FORM 20-F
As filed with the Securities and Exchange Commission on
April 29, 2005
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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OR |
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x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period
from to
Commission file number: 001-14518 |
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SCOR
(Exact name of registrant as specified in its charter)
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N/A |
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The Republic of France |
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(Translation of registrants
name into English) |
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(Jurisdiction of incorporation
or organization) |
1, Avenue du Général de Gaulle, 92800 Puteaux,
France
(Address of principal executive offices)
Securities registered or to be registered pursuant to
Section 12(b) of the Act:
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Title of each class |
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Name of each exchange on which registered |
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American Depositary Shares (as evidenced
by American Depositary Receipts), each
representing one Ordinary Share |
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New York Stock Exchange, Inc. |
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Ordinary Shares, no par value * |
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New York Stock Exchange, Inc. |
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* |
Listed, not for trading, but only in connection with the
registration of American Depositary Shares, pursuant to the
requirements of the Securities and Exchange Commission. |
Securities registered or to be registered pursuant to
Section 12(g) of the Act:
NONE
Securities for which there is a reporting obligation pursuant to
Section 15(d) of the Act:
NONE
Indicate the number of outstanding shares of each of the
issuers class of capital or common stock as of the close
of the period covered by the annual report:
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819,269,070 Ordinary Shares, including 29,615,519 American
Depositary Shares (as evidenced by American Depositary
Receipts), each representing one Ordinary Share. |
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Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days.
x YES o NO
Indicate by check mark which financial statement item the
registrant has elected to follow:
o ITEM 17 x ITEM 18
EXPLANATORY NOTE
The U.S. GAAP consolidated statements of operations,
changes in shareholders equity, comprehensive income and
cash flows for the years ended December 31, 2003 and 2002
and the consolidated balance sheet as of December 31, 2003,
including the applicable notes thereto, contained in
Item 18 Financial Statements of this Annual
Report on Form 20-F have been restated from those financial
statements previously presented. In addition, the financial
information as of December 31, 2002 and as of and for the
years ended December 31, 2001 and 2000 contained in
Item 3.A Selected Financial Data has also been
restated. SCOR has not amended, and does not intend to amend,
its previously filed Annual Reports on Form 20-F for the
years affected by the restatements that ended prior to
December 31, 2004. For this reason, those prior Annual
Reports and the consolidated financial statements,
auditors reports and related financial information for the
affected years contained in such reports should no longer be
relied upon. For a description of the restatements, see
Item 5 Managements Discussion and Analysis of
Financial Condition and Results of Operation
Restatement and Note 2. Restatement
contained in the notes to the audited U.S. GAAP
consolidated financial statements included herein.
CAUTIONARY STATEMENT WITH RESPECT TO FORWARD-LOOKING
STATEMENTS
The information contained in this Annual Report, as well as oral
statements that may be made by SCOR or by its officers,
directors or employees acting on behalf of SCOR related to such
information contain statements that constitute
forward-looking statements within the meaning of the
U.S. Private Securities Litigation Reform Act of 1995,
specifically Section 27A of the U.S. Securities Act of
1933, as amended, and Section 21E of the U.S. Securities
Exchange Act of 1934, as amended. All statements, other than
statements of historical facts, are forward-looking statements
including, without limitation, statements relating to:
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the implementation of the Moving Forward plan
described under Item 4. Information on the
Company; |
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the implementation of strategic initiatives, including the
update of information systems; |
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changes in premium revenues; |
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changes in the balance of lines and class of business; |
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the development of revenues overall and within specific business
areas; |
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the development of expenses; |
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the direction of insurance and reinsurance rates and the demand
for reinsurance products and services; |
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the market risks associated with interest and exchange rates and
equity markets; and |
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other statements relating to SCORs future business
development and economic performance. |
The words anticipate, believe,
expect, estimate, intend,
plan may, will,
should and similar expressions identify certain of
these forward-looking statements although the absence of such
words does not necessarily mean that a statement is not
forward-looking. Readers are cautioned not to place undue
reliance on forward-looking statements because actual events and
results may differ materially from the results implied or
expected by such forward-looking statements.
Many factors may influence SCORs actual results and cause
them to differ materially from the implied or expected results
as described in such forward-looking statements, including,
without limitation:
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cyclical trends in the insurance and reinsurance sectors; |
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the outcome of U.S. legal proceedings after the conclusion of
all appeals and the allocation of liability, amount of damages
and amount of indemnification ultimately allocated to SCOR and
its affiliates related to the World Trade Center litigation at
the conclusion of such proceedings; |
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the frequency and severity of insured loss events, including
natural and man made catastrophes, terrorist attacks and
environmental and asbestos claims, as well as mortality and
morbidity levels and trends and persistency levels; |
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the underwriting results of primary insurers and the accuracy
and overall quality of information provided to SCOR by primary
insurance companies with which SCOR transacts business,
particularly regarding their reserve levels; |
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the availability of and terms under which SCOR is able to enter
into retrocessional arrangements; |
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the state of the reinsurance brokerage market and the ability of
reinsurers and members of pools in which SCOR participates to
meet their obligations; |
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increasing levels of competition in France, Europe, North
America and other international reinsurance markets; |
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interest rate levels; |
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the performance of global debt and equity markets; |
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ratings downgrades; |
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SCORs financial strength; |
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SCORs ability to meet its liquidity requirements; |
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currency exchange rates, including the euro U.S. dollar
exchange rate; |
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economic trends in general; |
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the outcome of regulatory review by U.S. insurance regulators; |
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changes in laws, regulations and case law; |
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political, regulatory and industry initiatives; |
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SCORs ability to maintain its relationships with, and be
recommended by, brokers; |
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SCORs ability to implement its Moving Forward
strategic plan and the run-off of certain of its
U.S. business lines, including CRP and SCOR U.S.; |
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the value of SCORs intangible assets; |
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the ability of SCOR to improve its internal control over
financial reporting and resolve material weaknesses in its
internal control over financial reporting; |
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the impact of SCORs conversion to International Financial
Reporting Standards; |
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the impact of operational risks, including human or systems
failures; |
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the risks identified in Item 3.D Risk
Factors of this Annual Report on Form 20-F filed with
the U.S. Securities Exchange Commission (the
SEC) and SCORs other filings with the SEC; and |
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other matters not yet known to SCOR or not currently considered
material by SCOR. |
All forward-looking statements attributable to SCOR, or persons
acting on its behalf, are qualified in their entirety by these
cautionary statements. SCOR disclaims any intention or
obligation to update and revise any forward-looking statements,
whether as a result of new information, future events or
otherwise, unless it is required by law. See
Item 3.D. Risk Factors for certain
risks that may affect the Groups results.
In this Annual Report on Form 20-F, the term the
Company refers to SCOR and the terms
SCOR, the Group, the SCOR
Group, we, us and our
refer to the Company together with its consolidated subsidiaries.
3
As used herein, references to EUR or
are
to euro and references to dollars, USD
or $ are to U.S. dollars. For your convenience,
this Annual Report contains translations of certain euro amounts
into dollar amounts at the rate of USD 1.35 per
EUR 1.00, the noon buying rate in New York for cable
transfers in euro as certified for customs purposes by the
Federal Reserve Bank of New York (the Noon Buying
Rate) on December 31, 2004, the date of SCORs
most recent balance sheet included in this Annual Report. You
should not assume, however, that euros could have been exchanged
into dollars at any particular rate or at all. See
Item 3.A. Selected Financial Data
for certain historical information regarding the Noon Buying
Rate.
4
Table of Contents
5
PART I
Item 1. Identity of Directors, Senior Management
and Advisers
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
A. SELECTED FINANCIAL DATA
Currency Translations And Exchange Rates:
The following table sets forth, for the periods indicated,
information with respect to the high, low, average and end of
period Noon Buying Rates, expressed in U.S. dollars per euro.
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Average | |
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End of | |
Year Ended December 31, |
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High | |
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Low | |
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Rate(1) | |
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Period(2) | |
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2000
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1.03 |
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0.83 |
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0.92 |
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0.94 |
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2001
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0.95 |
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0.83 |
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0.89 |
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0.89 |
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2002
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1.05 |
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0.86 |
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0.95 |
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1.04 |
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2003
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1.26 |
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1.04 |
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1.14 |
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1.26 |
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2004
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1.36 |
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1.18 |
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1.25 |
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1.35 |
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October 2004
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1.28 |
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1.23 |
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November 2004
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1.33 |
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1.27 |
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December 2004
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1.36 |
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1.32 |
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2005 (through April 22)
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1.35 |
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1.28 |
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January 2005
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1.35 |
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1.30 |
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February 2005
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1.33 |
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1.28 |
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March 2005
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1.35 |
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1.29 |
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April (through April 22)
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1.31 |
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1.28 |
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(1) |
The average of the Noon Buying Rates on the last business day of
each month during the relevant period. |
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(2) |
The end of period Noon Buying Rate is the Noon Buying Rate on
the last business day of the relevant period. |
The Noon Buying Rate on April 22, 2005 was USD 1.31
per EUR 1.00.
SCOR prepares and publishes its financial statements in euros.
Because a significant part of the Groups revenues and
expenses, as well as its assets and liabilities, are denominated
in dollars and other currencies, fluctuations in the exchange
rates used to translate these currencies into euros may have a
significant impact on SCORs reported results of operations
and net equity from year to year. Fluctuations in the exchange
rate between the euro and the dollar will also affect the dollar
amounts received by holders of American Depositary Shares, or
ADSs, on conversion by the Depositary of dividends paid in euro
on the Ordinary Shares underlying the ADSs and may affect the
dollar trading prices of the ADSs on the New York Stock
Exchange. See Item 3.D. Risk
Factors We are exposed to the risk of changes in
foreign exchange rates and
Item 3.D. Risk Factors The
trading price of SCORs ADSs and dividends paid on
SCORs ADSs may be materially adversely affected by
fluctuations in the exchange rate for converting euros into U.S.
dollars. See also Item 5. Operating
and Financial Review and Prospects for information
regarding the effects of currency fluctuations on the
Groups results.
