on the quality of claims management by these companies and the data provided by them. Under these uncertainties, the Group seeks to ensure that sufficient reserves are available to cover its liabilities.
SCOR mitigates its underwriting risk related to the P&C and Life reinsurance business 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 risk related to the P&C and 3.3.2.7 – Management of underwriting risk related to Life reinsurance business and Appendix A – 2 Internal control and risk management procedures – paragraph on capital shield strategy.
SCOR underwrites reinsurance covers in P&C and Life and occasionally in direct P&C insurance.
The main risks linked with the P&C reinsurance business (and direct insurance activity) underwritten by SCOR’s P&C division are P&C long-tail reserves deterioration, natural and man-made catastrophes, including terrorism, and other risks beyond its direct control such as systematic crisis or the cyclicality of the business.
This is the risk that the P&C claims inflation is higher than assumed in the calculation of the Best Estimate Liabilities (BEL) and mostly affects the long-tail lines of business, such as all casualty, professional liability and financial lines, inherent defect and construction warranty, medical malpractice, motor (first and third party liability) and workers’ compensation. Claims inflation is influenced by, but not directly linked to general inflation.
For further information on risks related to reserves, see Section 3.3.4 – Risks related to reserves.
The most material catastrophes in SCOR’s risk profile are related to natural events, mainly tropical cyclones, windstorms, earthquakes and floods arising in North America and Europe and affecting property, engineering and possibly other lines of business.
SCOR manages its gross exposure to catastrophes through a comprehensive risk transfer and capital protection program which combines traditional retrocession and non-traditional solutions, including catastrophe bonds and a contingent capital equity line.
SCOR is exposed to insured losses, arising from single or multiple events, which can be catastrophic, caused by the occurrence of a man-made event. The lines of business mostly exposed to man-made catastrophe are property (other than natural catastrophe), marine, motor, casualty, credit and surety, aviation and space.
For further information on management of underwriting risks within the P&C Division, refer to Section 3.3.1.4 – Management of underwriting risks related to the P&C business.
P&C insurance and reinsurance businesses are cyclical. The primary consequences of the market softening are a reduction in the volume of P&C reinsurance premiums on the market, an increase in competition within the reinsurance market, and also a preference for those operators who are most attentive to the specific needs of the cedents and the most capable of answering them. This could lead potentially to a loss of competitive advantage for SCOR.
SCOR produces out its P&C business both through both brokers and through direct relationships with insurance company clients. For the year ended December 31, 2016, P&C wrote approximately 61% of gross written premiums through brokers and 39% through direct business, while Life wrote approximately 6% through brokers and approximately 94% through direct business. For P&C, the largest brokers that the Group wrote gross premium with were Aon Group with approximately 19% MMC with approximately 15% and Willis Group with approximately 10% of total gross written premiums. See Section 1.2.5.4 – paragraph on distribution by production source. The risk for SCOR is mainly the concentration of premiums written through a limited number of brokers. A significant reduction in the business generated through these brokers could potentially reduce premium volume and net income.
The P&C Division is organized in order to enable it to assess and control its risks at each level of its business.
●● Most of SCOR’s facultative underwriters work in the Business Solutions domain of SCOR Global P&C, which operates worldwide. This business area is dedicated to large corporate businesses and is geared to provide the clients of SCOR Global P&C with solutions for coverage of large conventional risks.
●● Underwriting and pricing guidelines, defined by SCOR Global P&C, specify the underwriting capacities delegated to each underwriter in each entity, as well as the underwriting rules and principles to be complied with. These guidelines are subject to a regular review and approval process. SCOR’s underwriting guidelines are more restrictive regarding certain areas with difficult or uncertain legal environments.
– Pricing guidelines and parameters apply to all treaties priced within SCOR Global P&C. 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: a best estimate of the costs and profitability of a treaty as well as the uncertainty surrounding estimates; assistance with underwriting decisions; suitable outputs needed for the risk management process, in particular the internal model, such as probability distributions for losses/NPV, cash flow patterns
RISK FACTORS AND RISK MANAGEMENT MECHANISMS Underwriting risk related to the P&C and life reinsurance business < #3 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 Global P&C uses a data system that allows management to monitor and review the results from pricing tools.
●● 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”)
●● The claims handling function is performed by the claims teams, which review, process and monitor reported claims. SCOR Global P&C’s Claims & Commutations Department is in charge of the implementation and overview of the overall claims handling and commutation management policy for the P&C division, implementing worldwide control and reporting procedures and managing commutation of portfolios and commitments. It supports and controls the day-to-day activity and takes over the direct management of large, litigious, serial and latent claims. In addition, periodic audits are conducted on specific claims and lines of business, and claims processing and procedures are examined at the ceding companies’ offices with the aim of evaluating their claims adjustment process, valuation of case reserves and overall performance. When needed, recommendations are given to underwriters and local management.
●● The adequacy of SCOR Global P&C reserves are 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.
●● SCOR Global P&C’s Risk Management organizes the quarterly P&C Risk and Capital Committee, which is responsible for highlighting the main risks to which the P&C division is exposed, regarding both assets and liabilities.
●● Cross reviews are conducted by SCOR Global P&C’s Risk Management to assess the quality of underwriting, pricing and claims handling of particular business units or certain lines of business, to identify and assess risks, to evaluate the appropriateness and effectiveness of controls and to propose risk-management measures, including mitigating actions.
This risk refers to potential negative deviations in future mortality patterns from current best-estimate assumptions due to a higherthan -anticipated number of deaths (i.e. increased mortality rates) among the portfolio lives reinsured by SCOR. This could result from inherent volatility, initial mispricing (level risk) or an adverse long-term trend. The latter could potentially be influenced by various emerging risks.
In Life reinsurance, a severe pandemic is a major risk. In the past century, three major outbreaks of influenza occurred and claimed millions of lives. The occurrence of a similar event could cause large losses to SCOR due to an increased mortality far beyond the usual volatility. A lethal virus strain not only of influenza but of any other communicable disease could lead to a heavy increase in mortality rates and increased medical costs which could significantly affect SCOR’s results.
3.3.2.7. MANAGEMENT OF uNDERWRITING RISK RELATED TO THE LIFE REINSuRANCE BuSINESS
In addition to the transversal risk management mechanisms described in the introduction to this section, SCOR Global Life 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.
●● Generally, the Life reinsurance business is underwritten throughout the year. The Life business underwritten is monitored on a quarterly basis against prior year development as well as the business plan and regular updates are provided to the Executive Committee.
●● Underwriting of the Life business within the Group is under the worldwide responsibility of SCOR Global Life. Clients are worldwide Life, Pension or Accident and Health insurance companies. They are served by SCOR’s specialized underwriters and actuaries who are familiar with the specific features of the markets in which they operate, particularly with local lines of business and policy conditions, as well as the technical specifics such as mortality tables, morbidity incidence rates and persistency rates. In the Life underwriting process, consideration is typically given to the quality of the client’s medical and financial underwriting standards, the target clientele of the ceding company, as well as past experience to the extent credible data is available.
●● Life reinsurance treaties are underwritten by Life reinsurance experts familiar with the specific features of their markets. The Life business is underwritten following internal underwriting and pricing guidelines. Mandates for underwriting Life reinsurance business are assigned to teams on a mutually exclusive basis.
●● In order to ensure that SCOR Global Life is continually up-todate with biometric trends and scientific developments, SCOR Global Life uses the expertise of five dedicated Research & Development centers to analyze and assess the key factors underlying mortality, longevity, morbidity and policyholder behavior. These Research & Development Centers provide recommendations for the implementation of the research results into the pricing, underwriting and determination of exposure limits.
Business opportunities going beyond the stipulations of these guidelines and documents are subject to a special referral process in order to ensure that the business complies with established risk-adjusted return criteria and risk tolerance limits. These cases are examined at the SCOR Global Life level by the Regional and Global Pricing and Risk Management Department and, where applicable, the Finance Department. Cases which may have a significant impact on the balance sheet of the Group are additionally reviewed by the Group Risk Management. Thresholds or conditions for a referral to Group Risk Management are outlined in specific guidelines.
●● Maximum underwriting capacities are established to limit SCOR Global Life’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 SCOR Global Life’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.
●● In addition, cross reviews are commissioned by SCOR Global Life’s Chief Executive Officer to evaluate, on the one hand, the quality of underwriting, pricing, medical underwriting and claims handling of particular market areas or lines of business and, on the other hand, to identify and assess risks, to evaluate the appropriateness and effectiveness of controls and to propose risk-management actions.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS #3 3.3.3. INTERDEpENDENCE AND ACCuMuLATION RISKS BETWEEN SCOR’S AREAS OF BuSINESS
SCOR’s ability to grow or maintain its portfolios in the P&C and Life reinsurance divisions may also be subject to external factors which may be interconnected, such as economic and political risks. For instance, slowdowns in economic growth or recessions in the major markets may lead households and companies to take out less insurance, to suspend certain premium payments, or to terminate the insurance policies underlying the existing P&C and Life treaties earlier than anticipated. Similarly, the risk of social and political instability is particularly significant in emerging markets, in which both divisions operate. These risks could lead to significantly reduced business growth in these target markets. See Section 3.2 – Strategic risk for further details.
The SCOR Group is required to maintain reserves to cover its estimated ultimate liability for losses and loss adjustment expenses with respect to reported and unreported claims, incurred as at the end of each accounting period, net of estimated related recoveries. Its reserves are established based on the information it receives from its cedent insurance companies, including their own reserving levels, as well as on the basis of its knowledge of the risks, the studies it conducts and the trends it observes on a regular basis. As part of the reserving process, SCOR reviews available historical data and tries to anticipate the impact of various factors, such as changes in laws and regulations, judicial decisions, social and political attitudes and trends in mortality and morbidity, and changes in general economic conditions.