6
Selected U.S. GAAP Consolidated Financial Data
The following selected financial data as of December 31,
2004 and 2003 and for each of the years ended December 31,
2004, 2003 and 2002 are derived from the consolidated financial
statements of SCOR, as restated, included in this Annual Report,
which have been audited by Ernst & Young, our
independent auditors. The following selected financial data as
of December 31, 2002, 2001 and 2000 and for each of the
years ended December 31, 2001 and 2000 are derived from the
unaudited consolidated financial statements of SCOR, as
restated, not included in this Annual Report.
The consolidated financial statements of SCOR presented below
have been prepared in accordance with U.S. Generally Accepted
Accounting Principles, or U.S. GAAP. SCOR also publishes
consolidated financial statements, not included herein, prepared
in accordance with French Generally Accepted Accounting
Principles, or French GAAP, which differ in certain respects
from U.S. GAAP. See Item 3.D. Risk
Factors Our French GAAP results may differ
significantly from our U.S. GAAP results.
The unaudited euro amounts presented in the table below as at
and for the year ended December 31, 2004 have been
translated into dollars solely for your convenience at the Noon
Buying Rate of USD 1.35 per EUR 1.00 on
December 31, 2004, the date of SCORs most recent
balance sheet included in this Annual Report. These translations
should not be construed as representations that the euro amounts
could actually have been converted into dollars at these rates
or at all.
The selected consolidated financial data should be read in
conjunction with Item 3.D. Risk
Factors, Item 5. Operating and
Financial Review and Prospects and SCORs
consolidated financial statements and related notes and other
financial information included elsewhere in this Annual Report.
Restatement
In the course of implementing International Financial Reporting
Standards, or IFRS, which the Group will be required to follow
in France as of January 1, 2005 for purposes of satisfying
French regulatory requirements, the Group identified a number of
errors in its financial statements for 2003 and 2002 that had
been prepared in accordance with U.S. GAAP, including the
2002 opening balance sheet. As a result, the Group determined
that it was necessary to restate its previously issued
U.S. GAAP consolidated financial statements.
The restatement principally relates to:
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consolidation: capital leases and mutual funds; |
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accounting for taxation: deferred taxes on the reserve de
capitalisation and valuation allowance; |
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accounting for foreign currency: foreign currency transaction
and financial statement, translation of goodwill and impact of
currency fluctuations on available for sale debt securities held
in currencies other than the functional currency; |
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accounting for post-retirement benefits; and |
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accounting for other issues: impairment of securities,
derivative contracts, several minor unadjusted difference items
for the periods concerned and costs incurred in connection with
the creation of the SCOR Vie subsidiary. |
Certain reclassifications have been made to balances previously
reported to conform to the current presentation.
The Company has not amended, and does not intend to amend, its
previously filed Annual Reports on Form 20-F for the years
affected by the restatements that ended prior to
December 31, 2004. For this reason, those prior Annual
Reports and the consolidated financial statements,
auditors reports and related financial information for the
affected years contained in such reports should no longer be
relied upon.
The selected financial information presented below has been
restated for all periods presented, to reflect the correction of
such errors.
For a description of the restatements, see Item 5
Managements Discussion and Analysis of Financial Condition
and Results of Operation Restatement and
Note 2. Restatement contained in the notes to
the audited U.S. GAAP consolidated financial statements
included elsewhere herein.
7
SELECTED U.S. GAAP CONSOLIDATED FINANCIAL DATA
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As at and for the year ended December 31, | |
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2000 | |
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2001 | |
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2002 | |
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2003 | |
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2004 | |
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2004 | |
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(Restated) | |
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(Restated) | |
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(Translated) | |
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(unaudited) | |
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(unaudited) | |
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(Restated) | |
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(Restated) | |
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(unaudited) | |
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(EUR) | |
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(EUR) | |
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(millions, except share and per share amounts) | |
Income statement
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Operating revenues
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2,964 |
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4,000 |
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4,520 |
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3,650 |
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2,509 |
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3,387 |
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Total revenues
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3,377 |
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4,010 |
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4,562 |
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3,767 |
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2,551 |
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3,444 |
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Income (loss) before cumulative effect of change in accounting
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78 |
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(434 |
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(493 |
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(512 |
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243 |
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328 |
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Cumulative effect of change in accounting principles, net of
income
taxes(1),(2)
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42 |
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4 |
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5 |
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Net income (loss)
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78 |
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(392 |
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(493 |
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(512 |
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247 |
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333 |
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Net income (loss) per Ordinary Share, basic
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2.48 |
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(11.54 |
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(13.03 |
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(3.76 |
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0.31 |
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0.42 |
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Net income (loss) per Ordinary Share, diluted
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2.31 |
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(11.54 |
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(13.03 |
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(3.76 |
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0.30 |
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0.41 |
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Balance sheet data (as at end of year)
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Total assets
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12,776 |
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16,917 |
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16,002 |
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13,605 |
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13,439 |
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18,143 |
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Shareholders equity
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1,371 |
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1,267 |
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1,078 |
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356 |
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1,211 |
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1,635 |
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Convertible debentures, long-term debt and capital leases
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499 |
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510 |
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902 |
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1,039 |
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961 |
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1,297 |
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Dividend declared per Ordinary Share
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1.70 |
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0.30 |
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Number of Ordinary Shares, in thousands
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34,794 |
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41,244 |
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136,545 |
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136,545 |
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819,269 |
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(1) |
A change in accounting principles due to the discount of
reserves occurred in 2001. The effect of the change in 2001 was
to increase the Property Casualty net income by EUR
62 million before tax and EUR 41 million after tax. If the
accounting change was never made, the impact in 2002, 2003 and
2004 would have been to increase Property Casualty net income by
EUR 17 million before tax and EUR 11 million
after tax, EUR 3 million before tax and
EUR 2 million after tax and EUR 12 million
before tax and EUR 8 million after tax, respectively. |
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(2) |
In 2004, the Group adopted Statement of Position,
Accounting and Reporting by Insurance Enterprise for
Certain Non-Traditional Long-Duration Contracts and for Separate
Accounts. See Note 3.23 to the consolidated financial
statements included in Item 18 Financial
Statements. |
Dividends
The payment and amount of dividends on outstanding Ordinary
Shares are subject to the recommendation of the Companys
Board of Directors and the approval by the Companys
shareholders at an annual general meeting. The Board of
Directors also recommends, and the Companys shareholders
determine at the annual general meeting, the portion, if any, of
any annual dividend that each shareholder will have the option
to receive in Ordinary Shares. Historically, from 1996 through
2001, dividends were paid entirely in cash. Future dividends
will depend on the Companys earnings, financial condition,
capital requirements, exchange rate and interest rate
fluctuations and other factors. The Company has not paid any
dividends since 2001. A dividend of EUR 0.03 per Ordinary
Share has been proposed to be approved by the shareholders at
the next annual meeting to be held in 2005.
Under French law and the Companys statuts, or
charter and by-laws, the Companys net income in each
fiscal year (after deduction for depreciation and reserves), as
increased or reduced, as the case may be, by any profit or loss
of the Company carried forward from prior years, less any
contributions to legal reserves, is available for distribution
to the shareholders of the Company as dividends, subject to
other applicable requirements of French law and the
Companys statuts.
8
Historically, any cash dividends paid by the Company have
generally been paid solely in euros. Dividends paid to holders
of ADSs are converted from euros to U.S. dollars, subject
to a charge by the Depositary for any expenses incurred by the
Depositary in such conversion. Fluctuations in the exchange rate
between euros and dollars and expenses of the Depositary will
affect the dollar amounts actually received by holders of ADSs
upon conversion by the Depositary of such cash dividends. See
Item 3.D. Risk Factors We are
exposed to the risk of changes in foreign exchange rates
and Item 3.D. Risk Factors
The trading price of SCORs ADSs and dividends paid on
SCORs ADSs may be materially adversely affected by
fluctuations in the exchange rate for converting euros into
U.S. dollars. See Item 10.E.
Taxation for a description of the principal French and
U.S. federal income tax consequences regarding the taxation
of dividends for holders of ADSs and Ordinary Shares.
Dividends for each year are paid in the year following the
approval of such dividend at the annual meeting of shareholders,
which is generally held in April or May. The aggregate annual
dividends paid for each of the five years ended
December 31, 2004 were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of | |
|
|
|
Dividend per | |
|
|
|
|
|
|
Ordinary | |
|
Dividend per | |
|
Ordinary | |
|
|
|
Dividend per | |
|
|
Shares | |
|
Ordinary | |
|
Share including | |
|
Dividend per | |
|
ADS including | |
|
|
outstanding | |
|
Share | |
|
Avoir Fiscal(1) | |
|
ADS(2) | |
|
Avoir Fiscal(1)(2) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(Thousands) | |
|
(EUR) | |
|
(EUR) | |
|
(USD) | |
|
(USD) | |
2000
|
|
|
34,794 |
|
|
|
1.70 |
|
|
|
2.55 |
|
|
|
1.52 |
|
|
|
2.28 |
|
2001
|
|
|
41,244 |
|
|
|
0.30 |
|
|
|
0.45 |
|
|
|
0.27 |
|
|
|
0.40 |
|
2002
|
|
|
136,545 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.00 |
|
2003
|
|
|
136,545 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.00 |
|
|
|
0.00 |
|
2004
|
|
|
819,269 |
|
|
|
(*) |
|
|
|
(*) |
|
|
|
(*) |
|
|
|
(*) |
|
|
|
(1) |
Avoir Fiscal for individuals and corporations which own at least
5% of the Companys share capital at a rate of 50%. The
dividend per Ordinary Share including Avoir Fiscal for other
corporations was EUR 2.13 and EUR 0.35 in 2000 and
2001, respectively, and the dividend per ADS including Avoir
Fiscal for other corporations was USD 1.90 and
USD 0.31 in 2000 and 2001, respectively. The Avoir Fiscal
was repealed and therefore will not be applicable with respect
to dividends distributed in the future. See
Item 10.E. Taxation. |
|
(2) |
Solely for your convenience, the dividend per Ordinary Share and
avoir fiscal have been translated from the euro amounts
actually paid into the corresponding U.S. dollar amounts at
the Noon Buying Rates. The Noon Buying Rate may differ from the
rate that may be used by the Depositary to convert euros to
U.S. dollars for purposes of making payments to holders of
ADSs. |
|
(*) |
The Companys board of directors has approved a
EUR 0.03 dividend per Ordinary Share that will be proposed
to the shareholders meeting to be held in May 2005. |
B. CAPITALIZATION AND INDEBTEDNESS
Not applicable.