If some information were incorrect and/or incomplete, this could have an adverse effect on the Group. Despite the audits it carries out on the companies with which it does business the Group is still dependent on their reserves assessment.
Another factor of uncertainty resides in the fact that some of SCOR’s activities are long-tail in nature, such as long-term care, whole Life products, longevity, worker's compensation, general liability or medical malpractice, etc. It has, in the past, been necessary for SCOR to revise estimated potential loss exposure on such lines of business.
The Chief Reserving Actuaries of the divisions are responsible for overseeing the reserves of their respective divisions, to assure appropriateness in the reserving methods and parameters used and to enhance reserving governance. The Group Chief Actuary is in charge of the independent validation and testing of reserving tools, workflows, assumptions and processes.
Within SCOR Global P&C, in order to ensure an adequate and efficient monitoring of the reserves, a report is established on a yearly basis by the Group Actuarial Department, where the Group Chief Actuary, reporting to the Group Chief Risk Officer, gives his opinion on the year-end booked reserves’ adequacy. The main objective of this report is to provide SCOR’s Executive Committee and Audit Committee with an overall opinion on the adequacy of the P&C division’s reserves but also to highlight the inherent uncertainties surrounding this assessment. The monitoring of the reserves by the division’s and Group’s Actuarial Department is centered on three mechanisms: ●● a quarterly follow-up of the claims activity and review of reserves for each segment through adequate reporting procedures; ●● an annual internal actuarial analysis, including a review of all segments together with a full analysis of the segments that may have a substantial impact on SCOR’s balance sheet. This analysis is performed by the SCOR Global P&C reserving actuaries and reviewed by the Group Actuarial Department which performs as well its own full analysis. These analyses are recorded in an annual actuarial report; ●● regular external reviews of SCOR Global P&C division reserves adequacy are performed including those required by local regulators (Canada, Australia, Hong Kong, South Africa, China and SCOR Lloyd’s syndicate).
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 SGP&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 SGP&C’s assessment of the ceding company’s claims’ management.
Within SCOR Global Life, in order to ensure an adequate and efficient monitoring of the reserves, a report is established on a yearly basis by the Group Actuarial Department where the Group Chief Actuary gives his opinion on the year-end booked reserves’ adequacy. The main objective of this report is to provide SCOR’s Executive Committee and Audit Committee with an overall opinion on the adequacy of the Life division’s reserves but also to highlight the inherent uncertainties surrounding this assessment.
For its Life business, SCOR is required to maintain adequate reserves to reflect the liability for future claims and benefit payments resulting from life reinsurance treaties, mainly mathematical reserves and claim reserves.
SCOR aims to diversify its retrocession and risk mitigation instruments as well as counterparties in order to take advantage of all different sources of capacities on the market. This enables the retrocession and risk mitigation program to be constructed with complementary mitigation effects offering optimal efficiency and also to avoid overdependence on a reduced number of counterparties.
Retrocession procedures are centralized within the retrocession teams of the P&C and Life divisions: ●● within the P&C division, SCOR Global P&C 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 of SCOR Global Life in order to define the need for retrocession coverage. The retention and the retrocession structure are revised every year.
On the other hand, an increase in interest rates could lead to a fall in the market value of fixed income securities that SCOR holds. In the case of a need for cash, SCOR may be obliged to sell fixed income securities, possibly resulting in capital losses. SCOR’s reinsurance business may also be exposed to interest rate risk. The Group has certain life insurance contracts which are sensitive to fluctuations in interest rates. Although in general all long-term liabilities are discounted, in most cases there is no accounting impact from a 100 basis point change in the interest rate because valuation interest rates are typically locked-in.
For further information on the sensitivity of the Group’s consolidated income and consolidated equity to interest rate risk, see Section 3.4.3 – Sensitivity analysis to market risk.
Fluctuations in exchange rates can have consequences on SCOR’s reported net income because of the conversion results of transactions expressed in foreign currencies, the settlement of balances denominated in foreign currencies and the lack of perfect matching between monetary assets and liabilities in foreign currencies. In this case, and to reduce the impact of imperfect matching, SCOR uses derivative financial instruments in order to hedge against currency fluctuations on sensitive currencies, particularly in times of greater volatility on the capital markets. Nevertheless, a perfect matching of monetary assets and liabilities can never be achieved and a potential profit or loss impact due to fluctuations in exchanges rates can arise.
SCOR has issued debt instruments in currencies other than the Euro, currently Swiss Francs, and to the extent that these are not used as a hedge against foreign currency investments, it may be similarly exposed to fluctuations in exchange rates. Most debts are fully hedged. For more information on the forward sales and purchases and swaps of currencies used to hedge these risks see Section 4.6 – Notes to the consolidated financial statements, Note 7 – Insurance business investments. For more information on
SCOR has outsourced the implementation of its investment strategy to its asset management company “SCOR Investment Partners SE” and to external asset managers. They are provided with the investment guidelines.
The Group’s aim is to maintain an appropriate mix of fixed and variable rate instruments. It also manages the maturities of interest bearing financial assets.
The Group has one net investment hedge in place to reduce its exposure to variations in the net assets of a USD functional currency subsidiary.
SCOR has adopted an active strategy to select core buildings and focuses on high environmental quality.
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 risk.
The following table summarizes the accounting sensitivity of the Group’s consolidated income and consolidated equity to market risks based on reasonably possible movements in key variables with all other variables held constant. The assumptions included are: Interest rate risk
The interest rate sensitivities for 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 GMDB business.
The interest rate sensitivities of income presented in the table below show the impact of changes in fair value of financial assets at fair value through income held at closing date, and changes in income on variable rate financial assets held at the closing date, following an increase/decrease in interest rates of 100 basis points. An estimate of the impact on the future income following a change of 100 basis points is therefore included. However, SCOR does not include in this analysis the impact that changes in interest rates might have on the reinvestment of future cash flows, as future cash flows of SCOR business are difficult to predict and asset allocations might change over time.
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, 2016 market values would generate no further impairment of equity securities (2015: EUR 1 million; 2014: 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.
Income (2)(3) Equity (2)(3) Income (2)(3) Equity (2)(3) Income (2)(3) Equity (2)(3)
For information on the debt securities portfolio, see Section 4.6 – Notes to the consolidated financial statements, Note 7 Insurance business investment.
The retrocessionaires’ share in the reserves broken down by retrocessionaires’ financial rating is included in Section 4.6 – Notes to the consolidated financial statements, Note 15 – Net contract liabilities.
Deposits with cedents are monitored through a quarterly analysis of exposure and associated risks. Actions aiming at reducing or limiting the exposure (e.g. ad-hoc legal opinions, introduction of offset clauses) can be implemented where needed.
3.5.2.5. MANAGEMENT OF CREDIT RISK RELATED TO CASH DEpOSITS AT BANKS
RISK FACTORS AND RISK MANAGEMENT MECHANISMS #3 3.5.2.6. MANAGEMENT OF OTHER CREDIT RISKS
In the event of joint liability of the members in pools to which SCOR participates, the risk of default of other pool members is carefully monitored by SCOR: ●● through its appointment as director and via the participation of its senior management in dedicated committees such as Audit and Risk Committees and Technical Committees, for the pools in which SCOR’s participation is the most significant; and
●● via the careful consideration of the financial situation of other pool members. This contributes to the application of sound and robust governance.
Financial assets at fair value through income 812 - - - - 812
The following table provides an overall analysis of the aging of financial assets as at December 31, 2015: In EUR million Current months > 36 months Total
Financial assets at fair value through income 744 - - - - 744
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 receivables include estimates, which are presented as current. The available-for-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.
Impairment information relating to financial assets is included in Section 4.6 – Notes to the consolidated financial statements, Note 7 – Insurance business investments, Note 8 – Accounts receivable from and payable on assumed and ceded insurance and reinsurance transactions and Note 18 – Investment income.
RISK FACTORS AND RISK MANAGEMENT MECHANISMS Liquidity risk < #3 3.6. LIQUIDITY RISK
Short- term liquidity, or cash management, includes the day-to-day cash requirements under normal business conditions.
Liquidity considerations over the long-term need must be assessed in a way which takes into consideration the possibility of various unexpected and potentially adverse business conditions where assets may not be sold for current market values. SCOR has defined an internal methodology to estimate the level of its liquid free assets (i.e. non-pledged assets) which could be sold within a reasonable timeframe.
The technical reserves of SCOR Global P&C are established on an undiscounted basis (except workers compensation and payments in annuity on Motor Liability). The table below includes the estimated maturity profiles of the Non-Life insurance liabilities based on payment patterns derived from historical data.
In EUR million 0 – 1 year 1 – 3 years 3 – 7 years > 7 years Total
RISK FACTORS AND RISK MANAGEMENT MECHANISMS Liquidity risk < #3 3.6.3.2. SCOR GLOBAL LIFE
The projections for insurance contract liabilities of the Life segment have been prepared on a best estimate basis. The amounts below represent the estimated maturity profile of the assumed contract liabilities. For long-term life reinsurance, benefit payments are typically settled net of premiums (for treaties with periodic premium payments). Where contract liabilities require to deposit cash to the cedent as collateral, the settlement normally also includes certain other account items, primarily the release of the deposits. For contracts where funds withheld are used to offset the amounts settled between SCOR and its cedents, funds withheld to cover the life insurance contract liabilities in the table below mature at the same date as the respective Life insurance contract liabilities.
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
Interest rate ranges < 1 year 1 – 5 years > 5 years* Total**
Risks related to staff can arise as follows: ●● the failure to attract or retain key personnel or the loss of crucial information/skills concentrated in a single person, or of a whole team; ●● incidents due to mistakes or non-compliance with instructions, guidelines or policies; ●● internal staff mandated by SCOR having authorized access to SCOR’s offices or systems taking advantage of SCOR’s assets for personal gain e.g. through misappropriation of assets, tax evasion, intentional mismarking of positions or bribery; ●● intentional damage to SCOR’s assets (including data) required to perform its operations by internal or external staff could lead to significant additional remediation costs (to rebuild databases or systems).