C. REASONS FOR THE OFFER AND USE OF PROCEEDS
Not applicable.
D. RISK FACTORS
You should carefully consider the risks described below in
conjunction with the other information and the consolidated
financial statements of SCOR and the related notes thereto
included elsewhere in this Annual Report before making an
investment decision with respect to the Ordinary Shares or
ADSs.
The insurance and reinsurance sectors are cyclical, which may
impact our results.
The insurance and reinsurance sectors, particularly in the
Non Life area are cyclical. Historically, reinsurers have
experienced significant fluctuations in operating results due to
volatile and sometimes unpredictable developments, many of which
are beyond the direct control of the reinsurer, including,
notably, competition, frequency or severity of catastrophic
events, levels of capacity and general economic conditions.
Demand for reinsurance is influenced significantly by
underwriting results of primary insurers and prevailing general
economic conditions. The supply of reinsurance is related to
prevailing prices, the levels of insured losses, levels
9
of sector surplus and utilization of underwriting capacity that,
in turn, may fluctuate in response to changes in rates of return
on investments being earned in the insurance and reinsurance
industries. As the performance of financial markets and
reinsurers improves and reinsurance capacity increases, however,
ceding companies are more inclined to ask for price reductions
in the most profitable lines of business and underwriting
quality tends to decline. At the same time, claims may be higher
when economic conditions are unfavorable, particularly for
products that provide reinsurance coverage for a risk that is
related to the financial condition of the company that is being
insured. As a result, the reinsurance business has been cyclical
historically, characterized by periods of intense price
competition due to excessive underwriting capacity and periods
when shortages of underwriting capacity permit favorable premium
levels.
For example, certain reinsurance sectors in which the Group does
business have, particularly since the terrorist attack of
September 11, 2001, been characterized by a reduction in
subscription capacity on the part of reinsurance companies, in
turn leading to increases in pricing and tightened reinsurance
conditions. Over the past four years, these capacity shortages
have continued due to increasing cost of claims and to multiple
catastrophic events from 2001 to 2004, including floods in
Northern Europe and France, an earthquake in Japan, typhoons in
Asia and hurricanes and tornadoes in the U.S. and the Caribbean,
and reduced investment income from financial markets, which has
allowed us to maintain premium rates. The reinsurance market
nonetheless remains cyclical and there have been some signs of a
downturn, including retention increases by insurers and
increases in the trend towards non proportional treaties, thus
reducing the prospects of premium income, while potentially
increasing volatility.
We may experience the effects of such cyclicality and there can
be no assurances that changes in premium rates, the frequency
and severity of catastrophes or other loss events or other
factors affecting the insurance or reinsurance industries will
not have a material adverse effect on our revenues, net income,
results of operations and financial condition in future periods.
We are exposed to losses from catastrophic events.
Like other reinsurers, our operating results and financial
condition have in the past been, and can be expected in the
future to be, adversely affected by natural and man-made
catastrophes, which may give rise to claims under the
Property-Casualty and Life reinsurance coverage we provide.
Catastrophes can be caused by a variety of events, including
hurricanes, windstorms, earthquakes, hail, explosions, severe
winter weather and fires. In 2004, SCOR, like most other
reinsurers, was affected by the unusually high frequency of
events, including four hurricanes in the United States and the
Caribbean and a number of typhoons in Asia. Although
catastrophes may cause losses in several of the Groups
business lines, most of the Groups catastrophe-related
claims in the past have related to homeowners or commercial
property coverage. SCORs most significant exposure to
catastrophe events relates to earthquake risks primarily in
Japan, Italy, Israel, Taiwan, Chile, Turkey and Portugal and
wind and other weather-related risks concentrated primarily in
North America, Europe and Asia.
The frequency and severity of such events, particularly natural
catastrophes, are by their nature unpredictable. The inherent
unpredictability of these events makes forecasts and risk
evaluations uncertain for any given year. As a result, our
claims experience may vary significantly from one year to
another. In addition, depending on the frequency and nature of
the losses, the speed with which claims are made and the terms
of the policies affected, we may be required to make large
claims payments upon short notice. We may be forced to fund
these obligations by liquidating investments unexpectedly and in
unfavorable market conditions, or raising funds at unfavorable
costs. These factors could have a significant impact on our
financial condition, profitability and results of operations and
the comparability over time of our results.
We have sought to manage our exposure to catastrophic losses
through selective underwriting practices, including the
monitoring of risk accumulations on a geographic basis, and
through the purchase of retrocessional catastrophe reinsurance.
There can be no assurance, however, that these underwriting
practices, including the management of risks on a geographical
basis, or the purchase of retrocessional reinsurance, will be
sufficient to protect us against material catastrophic losses,
or that retrocessional reinsurance will continue to be available
in the future at commercially reasonable rates. Although we
attempt to limit our exposure to acceptable levels, it is
10
possible that a single or multiple catastrophic events could
have a material adverse effect on our consolidated financial
condition, results of operations and cash flows.
We may be subject to losses due to our exposure to risks
related to terrorist acts.
In the context of our business, we may be exposed to claims
arising from the consequences of terrorist acts. These risks,
the potential significance of which can be illustrated by the
September 11, 2001 attack in the United States, can affect
both individuals and property. The September 11, 2001
attack on the World Trade Center resulted in the Group
establishing reserves on the basis that the attack on the two
towers of the World Trade Center was one single occurrence and
not two occurrences under the term of the applicable coverage.
On December 6, 2004, a jury determined that the attacks on
the World Trade Center were two distinct occurrences and
therefore that our ceding company, which provided insurance on
the World Trade Center, was liable for two events on the basis
of its policy wording. As a result, we have increased our
reserves based on the actual replacement value established by
the ceding companys claims adjusters. The gross amount of
reserves has accordingly been increased from
USD 355 million as of December 31, 2003 to
USD 422 million as of December 31, 2004, and net
of retrocession from USD 167.5 million to
USD 193.5 million. The jury verdict that the attack on
the World Trade Center constituted two occurrences and not one
occurrence under the terms of the ceding companys
insurance policy is expected to be appealed and we have issued
two letters of credit in the amount of
USD 145.3 million as security required by the ceding
company to guarantee our willingness and capacity to pay the
ceding company if the jury verdict is not reversed by the U.S.
Court of Appeals for the Second Circuit, or if an appraisal
process to be conducted under court supervision in 2005 were to
lead to an increased amount of liabilities to be paid in the
future. See Item 8.A. Consolidated
Statements and Other Financial Information Legal
Proceedings for a discussion of the pending World Trade
Center litigation.
After the events of September 11, 2001, we adopted measures
designed to exclude or limit our exposure to risks related to
terrorism in our reinsurance contracts, in particular in those
countries and for the risks that are the most exposed to
terrorism. Contracts entered into prior to the implementation of
these measures, however, remain unchanged. In addition, it has
not always been possible to implement these measures,
particularly in our principal markets. For example, certain
European countries do not permit excluding terrorist risks from
insurance policies. Due to these regulatory constraints, we have
actively supported the creation of insurance and reinsurance
pools that involve insurance and reinsurance companies as well
as public authorities in order to spread the risks of terrorist
activity among the members of these pools. We participate in
pools created in France (GAREAT), in Germany (Extremus), in the
United Kingdom and in Austria. Although the U.S. Congress passed
the Terrorism Risk Insurance Act (TRIA) in November
2002, which established a federal assistance program through the
end of 2005 to help the commercial property and casualty
insurance industry cover claims related to future
terrorism-related losses and required that coverage for
terrorist acts be offered by insurers, the U.S. insurance market
is still subject to significant exposures in respect of
terrorism-related losses and the TRIA may not be renewed at the
end of 2005. SCOR has reduced its exposure to the U.S. market by
declining to underwrite large national insurers. See
Item 3.D. Risk Factors Our
results may be impacted by the inability of our reinsurers
(retrocessionaires) or other members of pools in which we
participate to meet their obligations and the availability of
retrocessional reinsurance on commercially acceptable
terms. In addition to the commitments described above, the
Group does reinsure, from time to time, terrorist risks, usually
limiting by event and by period the coverage that ceding
companies receive for damage caused by terrorist acts.
As a result, additional terrorist acts, whether in the U.S. or
elsewhere, could cause us to make significant claims payments
and, as a result, could have a significant effect on our
operating income, results of operations, financial condition and
future profitability.
We could be subject to losses as a result of our exposure to
environmental and asbestos-related risks.