Risks related to systems can arise as follows: ●● a malfunction or a major breakdown in SCOR’s IT systems, outages, disruptions due to viruses, attacks by hackers and thefts or data breaches. This can occur within SCOR’s own environment or to a third party providing services or data to SCOR; ●● interruption of any of SCOR’s IT systems leading to loss of data, delays in service or in a loss of efficiency of teams, which could lead to remediation costs, loss of contracts or damage to the Group’s reputation. In addition, these incidents could increase other operational risks such as external fraud or human error (e.g. delay in the recognition of adverse business development). The interruption of these systems could damage commercial activities including underwriting, pricing, reserving, premium and claims payment, commercial support, and asset management; ●● in addition, the facilities in which SCOR operates might be impacted by natural or man-made perils. The offices might need to be closed for a period of time potentially resulting in a loss of productivity and business opportunity, as well as remediation costs.
As an international group, SCOR must comply with national and international laws, regulations and accounting standards. This includes all applicable economic sanctions, anti-bribery as well as anti-terrorism laws and regulations applicable to its operations, such as the economic trade sanctions laws and regulations administered by the United States Department of the Treasury’s Office of Foreign Assets Control (OFAC) as well as certain laws administered by the United States Department of State, the Foreign Corrupt Practices Act (FCPA) and other anti-bribery laws such as the UK Bribery Act that generally bar corrupt payments or unreasonable gifts to foreign governments or officials. 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. The large number of regulatory environments, as well as changes in regulations increase the complexity of the related processes. Any violation of laws, regulations or accounting requirements could expose SCOR to fines, class actions with compensation payments, accounts restatements 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 capital and legal and regulatory developments.
(1) Generally speaking, the insurance covers mentioned in this section illustrate the Group’s policy of transferring some of its own risks. However, these insurance covers remain subject to the provisions of corresponding contracts, specifically those regarding possible sub-limits of cover, particular deductibles and geographic scope of cover and/or particular exclusions.
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.
Nevertheless, these insurance covers could prove to be insufficient. In case of a loss, the insurance companies could also possibly contest their liability towards SCOR.
The two main principles driving the operational risk management approach are: ●● exhaustiveness: ensure that a complete and exhaustive identification of all risks within the Group is carried out to the extent possible; ●● proportionality: once operational risks are identified, management uses appropriate and proportionate responses, resources and procedures, focusing on key risks.
●● The consolidated financial statements as at December 31, 2014 are included from pages 195 to 288 and the Statutory Auditors’ report on these consolidated financial statements as at December 31, 2014 is included from pages 289 to 290 of the Registration Document filed with the AMF on March 20, 2015 under Number D.15-0181 (and from pages 190 to 278 and from pages 279 to 280, respectively, of the free translation into English of the above mentioned Registration Document. The translation is available on SCOR’s website www.scor.com).
The consolidated financial statements for the year ended December 31, 2016 are presented below: 4.1. CONSOLIDATED BALANCE SHEET
Value of business acquired Note 6 1,612 1,600 Insurance business investments Note 7 28,137 27,676 Real estate investments 770 838 Available-for-sale financial assets 16,553 15,381 Investments at fair value through income 812 744 Loans and receivables 9,815 10,492 Derivative instruments 187 221 Investments in associates Note 2 114 105 Share of retrocessionaires in insurance and investment contract liabilities Note 15 1,362 1,258 Other assets 9,592 8,552 Accounts receivable from assumed insurance and reinsurance transactions Note 8 6,174 5,303 Accounts receivable from ceded reinsurance transactions Note 8 103 75 Deferred tax assets Note 17 683 794 Tax receivables 164 138 Miscellaneous assets Note 9 1,092 966 Deferred acquisition costs Note 10 1,376 1,276 Cash and cash equivalents Note 11 1,688 1,626 TOTAL ASSETS 43,293 41,605
CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of cash flows < #4 4.4. CONSOLIDATED STATEMENT OF CASH FLOWS
Net cash flows provided by/(used in) operations Note 11 1,354 (1) 795 894
Disposals of consolidated entities, net of cash disposed of 8 (3) 2 -
Cash generated by issuance of financial liabilities Note 13 620 (6) 933 348
Other cash flow from financing activities (88) (8) 134 (9) -
Effect of change in foreign exchange rates on cash and cash equivalents (29) 87 84
Cash and cash equivalents at January 1 Note 11 1,626 860 1,514
Net cash flows provided by/(used in) financing activities (895) 417 (235)
(7) Cash used to redeem financial liabilities includes the redemptions of two perpetual debts (EUR 350 million and CHF 650 million) for a total amount of
Net gains/(losses) on cash flow hedge - - - (8) - - - - (8)
CONSOLIDATED FINANCIAL STATEMENTS Consolidated statement of changes in shareholders’ equity < #4
Other comprehensive income net of tax - - (62) 344 - - - - 282
Effect of changes in foreign exchange rates - - - 316 - - - - 316
Effect of changes in foreign exchange rates - - - 75 - - - - 75
CONSOLIDATED FINANCIAL STATEMENTS Notes to the consolidated financial statements < #4 4.6. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. INFORMATION ON SHARE CAPITAL, CAPITAL MANAGEMENT, REGULATORY FRAMEWORK AND CONSOLIDATED RESERVES 186
The consolidated financial statements were presented by Group Management to the Audit Committee. Management and the Audit Committee report to the Board of Directors, which approved the consolidated financial statements on February 21, 2017.