Like other reinsurance companies, we are exposed to
environmental and asbestos-related risks, particularly in the
United States. Insurers are required under their contracts with
us to notify us of any claims or potential claims that they are
aware of. However, we often receive notices from insurers of
potential claims related to environmental and asbestos risks
that are imprecise, as the primary insurer may not have fully
evaluated the risk at the time it notifies us of the claim. Due
to the imprecise nature of these claims, the uncertainty
surrounding the
11
extent of coverage under insurance policies and whether or not
particular claims are subject to an aggregate limit, the number
of occurrences involved in particular claims and new theories of
insured and insurer liability, we can, like other reinsurers,
only give a very approximate estimate of our potential exposure
to environmental and asbestos claims that may or may not have
been reported. In 2004, we decreased the level of our reserves
by EUR 16 million. We believe that our reserves as at
December 31, 2004 are sufficient to cover our estimated
liabilities relating to environmental and asbestos claims and we
estimate correspond to approximately nine years of payments and
seven years if the commutations previously made are taken into
account.
Nonetheless, due to the changing legal and regulatory
environment, including changes in tort law, the evaluation of
the final cost of our exposure to asbestos-related and
environmental claims may be increasing in uncertain proportions.
Diverse factors could increase our exposure to the consequences
of asbestos-related risks, such as an increase in the number of
claims filed or in the number of persons likely to be covered by
these claims. These uncertainties inherent to environmental and
asbestos claims are unlikely to be resolved in the near future.
Evaluation of these risks is all the more difficult given that
claims related to asbestos and environmental pollution are often
subject to payments over long periods of time. In these
circumstances, it is difficult to estimate the reserves that
should be recorded for these risks and to give any assurance
that the amount reserved will be sufficient. We therefore rely
on market assessments of survival ratios for reserves although
data currently available relate to old underwriting years in the
U.S. market to which we are not considerably exposed.
As a result of these imprecisions and uncertainties, we cannot
exclude the possibility that we could be exposed to significant
additional environmental and asbestos claims, which could have a
material adverse effect on our operating income, results of
operations, financial condition and future profitability.
If our reserves prove to be inadequate, our net income,
results of operations and financial condition may be adversely
affected.
We are required to maintain reserves to cover our estimated
ultimate liability for Property-Casualty losses and loss
adjustment expenses with respect to reported and unreported
claims incurred as of the end of each accounting period, net of
estimated related salvage and subrogation claims. Our reserves
are established on the basis of information that we receive from
insurance companies, particularly their own reserving levels.
For our Life business, we are required to maintain reserves for
future policy benefits that take into account expected
investment yields and mortality, morbidity, lapse rate and other
assumptions. In our Non Life business, our reserves and
policy pricing are based on a number of assumptions and on
information provided by third parties, which, if proven to be
incorrect, could have an adverse effect on our results of
operations. Even though we are entitled to audit the companies
with which we do business, and despite our frequent contacts
with these companies, our reserving policy remains dependent on
the risk evaluations of these companies. The inherent
uncertainties in estimating reserves are compounded for
reinsurers by the significant periods of time that often elapse
between the occurrence of an insured loss, the reporting of the
loss to the primary insurer and ultimately to the reinsurer, the
primary insurers payment of that loss and subsequent
indemnification by the reinsurer, as well as by differing
reserving practices among ceding companies and changes in
jurisprudence, particularly in the United States.
Furthermore, we have significant exposures to a number of
business lines in respect of which accurate reserving is known
to be particularly difficult because of the
long-tail nature of these businesses, including
workers compensation, liability insurance, and environmental and
asbestos-related claims. Our reserves for these lines of
business represent a significant portion of our technical
reserves, although the proportion has been decreasing as we have
increased the proportion of our Property business relative to
our Casualty and liability business. In relation to such claims,
it has in the past been necessary to revise our estimated
potential loss exposure and, therefore, the related loss
reserves. Changes in law, evolving judicial interpretations and
theories as well as developments in class action litigation,
particularly in the United States, add to the uncertainties
inherent in claims of this nature.
We periodically review the methods for establishing reserves and
their amounts. To the extent that our reserves prove to be
insufficient, after taking into account available retrocessional
coverage, we increase our reserves and incur a charge to
earnings, which can have a material adverse effect on our
consolidated net income and financial
12
condition. We strengthened our reserves on several occasions in
2002 and 2003 following internal and external actuarial reviews.
The most recent such reserves strengthening occurred at
September 30, 2003, when the Group increased its loss
reserves by EUR 297 million, EUR 290 million
of which was related to adverse trends in loss experience in the
United States with respect to business underwritten by SCOR U.S.
and CRP over the period 1997-2001. These additional reserves
mainly concern lines of business, which have now been put in
run-off or sharply reduced, such as buffer layers, program
business and workers compensation.
Although we believe our Non Life technical reserves were
adequate as of the end of 2004, we cannot guarantee that our
level of reserves will be sufficient to cover future losses. In
particular, our market experience has shown that these measures
have not always proven to be sufficient. To the extent we are
required to further increase our reserves in the future, our net
income, results of operations and financial condition could be
materially adversely affected. In addition, because we, like
other reinsurers, do not separately evaluate each of the
individual risks assumed under reinsurance treaties, we are
largely dependent on the original underwriting decisions made by
ceding companies. We are subject to the risk that our ceding
companies may not have adequately evaluated the risks to be
reinsured and that the premiums ceded to us may not adequately
compensate us for the risk we assume.
Our results may be impacted by the inability of our
reinsurers (retrocessionaires) or members of pools in which
we participate to meet their obligations and the availability of
retrocessional reinsurance on commercially acceptable terms.
We transfer a part of our exposure to certain risks to other
reinsurers through retrocession arrangements. Under these
arrangements, other reinsurers assume a portion of our losses
and expenses associated with losses in exchange for a portion of
policy premiums. When we obtain retrocession, we are still
liable for those transferred risks if the reinsurer cannot meet
its obligations. Therefore, the inability of our reinsurers to
meet their financial obligations could materially affect our
operating results and financial condition. We also assume credit
risk by writing business on a funds withheld basis. Under such
arrangements the cedant retains the premium they would otherwise
pay to the reinsurer to cover future loss payments. Although we
conduct periodic reviews of the financial condition of our
reinsurers, our reinsurers may become financially unsound by the
time they are called upon to pay amounts due, which may not
occur for many years. Furthermore, since our reinsurers do
business in the same sectors as we do, events that have an
adverse effect on the sector could have the same effect on all
of the participants in the reinsurance sector. In addition,
retrocession may prove inadequate to protect against losses or
may become unavailable in the future or unavailable at
commercially acceptable rates.
We participate in various pools of insurers and reinsurers in
order to spread certain risks, in particular terrorism risks,
among the members of the pool. In case of default of one of the
members of a pool, we could be required to assume part of the
liabilities and obligations of the member in default, which
could affect our net income, results of operations and financial
condition.
We operate in a highly competitive industry.
The reinsurance business is highly competitive. Our position in
the reinsurance market is based on many factors, such as
perceived financial strength of the reinsurer and ratings
assigned by independent ratings agencies, underwriting
expertise, reputation and experience in the lines written, the
jurisdictions in which the reinsurer is licensed or otherwise
authorized to do business, premiums charged, as well as other
terms and conditions of the reinsurance offered, services
offered and speed of claims payment. We compete for business in
the French, European, United States, Asian and other
international reinsurance markets with numerous international
and domestic reinsurance companies, some of which have a larger
market share, greater financial resources and higher ratings
from financial ratings agencies than we do.
When the supply of reinsurance is greater than the demand from
ceding companies, our competitors, some of whom hold higher
ratings than us, may be better positioned to enter into new
contracts and to gain market share at our expense. In addition,
our current ratings have significantly hindered our competitive
position, and may in the future continue to do so. In 2004, our
lower ratings were responsible for losses of business. Although
a change in the outlook and an upgrade from one rating agency
before the end of the 2004-2005 renewal period has
13
improved our competitive position, if we do not improve our
credit ratings to an A level our business, our financial
condition and our results of operations could be seriously
affected. See Ratings are important to our
business.
We are exposed to the impact of changes in interest rates and
developments in the debt and equity markets.
Investment returns are an important part of our overall
profitability and changes in interest rates and fluctuations in
the debt and equity markets could have a material adverse impact
on our profitability, cash flows, results of operations and
financial condition. Interest rate fluctuations could have
consequences on our return from fixed-maturity securities, as
well as the market values of, and corresponding levels of
capital gains or losses on the fixed-maturity securities in our
investment portfolio. Interest rates and the debt and equity
markets are highly sensitive to many factors, including
governmental monetary policies, domestic and international
economic and political conditions and other factors beyond our
control.
During periods of declining interest rates, our annuity and
other life reinsurance products, including the fixed annuities
of SCOR Life U.S. Re, may be relatively more attractive to
consumers, resulting in increased premium payments on products
with flexible premium features, and a higher percentage of
insurance policies remaining in force from year to year. During
such a period, our investment earnings may be lower because the
interest earnings on our fixed-maturity investments likely will
have declined in parallel with market interest rates. In
addition, our fixed-maturity investments are more likely to be
prepaid or redeemed as borrowers seek to borrow at lower
interest rates. Consequently, we may be required to reinvest the
proceeds in securities bearing lower interest rates.
Accordingly, during periods of declining interest rates, our
profitability may suffer as a result of the decrease in the
spread between interest rates credited to policyholders and
returns on our investment portfolio. Conversely, an increase in
interest rates, as well as developments in the capital markets,
could also lead to unanticipated changes in the pattern of
surrender and withdrawal of our annuity and other Life
reinsurance products, including the fixed annuities of SCOR Life
U.S. Re. These would result in cash outflows that might require
the sale of assets at a time when the investment portfolio is
negatively affected by increases in interest rates, resulting in
losses.