SCOR’s consolidated financial statements for the years ended December 31, 2016, 2015 and 2014 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, 2016. 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, 2016. See Note 3 below for a detailed overview on the new and amended International Financial Reporting Standards applicable in 2016 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.
The financial statements of material subsidiaries are prepared for the same accounting period as for the parent company. All material intragroup balances and transactions, including the result of intercompany transactions, are eliminated.
Movements in the translation adjustment are primarily due to the translation of financial statements of subsidiaries and branches not using EUR as their functional currency. As at December 31, 2016, 2015 and 2014, the Group has one net investment hedge in place.
– at the end of period exchange rates if they are measured at fair value, and
– to the extent that any gains or losses arise, these are directly recorded in shareholders’ equity. In particular this affects foreign exchange differences for available for sale equity securities and exchange differences resulting from the conversion of these items which are also directly recorded in shareholders’ equity; ●● the gains and losses resulting from the translation of net foreign investment hedges are recorded in shareholders’ equity. They are recognized in the statement of income upon the disposal of the net investment.
Assumed and ceded reinsurance transactions that do not transfer significant reinsurance risk are recognized in accordance with IAS 39 – Financial Instruments: Recognition and Measurement. Premiums collected are not recognized as income, and reserves and deferred acquisition costs are classified as “Investment and financial reinsurance contract liabilities” or “Financial contract assets” on the balance sheet. These liabilities are assessed only on the basis of contractual flows and no longer on the basis of estimated ultimate results as required by accounting principles applicable to insurance transactions. Income from these transactions is equal to SCOR’s net fee or spread and is recorded in “Other income and expenses”.
For the measurement of deferred acquisition costs (DAC), value of business acquired (VOBA) and reserves recognized for different insurance portfolios, SCOR applies the shadow accounting principles stipulated in IFRS 4. As the amortization of DAC (for Life) and VOBA is calculated using expectations for estimated revenues from investments and the measurement of reserves is based on the discount rate reflecting directly the performance of assets, the corresponding portion of the unrealized gains and losses recorded under available-for-sale financial investments are considered as shadow DAC, shadow VOBA and shadow reserves and offset directly in shareholders’ equity.
Participations in syndicates operating at Lloyd’s of London are accounted for on an annual basis with a delay due to the transmission of information from syndicates that the Group does not control. The Group recognizes its proportionate share of the syndicates’ insurance and reinsurance premiums as revenue over the policy term, and claims, including an estimate of claims incurred but not reported. At the end of an underwriting year, typically three years after the policy’s inception, syndicates reinsure all remaining unsettled liabilities into the following underwriting year, a mechanism known as Re-Insurance To Close (“RITC”). If the Group participates in both accepting and ceding transactions and has increased its participation, RITC paid is reduced, which generates an RITC receivable. This reflects the fact that the Group has assumed a greater proportion of the business of the syndicate. If the Group has reduced its participation from one year of account to the next, the RITC receivable is eliminated, generating an RITC payable. This reflects the reduction in the Group’s exposure to risks previously written by the syndicates. The Group recognizes Lloyd’s RITC in claims and policy benefits to ensure consistency with other reinsurance transactions and to present a true and fair view.
NOTE 1.3. IFRS STANDARDS AppLIED FOR THE FIRST TIME AND IFRS STANDARDS puBLISHED BuT NOT YET EFFECTIVE
IFRS 9 requires financial assets to be classified based on the business model for managing the financial assets and their contractual cash flow characteristics. Based on their classification, financial assets will be measured at amortized cost, fair value through OCI or fair value through income. The new impairment model requires recognition of expected credit losses based on available historical, current and forecast information. The hedging model included in IFRS 9 aligns hedge accounting more closely with risk management but does not fundamentally change the types of hedging relationships or the requirements to measure and recognize hedge effectiveness.
On November 29, 2016, the European Union endorsed IFRS 9. The adoption of IFRS 9 will affect the classification and measurement of the Group’s financial assets as more financial assets may be accounted for at fair value through income. SCOR’s impairment policies will also be affected as impairments will be recognized based on expected credit losses and no longer based solely on incurred credit losses. There are no material changes expected for the hedge accounting as applied by SCOR. The Group is in the process of determining the impacts of IFRS 9 on its financial position and performance as well as on disclosures in more detail.
●● 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. 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.