We are also exposed to credit risks in the debt securities
markets since the financial difficulties of certain issuers and
the deterioration of their credit quality could make payment of
their obligations uncertain and lead to lower market prices for
their fixed-maturity securities, which would affect the value of
our investment portfolio.
We are exposed to equity price risk. While equity investments
accounted for only approximately 8.3% of our investments as at
December 31, 2004 by market value, we may need to record
impairments to our equity portfolio as a result of negative
developments in the stock markets. Such depreciation could
affect our operating results and financial condition.
Ratings are important to our business.
Our ratings are reviewed periodically. Over the course of 2003,
our ratings from all the major rating agencies were revised
downwards on several occasions and put on watch, particularly
after we announced we would be increasing our reserves and
announced the amount of our loss for the third quarter of 2003.
Although one rating agency improved the outlook of our rating in
2004 before the end of the 2004/ 2005 renewal period, our
principal competitors currently hold higher ratings than us,
which has significantly hindered our competitive position, and
there can be no assurance that such ratings will be improved or
maintained in the future.
Our Life reinsurance business and large facultative and direct
underwriting businesses are particularly sensitive to the way
our clients and ceding companies perceive our financial strength
as well as to our ratings. Our ratings levels in 2003 and 2004
have made it difficult for us to renew policies and treaties
with existing clients and to sign new clients, notably in our
Life reinsurance, large facultative and direct underwriting
segments. Moreover, such ratings have induced some ceding
companies to reduce our shares on some treaties and contracts in
2004. In addition, given that some of our reinsurance treaties
contain termination clauses triggered by ratings, there is a
risk that our reserves would be reduced as a result of such
termination by our clients, which in turn would be likely to
significantly reduce our future financial margins and to require
us to depreciate some or all of our deferred acquisition costs.
See also Our shareholders equity is sensitive
to the value of our intangible assets
14
and Item 4. Information on the Company
Ratings. We cannot assure you that we will be able to
improve our underwriting results, decrease management expenses
or improve our ratings in 2005, or that any such improvements
will be sufficient to compensate for such decreases in premium
volumes.
The timing of any changes to our credit ratings is also very
important to our business since our Life, large facultative and
business solutions contracts and treaties with
ceding companies are renewed at various times throughout the
year. Our contracts and treaties are generally renewed in Japan
and Korea each April, in the U.S. each January and July and in
Europe, Canada and the rest of the world each January. If our
credit ratings do not improve prior to the renewal periods
described above, our premium income for 2005 and 2006 could be
negatively impacted as we could continue to lose contracts,
treaties and premiums to our competitors with higher credit
ratings.
In addition, a part of our business is conducted with U.S.
ceding companies for whom state insurance regulations and market
practice require that we obtain letters of credit from banks in
order to maintain reinsurance contracts. If we are unable to
honor our financial commitments under our outstanding credit
facilities or if we suffer any further ratings downgrade, our
financial situation and results could be significantly affected.
Despite our improved condition in 2004 our current credit
ratings levels have made it more costly for us to obtain such
letters of credit and have sometimes made it more difficult for
us to renew or obtain letters of credit and, as a result, to
conclude or renew reinsurance contracts. Any further downgrading
in our credit ratings levels, however, would significantly
restrict our ability to obtain such letters of credit and would
affect our operations. In these circumstances, we could be
required to reduce our business with U.S. ceding companies and
our business, operating results and financial condition could be
adversely affected.
A significant portion of our treaties contain provisions
relating to financial strength, which could have an adverse
effect on our financial condition.
A significant portion of our reinsurance treaties, in particular
in our Life reinsurance business, contain triggers relating to
financial strength which entitle our cedents to terminate the
relevant treaty upon the occurrence of specified events of
default, including a ratings downgrade, our net assets falling
below specified thresholds or our carrying out a reduction in
share capital. Any such events could allow some of our cedents
to terminate their contractual undertakings, which would have a
material adverse effect on our financial condition. In addition,
our main credit facilities, in particular those which were
renewed in the third and fourth quarters of 2003, contain
financial undertakings and provisions with respect to minimum
ratings and net consolidated assets, the breach of which could
constitute an event of default and cause a suspension in the use
of these credit facilities and prevent us from obtaining new
credit facilities, either of which would have a material adverse
effect on our business, operating results and financial
condition.
We face a number of significant liquidity requirements in the
short to medium-term.
The main sources of revenue from our reinsurance operations are
premiums, revenues from investing activities, and realized
capital gains. The bulk of these funds are used to pay out
claims and related expenses, together with other operating
costs. Our operations generate cash flows due to the fact that
most premiums are received prior to the date at which claims
must be paid out. Historically, these positive operating cash
flows, together with the portion of the investment portfolio
held directly in cash or highly liquid securities, have allowed
us to meet the cash demands entailed by our operating activities.
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In June 2004, we issued EUR 200 million of OCEANEs,
consisting of 100 million bonds having a nominal value of
EUR 2 each, which are bonds convertible or exchangeable for
new or existing shares. The OCEANEs bonds will be fully redeemed
in 2010. We used the proceeds from the OCEANEs bond issuance,
together with available cash, to repay our 1999 OCEANEs bonds
that matured on January 1, 2005 for an aggregate amount of
approximately EUR 263 million, including repayment
premium and reimbursement value of previously repurchased bonds. |
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|
In 2002, we issued EUR 200 million of unsubordinated
notes repayable on June 21, 2007. |
15
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Pursuant to agreements dated December 28, 2001 entered into
in connection with the formation of IRP Holdings Limited, or IRP
Holdings, IRP Holdings minority shareholders have an
agreed set of exit rights exercisable during certain defined
periods. The agreements permit the minority shareholders to exit
IRP Holdings during the first half of 2005 and in any event
require an exit no later than May 31, 2006. SCOR may
acquire the shares held by the minority shareholders either with
existing or newly-issued SCOR shares, with cash, or with a
combination of shares and cash. SCOR may, depending on
conditions at the time of the exit, decide to acquire all or
part of these shares in 2005. For more information on IRP
Holdings, see Item 9.A. The Offer and
Listing IRP, and for a description of the
pending litigations initiated by minority shareholders of IRP
Holdings, see Item 8.A. Consolidated Statements and
Other Financial Information Legal Proceedings. |
Despite the level of cash generated by SCORs ordinary
activities, we may be required to seek full or partial external
debt or equity financing in order to meet some or all of the
foregoing payments. The amount of any required external
financing will depend in the first place on the Groups
available cash. Our decision to withdraw from some business
lines has significantly reduced our premium income, which may
further affect our cash flow. In addition, a significant portion
of our assets are collateralized for the purpose of guaranteeing
either letters of credit obtained from banks for the purpose of
writing reinsurance contracts with ceding companies, or payment
of loss claims made by ceding companies. These liabilities
amounted to approximately EUR 1.9 billion at
December 31, 2004 and accordingly restrict our capacity to
increase cash by means of asset disposals. Furthermore, cash
available in Group subsidiaries may not be transferable to the
Company, subject to local regulations and because of these
subsidiaries own cash requirements.
Moreover, access to additional outside financing also depends on
a range of other factors, many of which are beyond our control,
including general economic conditions, market conditions,
investor perceptions of our industry sector of activity and our
financial condition. In addition, our ability to raise new
financings depends on clauses in our outstanding finance
contracts and on our credit ratings. We cannot guarantee that we
will be in a position to obtain additional financing, or to do
so on commercially acceptable terms. If we were unable to do so,
the pursuit of our business development strategy and our
financial condition would be materially adversely affected.
We are exposed to the risk of changes in foreign exchange
rates.
We publish our consolidated financial statements in euros, but a
significant part of our income and expenses, as well as our
assets and liabilities, are denominated in currencies other than
the euro. Consequently, fluctuations in the exchange rates used
to translate these currencies into euros may have a significant
impact on SCORs reported results of operations and net
equity from year to year. Fluctuations in exchange rates can
have consequences on our results of operations and net equity
because of the conversion of income, expenses, assets and
liabilities in foreign currencies.
In addition, the shareholders equity of a large majority
of our Group entities is stated in a currency other than the
euro, specifically U.S. dollars. As a result, changes in
the exchange rates used to translate foreign currencies into
euros, and in particular the weakening of the U.S. dollar
against the euro in recent years have had and may in the future
have a negative impact on our consolidated net equity. These
fluctuations are currently not covered by any hedging
transactions by the Group. The strengthening of the euro against
other currencies resulted in a gain of EUR 37 million
in the year ended December 31, 2004. During the year ended
December 31, 2004, the strengthening of the euro against
other currencies resulted in a negative exchange rate adjustment
in the Groups equity of EUR 101 million.
Our Non Life subsidiaries in the United States are
facing financial difficulties and certain of our American
subsidiaries are subject to a regulatory review by
U.S. insurance regulators.
The operations of our Non Life subsidiaries in the U.S.
have deteriorated principally as a result of losses stemming
from the underwriting years 1997 to 2001, the impact of the
terrorist attack of September 11, 2001 and the claims
experience of the health insurance and credit markets. Based on
U.S. risk-based capital requirements, we recapitalized our U.S.
subsidiaries in 2003, 2004 and early 2005 through capital
investments or by the
16
issuance of surplus notes, for a total amount of approximately
USD 402 million. As a result of these capital
increases and the reduction of premiums booked in 2004, the
level of assets and risk-based capital of our U.S. subsidiaries
were in compliance with U.S. regulatory requirements as of
December 31, 2004.
Our U.S. reinsurance and insurance subsidiaries are required to
file financial reports in the states in which they are licensed
or authorized, prepared in accordance with the accounting
principles and methods prescribed by the New York State
Insurance Department, or NYID, and other state regulators.
On February 25, 2004, SCOR Reinsurance Company, or SCOR Re,
notified the NYID that it had incorrectly accounted for a loss
portfolio transfer reinsurance treaty signed in 2000 with three
reinsurers unaffiliated with the Group in its 2000, 2001 and
2002 financial statements. We believe that the application by
SCOR Re of the correct accounting principles and methods during
this period would have had no material impact on our
consolidated financial condition. The NYID is currently
reviewing this matter and has not advised SCOR Re as to its
conclusion.
We face risks from changes in government regulations and
legal proceedings and developments.
We are subject to detailed, comprehensive regulation and
supervision in all the countries in which we do business.
Changes in existing laws and regulations may affect the way in
which we conduct our business and the products we may offer or
the amount of reserves to be posted, including on claims already
declared. Regulatory agencies have broad administrative power
over many aspects of the reinsurance industry and we cannot
predict the timing or form of any future regulatory initiatives.
Furthermore, government regulators are concerned primarily with
the protection of policyholders rather than shareholders or
creditors. For example, there are regulations about to be made
applicable to French reinsurers that dictate investment
portfolio contents and solvency ratios. There are also
regulatory initiatives to reconcile the regulations applicable
to insurance companies to reinsurance companies. We believe
these regulations will become more robust over time. These new
regulations and statutes may over time restrict our ability to
write reinsurance business. Moreover, we are involved in legal
and arbitration proceedings in certain European, and other
jurisdictions, including in the United States. In particular, we
are subject to proceedings initiated by the minority shareholder
of IRP Holdings in Dublin, Ireland and Boston, Massachusetts.
See Item 8.A. Consolidated Statements and Other
Financial Information Legal Proceedings.
Negative changes in laws or regulations or an adverse outcome of
these proceedings could have a material adverse affect on our
business, liquidity, financial condition and results of
operations.
The reinsurance industry is also affected by political,
judicial, social and other legal developments, which have at
times in the past resulted in new or expanded theories of
liability. For example, we could be subject to developments that
impose additional coverage obligations on us beyond our
underwriting intent, or to increases in the number or size of
claims to which we are subject. These political, judicial,
social and other legal developments may not become apparent
until some time after their occurrence. We cannot predict the
future impact of changing political, judicial, social and other
legal developments on our operations and any changes could have
a material adverse effect on our financial condition, results of
operations or cash flows.
Political, legal, regulatory and industry initiatives
relating to the insurance industry, including investigations
into contingent commission arrangements and certain finite risk
or non-traditional insurance products could adversely affect our
business and industry.
Recently, the insurance industry has experienced substantial
volatility as a result of current litigation, investigations and
regulatory activity by various insurance, governmental and
enforcement authorities concerning certain practices within the
insurance industry. These practices include the payment of
contingent commissions by insurance companies to insurance
brokers and agents and the extent to which such compensation has
been disclosed and the accounting treatment for finite
reinsurance or other non-traditional or loss mitigation
insurance and reinsurance products. At this time, we are unable
to predict the potential effects, if any, that these
investigations may have upon the insurance and reinsurance
markets and industry business practices or what, if any, changes
may be made to laws and regulations regarding the industry and
financial reporting. Any of the foregoing could adversely affect
our business.
In addition, governmental authorities in both the U.S. and
worldwide are increasingly examining the potential risks posed
by the reinsurance industry as a whole, and to commercial and
financial systems in general. While we
17
do not believe these inquiries have identified meaningful new
risks posed by the reinsurance industry to the financial system
or to policyholders, and we cannot predict the exact nature,
timing or scope of possible governmental initiatives, we believe
it is likely there will be increased regulation in our industry
in the future.
A significant part of our business is conducted with a
limited number of brokers.
As is the case with many reinsurance companies, an important
part of our Non Life business is transacted through
reinsurance brokers. The Non Life reinsurance brokerage
market is dominated by a limited number of brokers with whom we
do business. As a result, our ability to obtain underwriting
premiums is heavily dependant on being recommended by these
brokers to their clients. After having been suspended by several
large brokers from their list of recommended reinsurers in late
2003 due to our credit ratings downgrades, we have been
readmitted to the list of recommended reinsurers by such
reinsurance and insurance brokers for the 2004 underwriting
year. If, however, our brokers were to suspend us from the list
of reinsurers that they propose to their clients in the future
or we are otherwise unable to maintain relationships with the
limited number of brokers with whom we do business, the volume
of our written premiums could decline, which could significantly
impact our operating results as well as our financial condition.
If we do not successfully implement our Moving
Forward strategic plan, we will not achieve our objectives
and our business and future profitability and financial
condition would be adversely affected.
Our Board of Directors adopted a new strategic plan entitled
Moving Forward and we have begun to implement this
plan with the Property and Casualty treaties renewals for 2005.
This plan marks the end of our recovery action and serves as a
business plan for the management of the business throughout the
business cycle, taking into account three hypothetical capital
base levels according to the business requirements during the
different times in the business cycle. The implementation and
success of our strategic plan are based on a number of
assumptions and factors that are not under our control,
including current and projected general economic conditions, our
competitive position, our ratings levels and our financial
condition. If these factors prevent us from implementing our
strategic plan or if our assumptions prove incorrect or the plan
is not effectively implemented, we will not achieve our
objectives and our business and future profitability and
financial condition would adversely be affected.
Our business and future profitability and financial condition
could be adversely affected by the run-off of certain of our
lines of business in the United States, including those of CRP
and SCOR U.S.
In January 2003, we put CRPs operations in run-off and
according to the Back on Track plan we launched in
2002, we have determined to withdraw from certain other lines of
business at our SCOR U.S. operations. We have organized
these operations as run off and have put management
in place to implement the commutation of these businesses. The
costs and liabilities associated with these run-off businesses
and other contingent liabilities could cause the Group to take
additional charges that could be material to the Groups
results of operations.
A significant part of our strategy regarding the run-off of
certain of our operations in the United States includes the
commutation of the risks held by our Bermudian subsidiary, CRP,
and some of the risks subscribed in the U.S. by SCOR U.S. The
outstanding reserve levels have been substantially reduced and
from December 31, 2002 to December 31, 2004, dropped
by approximately 80% over the period. However, there cannot be
any assurance that the remaining commutation will be achieved on
attractive terms.
Our shareholders equity is sensitive to the value of
our intangible assets.
A significant portion of our assets is comprised of intangible
assets, the value of which is to a large extent dependent on our
future operating performance. The valuation of intangible assets
also requires us to make subjective and complex judgments about
matters that are inherently uncertain. If there is a change in
the assumptions supporting our intangible assets, we may be
required to write them down in whole or in part, thereby further
reducing our capital base.
18
The amount of goodwill we carry in our consolidated accounts may
also be impacted by business and market conditions. As of
December 31, 2004, we carried EUR 209 million of
goodwill as a result of acquisitions, primarily of South
Barrington in 1996 and Sorema S.A. and Sorema N.A. in 2001.
According to the FAS 142, the Group performs the required
annual assessment of goodwill in its annual closing in the
fourth quarter; however, this assessment normally requires an
additional test to be performed during the year upon the
occurrence of certain events or circumstances. Should any
adverse significant change occur in the future, the Group would
need to perform an impairment assessment of its goodwill before
the regular fourth quarter assessment. If the goodwill is
determined to be impaired, the amount of the goodwills
write off will impact the Groups results.
Other assets we carry are subject to review. For example, as of
December 31, 2004 we had a total of
EUR 313 million in deferred tax assets, net of
valuation allowance, and EUR 236 million in deferred
tax liabilities compared to a total of EUR 188 million
in deferred tax assets, net of valuation allowance, and
EUR 228 million in deferred tax liabilities at
December 31, 2003. The calculation of deferred tax assets
and liabilities is based on applicable tax legislation and
accounting standards and the future recoverability of these
deferred tax assets depends on the performance of each entity.
At each annual financial statement closing, we are required to
assess the need for a valuation allowance of our deferred tax
assets. As a result, at December 31, 2003, we had to write
down all of the deferred tax assets related to SCOR and SCOR
U.S., resulting in a charge of EUR 353 million. Due to
improvements in our profitability in 2004 and actions we have
taken to sustain profitability in the future, we have reassesed
the realizability of deferred tax assets with respect to French
net operating losses based upon projections for future taxable
income, including tax planning strategies.
The costs of acquiring new business in Life, including
commissions and underwriting expenses, are deferred and
amortized as deferred acquisition costs, or DAC. In general, DAC
is amortized in proportion to the profits expected to be
generated over the life of the underlying business. The
assumptions we make with respect to the recoverability of DAC
are therefore affected by such factors as operating performance,
market conditions and persistency of underlying life policies.
If the assumptions on which recoverability of DAC is based prove
to be incorrect, it could become necessary to accelerate its
amortization, which could have a material adverse impact on our
financial condition and results of operations.
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We have restated our U.S. GAAP financial statements and
identified material weaknesses in our internal controls, and the
identification of any material weaknesses or significant
deficiencies in the future could affect our ability to ensure
timely and reliable financial reports. |
In connection with the implementation of International Financial
Reporting Standards, or IFRS, as required by the EU, SCOR
identified a number of errors in its U.S. GAAP financial
statements. As a result, the Group has determined that it was
necessary to restate its previously issued U.S. GAAP
consolidated financial statements. In addition, in connection
with their audit of our 2004 fiscal year financial statements,
our auditors, Ernst & Young, notified us that they had
identified two reportable conditions under standards established
by the American Institute of Certified Public Accountants
involving control and its operation, that they consider to be
material weaknesses, and that other potential material
weaknesses were being investigated. The first material weakness
identified related to an error in the accounting for leases that
were originated during the fiscal year ended December 31,
2002 and that were not properly accounted for as capital leases
under U.S. GAAP. The second material weakness identified
related to the accounting for derivatives at December 31,
2003. In Ernst & Youngs view, both errors were
attributable to inadequate controls over the U.S. GAAP
financial statements closing process. For additional information
regarding the restatement and these material weaknesses, see
Item 15. Controls and Procedures and
note 2 to our U.S. GAAP consolidated financial
statements included elsewhere herein.