●● On January 13, 2016, the IASB published IFRS 16 – Leases. The Standard will replace the current guidance in IAS 17 – Leases, and is applicable from January 1, 2019. Earlier application is permitted, subject to endorsement by the EU and provided IFRS 15 – Revenue from Contracts with Customers, is also applied. IFRS 16 will significantly change the accounting by lessees, who will recognize a lease liability reflecting the present value of future lease payments and a right-of-use asset for lease contracts on the balance sheet. Exemptions are optional for certain short-term leases and leases of low-value assets. Lessees will recognize depreciation of the right-of use asset and interest expense, calculated in accordance with the effective interest rate method, on the lease liability in their income statement. For lessors, accounting remains broadly unchanged from IAS 17. Transition to the new principles for lease accounting can be done either fully retrospectively or by adopting a simplified approach that includes certain reliefs related to the measurement of the right-of use asset and the lease liability and does not require a restatement of comparatives. SCOR is currently assessing the impacts of IFRS 16 on its financial position and performance as well as on disclosures in detail.
Critical judgments are sometimes required to determine the consolidation method for certain entities in which the Group holds less than 50% of the voting rights. As such, despite holding less than 50% of its voting rights, the Group determines that it continues to control MRM S.A. as it exerts de facto control as defined by IFRS 10 in light of the proportion of voting rights it holds, and of the wide dispersion of the other vote holders.
Mutual funds and real estate entities are fully consolidated or recorded using the equity method in accordance with the aforementioned rules. Non-controlling interests in fully consolidated mutual funds are presented in “Other liabilities” as the third-party holders have an unconditional right to sell their holdings to SCOR. 100% of assets (including insurance business investments and cash and cash equivalents), liabilities, cash flows and income statement of the fully consolidated funds, are therefore reflected in SCOR’s consolidated financial statements.
General Security National Insurance Company US 100 100 100 100 Full
SCOR Services Asia-Pacific PTE LTD Singapore 100 100 100 100 Full
SCOR Global Life Americas Holding Inc. (Delaware) US 100 100 100 100 Full
SCOR Global Life Reinsurance International (Barbados) Ltd. Barbados 100 100 100 100 Full
SCOR Global Life Reinsurance Company of Delaware US 100 100 100 100 Full
SCOR Life Insurance Company (SLAC) US 100 100 100 100 Full
Aggregate net book value (in SCOR) of individually immaterial associates 114 105
Share of retrocessionaires in insurance and investment contract liabilities - - - 6 - - 3
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 provides USD 180 million of extreme mortality protection, for a risk period extending from January 1, 2013 to December 31, 2018.
Amounts are recorded in the balance sheet representing the derivative asset recognized at fair value through income and liabilities representing the value of interest payments.
Earthquake events. The risk period for Atlas IX 2016-1 will run from January 13, 2016 to December 31, 2019.
The Group did not enter into any acquisition or disposal of consolidated subsidiaries in 2016, 2015 or 2014.
For management purposes, the Group is organized into three divisions (SCOR Global P&C, SCOR Global Life and SCOR Global Investments), of which SCOR Global P&C and SCOR Global Life are considered reportable operating segments, and one corporate cost center: Group Functions.
Revenues associated with financial reinsurance contracts 8 - - - 8 8 - - - 8 4 - - - 4
Gross commission on earned premiums (1,053) (1,404) - - (2,457) (1,022) (1,327) - - (2,349) (960) (1,068) - - (2,028)
Capital gains/(losses) on the sale of investments 70 144 - - 214 34 136 - - 170 32 103 - - 135
The distribution of gross written premiums by geographic region for the Life segment, based on market responsibility, is as follows: In EUR million 2016 2015 2014(1)
Contract liabilities and share of retrocessionaires in contract liabilities for the Life segment, allocated on the same basis as gross written premiums, are as follows: In EUR million
The distribution of gross written premiums by geographic region for the Non-Life segment, based on the country in which the ceding company operates for treaty business and location of the insured for facultative business, is as follows: In EUR million 2016 2015 2014
Key balance sheet captions by operating segment, as reviewed by management, are broken down as follows: In EUR million
(1) Cash and cash equivalents include cash held by the Group on behalf of third parties as part of its asset management activity for a total amount of EUR 177 million on December 31, 2016 (EUR 81 million on December 31, 2015).
Net cash flows provided by/(used in) operations 250 1,104 1,354 227 568 795 286 608 894
Effect of changes in foreign exchange rates on cash and cash equivalents (12) (17) (29) 60 27 87 72 12 84
Cash and cash equivalents at December 31 (1) 682 1,006 1,688 861 765 1,626 655 205 860
Goodwill represents the future economic benefits arising from assets acquired in a business combination that are not individually identified and separately recognized. It is initially measured at cost being the excess of the cost of the business combination over the acquisition-date fair value of the Group’s share of the identifiable net assets of the acquired company and is included in intangible assets.