While we are planning to take actions to address these material
weaknesses, including contracting with or hiring additional
persons knowledgeable in U.S. GAAP, these measures may not be
sufficient to address the issues identified by us or to ensure
that our internal controls are effective. If we are unable to
contract with or hire and retain additional accounting personnel
knowledgeable in U.S. GAAP or otherwise correct deficiencies in
internal controls in a timely manner, our ability to record,
process, summarize and report financial information within the
19
time periods specified in the rules and forms of the SEC will be
adversely affected. This failure could materially and adversely
impact our business, financial condition and the market value of
our securities.
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Our internal control over financial reporting may not be
effective and our independent auditors may not be able to
certify as to their effectiveness, which could have a
significant and adverse effect on our business and
reputation. |
We are evaluating our internal control over financial reporting
in order to allow management to report on, and our independent
auditors to attest to, our internal control over financial
reporting, as required by Section 404 of the US
Sarbanes-Oxley Act of 2002 and the rules and regulations of the
SEC thereunder, which we refer to as Section 404. We are
currently performing the system and process evaluation and
testing required, and any necessary remediation, in an effort to
comply with the management certification and auditor attestation
requirements of Section 404. The management certification
and auditor attestation requirements of Section 404 will
initially apply to SCOR for its Annual Report on Form 20-F
for the year ended December 31, 2006. In the course of our
ongoing Section 404 evaluation, we have identified areas of
internal control over financial reporting that may need
improvement, and plan to design enhanced processes and controls
to address these and any other issues that might be identified
through this review. In addition, as described in the previous
risk factor, SCOR has identified a number of errors in its
U.S. GAAP financial statements and determined that it was
necessary to restate its previously issued U.S. GAAP
consolidated financial statements and our auditors,
Ernst & Young, notified us that they had identified two
reportable conditions under standards established by the
American Institute of Certified Public Accountings involving
control and its operation, that they consider to be material
weaknesses, and that other potential material weaknesses were
being investigated.
We cannot be certain as to the timing of completion of our
evaluation, testing and any remediation actions or the impact of
the same on our operations. If we are not able to implement the
requirements of Section 404 in a timely manner or with
adequate compliance, our independent auditors may not be able to
certify as to the effectiveness of our internal control over
financial reporting and we may be subject to sanctions or
investigation by regulatory authorities, such as the SEC. As a
result, there could be a negative reaction in the financial
markets due to a loss of confidence in the reliability of our
financial statements. In addition, we may be required to incur
costs in improving our internal control system and the hiring of
additional personnel. Any such action could negatively affect
our results.
Our French GAAP results may differ significantly from our
U.S. GAAP results.
The consolidated financial statements of SCOR included herein
have been prepared in accordance with U.S. GAAP. In
addition, SCOR, like other French companies, publishes its
primary consolidated financial statements, not included herein,
prepared in accordance with French GAAP. There are significant
differences between French GAAP and U.S. GAAP which lead to
different results under the two systems of accounting.
Currently, the most significant differences between SCORs
French GAAP results and U.S. GAAP results arise due to the
(i) manner in which currencies are converted (i.e. French
GAAP uses the exchange rate at the close of the applicable day
and U.S. GAAP uses an average of the exchange rate for such
day), (ii) the treatment of goodwill (i.e., French GAAP
requires amortization of goodwill and U.S. GAAP uses a
depreciation test) and (iii) difference in valuation of
deferred tax assets. As described below, starting
January 1, 2005, SCOR will prepare its primary financial
statements under International Financial Reporting Standards, or
IFRS, and no longer under French GAAP. There are also
differences between IFRS and U.S. GAAP and we cannot
predict with any certainty the extent to which SCORs IFRS
and U.S. GAAP results will differ in future years.
The transition of our primary financial statements from
French GAAP to IFRS may affect our operating results.
The Council of the European Union, or EU, adopted a regulation
requiring listed companies in its member states, such as SCOR,
to prepare consolidated financial statements in accordance with
IFRS, which was previously known as International Accounting
Standards. This new regulation took effect on January 1,
2005. Accordingly, the basis on which we prepare our primary
financial statements and report our operating results will be
changed
20
for the year ended December 31, 2005. The impact of
adopting IFRS is difficult to predict; however, it could have an
impact on our level of reported assets, liabilities,
shareholders equity, earnings, expenses and income.
Operational risks, including human or systems failures, are
inherent in our business.
Operational risk is inherent in our business. Operational risk
and losses can result from business interruption, misconduct or
fraud, errors by employees, failure to document transactions
properly or to obtain proper internal authorization, failure to
comply with regulatory requirements, information technology
failures, poor vendor performance or external events.
We believe our modeling, underwriting and information technology
and application systems are critical to our business. Moreover,
our proprietary technology and applications have been an
important part of our underwriting process and our ability to
compete successfully. We have also licensed certain systems and
data from third parties. We cannot be certain that we will have
access to these, or comparable, service providers, or that our
technology or applications will continue to operate as intended.
Our information technology is subject to the risk of breakdowns
and outages, disruptions due to viruses, attacks by hackers and
theft of data. A major defect or failure in our information
technology and application systems could result in management
distraction, harm to our reputation, increased expense or
financial loss. We believe appropriate controls and mitigation
actions are in place to prevent significant risk of defect in
our information technology and application systems, but if such
controls and actions are not effective, the adverse effect on
our business could be significant.
It may not be possible for shareholders to effect service of
legal process, enforce judgments of courts outside of France or
bring actions based on securities laws of jurisdictions other
than France against SCOR or members of its Board of Directors
and executive officers.
SCOR and a majority of the members of its Board of Directors and
executive officers are residents of France and other countries
other than the United States. In addition, the assets of SCOR
and the members of its Board of Directors and executive officers
are located in whole or in substantial part outside of the
United States. As a result, it may not be possible for you to
effect service of legal process within the United States upon
most of our directors and executive officers, including with
respect to matters arising under U.S. federal securities
laws or applicable state securities laws. Moreover, judgments of
U.S. courts, including those predicated on the civil
liability provisions of the U.S. federal securities laws,
may not be enforceable in French courts. As a result, our
shareholders who obtain a judgment against us in the United
States may not be able to require us to pay the amount of the
judgment.
The trading price of SCORs ADSs and dividends paid on
SCORs ADSs may be materially adversely affected by
fluctuations in the exchange rate for converting euros into
U.S. dollars.
Fluctuations in the exchange rate for converting euros into
U.S. dollars may affect the value of SCORs ADSs.
Specifically, as the relative value of the euro against the
U.S. dollar declines, each of the following values will
also decline:
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the U.S. dollar equivalent of the euro trading prices of
SCOR Ordinary Shares on Euronext, which may consequently cause
the trading price of SCORs ADSs in the United States to
also decline; |
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the U.S. dollar equivalent of the proceeds that a holder of
SCORs ADSs would receive upon the sale in France of any
SCOR Ordinary Share withdrawn from the Depositary; and |
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the U.S. dollar equivalent of cash dividends paid in euros
on the SCOR Ordinary Shares represented by SCORs ADSs. |
The holders of SCORs ADSs may not be able to exercise
their voting rights due to delays in notification to and by the
Depositary.
The Depositary for SCORs ADSs may not receive voting
materials for SCOR Ordinary Shares represented by SCORs
ADSs in time to ensure that holders of SCORs ADSs can
instruct the Depositary to vote their shares. In addition, the
Depositarys liability to holders of SCORs ADSs for
failing to carry out voting instructions or for
21
the manner of carrying out voting instructions is limited by the
deposit agreement governing the SCOR ADSs. As a result, holders
of SCORs ADSs may not be able to exercise their right to
vote and may not have any recourse against the Depositary or
SCOR if their shares are not voted as they have requested.
SCORs ADS and Ordinary Shares price could be volatile
and could drop unexpectedly and you may not be able to sell your
ADSs or Ordinary Shares at or above the price you paid.
The price at which SCORs ADSs and Ordinary Shares will
trade may be influenced by a large number of factors, some of
which will be specific to us and our operations and some of
which will be related to the insurance industry and equity
markets generally. As a result of these factors, you may not be
able to resell your ADSs or Ordinary Shares at or above the
prices which you paid for them. In particular, the following
factors, in addition to other risk factors described in this
section, may have a significant impact on the market price of
SCORs ADSs or Ordinary Shares:
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a downgrade or rumored downgrade of SCORs credit or
financial strength ratings, including placement on credit watch; |
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potential litigation involving SCOR or the insurance industry
generally; |
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changes in financial estimates and recommendations by securities
research analysts; |
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fluctuations in foreign exchange rates and interest rates; |
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the performance of other companies in the insurance sector; |
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regulatory and legal developments in the principal markets in
which SCOR operates; |
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international political and economic conditions, including the
effects of terrorism attacks, military operations and other
developments stemming from such events and the uncertainty
related to these developments; |
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investor perception of SCOR, including actual or anticipated
variations in its revenues or operating results; |
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announcements by SCOR of acquisitions, disposals or financings
or speculation about such acquisitions, disposals or financings; |
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changes in SCORs dividend policy, which could result from
changes in its cash flow and capital position; |
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sales of blocks of SCORs shares by shareholders; and |
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general economic and market conditions. |
Item 4. Information on the Company
A. BUSINESS OVERVIEW
General
SCOR is a French société anonyme with its registered
office at 1, avenue du Général de Gaulle, 92800
Puteaux, France. SCORs telephone number is:
+33.(0)1.46.98.70.00 and its internet address is
http://www.scor.com. Information contained on SCORs
website is not part of this Annual Report. SCORs Articles
of Association are registered with the Nanterre under registry
number B562033357.