In order to estimate the fair value of SCOR Global P&C for the purpose of impairment testing, SCOR uses a discounted cash flow model comprised of an earnings model, which considers forecasted earnings and other financial ratios for the reportable segment over a five-year period. The first three years are based on the assumptions from the Vision in Action strategic plan and the last two years are extrapolated using a conservative approach based on past experience. Business plans include assessments of gross and net premium expectations, expected loss ratios and expected expense ratios together with actuarial assumptions such as the coefficient of changes in ultimate net reserves together with assumptions as to the mean time to payment of existing reserves and future business. Future cash flows beyond this period are extrapolated using a growth rate of 5.5%. SCOR uses risk-free interest rates for each currency as well as the Group’s estimated cost of capital of 6.46%, as derived from the Capital Asset Pricing Model (CAPM).
The annual goodwill impairment tests conducted for the SCOR Global P&C and SCOR Global Life segments show recoverable amounts in excess of the respective total carrying amounts for the years ended December 31, 2016, 2015 and 2014. Consequently, no goodwill impairment charges were recognized.
(1) Disposal and amortization of VOBA for the 2016 period include EUR 68 million (2015: EUR 80 million) resulting from the derecognition of VOBA due to fully amortized treaty terminations. Regular amortization related to business in force amounts to EUR 35 million for the year ended December 31, 2016 and EUR 44 million for the year ended December 31, 2015.
Available-for-sale financial assets include non-derivative assets that are either classified as available for sale or not allocated to any another category. They are carried at fair value. Unrealized gains and losses are recorded directly in shareholders’ equity. Changes in foreign exchange rates relating to non-monetary available-for-sale assets are recorded directly in shareholders’ equity while those relating to monetary available-for-sale assets are recorded in income.
Total Level 1 Level 2 Level 3 Cost or amortized cost
In 2016 and 2015 respectively, there were no material gains or losses realized on the disposal of available-for-sale investments which were previously carried at cost.
NOTE 7.2. ACCOuNTING pRINCIpLES FOR VALuATION AND IMpAIRMENT OF FINANCIAL ASSETS
The fair value of hedge funds managed by third parties is based on their net asset value (NAV) as issued by external asset managers. This NAV is regularly audited, at least annually.
●● there is a duration of decline of more than 48 months without recovery in net asset value being observable; and
For financial instruments where the fair value cannot be measured reliably and which are measured at cost, a regular analysis is completed to determine if this remains appropriate given the nature of the investment and factors such as amounts realized and the appearance or re-appearance of a market or reliable value. Impairment assessments are completed dependent on the underlying nature of the investment and the expected future cash flows.
NOTE 7.3. MOVEMENTS IN FINANCIAL INSTRuMENTS CATEGORIZED WITHIN LEVEL 3 OF THE FAIR VALuE HIERARCHY
The following table shows the reconciliation between the opening and closing balances for assets categorized within level 3: In EUR million Equity securities Debt securities Loans and receivables Derivative instruments Total
NET BOOK VALUE AT DECEMBER 31, 2016 - - - 91 91
(1) Movements in derivative instruments are due to the change in fair value of Atlas IX Series 2015-1 and Atlas IX Series 2013-1 (Extreme Mortality Risk Transfer Contract) derivatives recorded in other operating expenses.
Real estate currently held by the Group is classified as investment property when it is held to earn rental income, or for capital appreciation or both. Properties are recognized at cost, net of accumulated depreciation and impairment losses. Depreciation is recorded on a straight-line basis over the useful lives of the assets as follows: Category Useful life
At the end of each reporting period, properties are assessed to determine whether there is any indication of impairment.
The properties held by the Group and considered as investment property are owned either by wholly-owned subsidiaries of SCOR, or by MRM S.A. They consist of office buildings (wholly-owned subsidiaries and MRM S.A.), and retail buildings (MRM S.A.). The movements in real estate investments and finance leases are analyzed as follows: In EUR million Real estate investments Finance leases Total
(1) Discounted cash flows (DCF) approach or transaction price (for real estate investments under purchase bids) may also be used for some real estate investments.
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 rental income is as follows: In EUR million
Minimum rental income in 2016 n 21% Less than one year 58 44 n●55% From one to five years 154 119 n●24% More than five years 65 24
NOTE 7.5. BREAKDOWN OF SECuRITIES AVAILABLE FOR SALE AND AT FAIR VALuE THROuGH INCOME
The following table summarizes the debt and equity securities and unrealized gains/(losses) by class of securities classified as available for sale and at fair value through income: In EUR million
As at December 31, 2016, the net unrealized gain (loss) on debt securities comprised EUR 186 million in unrealized gains and EUR 200 million in unrealized losses (as at December 31, 2015: EUR 193 million in unrealized gains and EUR 137 million in unrealized losses).
In EUR million As at 12/31/2016 As at 12/31/2015 in 2016
As at December 31, 2016, the decrease in loans and receivables of EUR 677 million compared to year-end 2015 is mainly due to the decrease in short-term investments following their partial use for the redemption of subordinated notes in July and August 2016 (see Note 13 – Financial liabilities) and the impact of fluctuating exchange rates (mainly GBP).