SCOR provides treaty and facultative reinsurance on a worldwide
basis to Property-Casualty and Life insurers. In 2004, the Group
had net written premiums of EUR 2,126 million, which
management believes make it one of the 15 largest European
reinsurers, based on managements estimate of the 2004 net
premiums written by major international reinsurers and excluding
intra-group business. SCOR operates in 19 countries through
its subsidiaries, branches and representative offices and
provides services in more than 100 countries.
22
Strategy
At the end of 2002, SCOR had reassessed its strategy and
launched the Back on Track strategic plan. Since the
end of 2002, when it implemented its Back on Track
plan, SCOR has shifted its underwriting towards:
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short-tail business, which allows a clearer view of
prospective business and which does not carry the same level of
risk for future results and the inherent difficulties in
calculating necessary reserves that are associated with
long tail business as a result of the long term
nature of the litigation and inflation of claims; and |
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non-proportional business, where SCOR underwriters and actuaries
are better able to establish prices that are less susceptible to
the adverse effects of the ceding companies underwriting
and pricing. |
The Back on Track plan had met its four major
objectives in 2004, including:
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strengthening the Groups reserves; |
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replenishing the Groups capital base through two capital
increases; |
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right-sizing the Group by reducing premium underwriting and
implementing the Groups new underwriting policy focused on
short tail, non-proportional treaties and large
business underwriting in Non Life, either primary or through
large facultatives, when capacity and pricing are adequate; and |
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restructuring the Group, particularly by putting in place a new
board of directors, new management and new procedures. |
Consistent with the Back on Track plan, SCORs
gross written premiums declined approximately 32% in the year
ended December 31, 2004 primarily due to the implementation
of the Back on Track plan, which imposed more
rigorous underwriting standards, as well as SCORs lower
financial strength ratings. In addition, SCOR furthered the
geographic rebalancing of its Non Life business by reducing
the percentage of Non Life premium income in the U.S. from
approximately 37% in the year ended December 31, 2002 to
approximately 16% in the year ended December 31, 2003 and
approximately 9% in the year ended December 31, 2004, while
increasing the percentage of Non Life premium income in
Europe from approximately 42% in the year ended
December 31, 2002 to approximately 53% in the year ended
December 31, 2003 and approximately 60% in the year ended
December 31, 2004.
In the second half of 2004, the Board of Directors adopted a new
strategic plan for 2005 through 2007, entitled Moving
Forward. The Moving Forward plan is a business
model designed to achieve SCORs objectives through a
profitability-focused underwriting plan and an optimal
allocation of the capital base throughout the different stages
of the business cycle. As part of the Moving Forward
plan, SCOR has also reassessed its capital allocation plan along
the Groups lines of business and by market. The plan seeks
to maintain SCORs client base in Europe, Asia, North
America, and emerging countries, and regain shares in treaties
where premium rates, terms and conditions meet the Groups
return on equity requisites. On the basis of this modeling of
underwriting policy for 2005 through 2007, the Groups
objective is to maintain profitability and ensure solvency.
History of SCOR
SCOR was founded in 1970 at the initiative of the French
government with the objective of creating a reinsurance company
of international stature. SCOR expanded rapidly on the
worlds markets, building up a substantial international
portfolio. SCORs current statuts provide for a term
that expires on June 30, 2024, unless the shareholders
elect to shorten or extend the Companys term by
extraordinary resolution.
At the beginning of the 1980s, the French State progressively
wound down its interest in the Companys capital, held
through the Caisse Centrale de Réassurance, and was
replaced by insurance companies operating in the French market.
In 1989, SCOR and UAP Reassurances combined their
Property-Casualty and Life reinsurance businesses as part of a
restructuring of SCORs capital, and listed the Company on
the Paris stock market. Compagnie UAP, which
23
held 41% of the capital, disposed of its shareholding in October
1996 via an international public offering timed to coincide with
the listing of SCORs shares on the New York Stock Exchange.
In July 1996, SCOR acquired the reinsurance portfolio of the
American insurer Allstate Insurance Company, doubling the share
of its U.S. business as a proportion of total Group
revenues.
While maintaining an active local presence on the major markets
and building up new units in fast-growing emerging countries,
SCOR has continued in the following years to streamline its
structure and rationalize its organization.
In 1999, SCOR purchased Western General Insurances 35%
stake in CRP, thus raising its interest in this subsidiary
to 100%.
In 2000, SCOR acquired PartnerRe Life in the United States, thus
providing it with a platform to expand its Life, Accident and
Health reinsurance business in the U.S.
In 2001, SCOR acquired Sorema S.A. and Sorema N.A. in order to
increase its market share and take advantage of the cyclical
upturn in Property & Casualty reinsurance. That same
year, SCOR and a group of private investors formed a reinsurance
company in Dublin, named Irish Reinsurance Partners, with a paid
up capital of EUR 300 million to strengthen the
Groups overall capital base and increase its subscription
capacity to take advantage of the upturn in the reinsurance
cycle.
In 2002, SCOR entered into a cooperation agreement in the Life
business with the Legacy Marketing Group of California for the
distribution and management of annuity products. It also opened
a Life office in Brussels in order to take full advantage of the
growth potential in the Life reinsurance market in Belgium and
Luxembourg.
Recent Developments
IRP
Pursuant to agreements dated December 28, 2001 entered into
in connection with the formation of IRP Holdings Limited, or IRP
Holdings, IRP Holdings minority shareholders have an
agreed set of exit rights exercisable during certain defined
periods. The agreements permit the minority shareholders to exit
IRP Holdings during the first half of 2005 and in any event
require an exit no later than May 31, 2006. SCOR may
acquire the shares held by the minority shareholders either with
existing or newly-issued SCOR shares, with cash, or with a
combination of shares and cash. SCOR may, depending on
conditions at the time of the exit, decide to acquire all or
part of these shares in 2005. For more information on IRP
Holdings, see Item 9.A. The Offer and
Listing IRP, and for a description of the
pending litigations initiated by the minority shareholders of
IRP Holdings, see Item 8.A. Consolidated Statements
and Other Financial Information Legal
Proceedings.
Renewals
The January 1, 2005 renewal period involved approximately
80% of SCORs 2004 Property & Casualty treaty
portfolio, approximately 20% of SCORs 2004 Large Corporate
Accounts portfolio and approximately 95% of SCORs 2004
Credit & Surety portfolio. Gross premiums written on
Property & Casualty treaties during the January 1, 2005
renewal period were approximately EUR 802 million. SCOR
increased its quota share on existing treaties and regained
several lead underwriting positions in European
Property & Casualty treaties, gaining or regaining
40 clients, as opposed to losing 27 clients in the
prior renewal year, 14 of which SCOR decided to relinquish, 7 of
which left following a decision made by the cedants due to
SCORs ratings and 6 of which left following mergers
between cedants. In the United States, SCOR has maintained its
commercial presence while pursuing a selective underwriting
policy despite its current ratings. SCOR has continued to
reposition itself with small and medium-sized regional cedants.
In Mexico and the Caribbean, SCOR has benefited from a rate
increase in high-layer natural catastrophe lines in the zones
recently affected by hurricanes. In Canada, SCOR has initiated
relationships with several clients and has increased its share
on several existing treaties. In Asia, SCOR regained quota share
on its treaties in Malaysia, Indonesia, China and Singapore and
gained new clients in Malaysia, Taiwan and Hong Kong.
24
Renewals in the Large Corporate Accounts business are carried
out throughout the year. However, of the 20% of SCORs
Large Corporate Accounts portfolio up for renewal during the
January 1, 2005 renewal period, 77% of business was
renewed. The trends in this sector to lower premiums and adverse
exchange rate fluctuations have weighed on the value of premiums
where the accounting currency is often U.S. dollars. SCOR
has initiated relationships with four new clients and has
increased its quota share on several existing treaties in the
Credit & Surety sector.
World Trade Center Litigation
The September 11, 2001 attack on the World Trade Center
resulted in the Group establishing reserves on the basis that
the attack on the two towers of the World Trade Center was one
single occurrence and not two occurrences under the terms of the
applicable insurance coverage. On December 6, 2004, a jury
determined that the attacks on the World Trade Center were two
distinct occurrences and therefore that our ceding company,
which provided insurance on the World Trade Center, was liable
for two events on the basis of its policy wording. As a result,
we have increased our reserves based on the actual replacement
value established by the ceding companys claims adjusters.
The gross amount of reserves has accordingly been increased from
USD 355 million as of December 31, 2003 to
USD 422 million as of December 31, 2004, and net of
retrocession from USD 167.5 million to USD 193.5
million. The jury verdict that the attack on the World Trade
Center constituted two occurrences and not one occurrence under
the terms of the ceding companys insurance policy is
expected to be appealed and we have issued two letters of credit
in the amount of USD 145.3 million as security required by
the ceding company to guarantee our willingness and capacity to
pay the ceding company if the jury verdict is not reversed by
the U.S. Court of Appeals for the Second Circuit, or if an
appraisal process to be conducted under court supervision in
2005 were to lead to an increased amount of liabilities to be
paid in the future. See Item 8.A. Consolidated
Statements and Other Financial Information Legal
Proceedings for a discussion of the pending World Trade
Center litigation.
Claims
The storm damage of January 8 to 9, 2005 in Northern Europe
is currently being assessed and could reach a relatively large
sum exceeding the initial estimates made after it had occurred.
Furthermore, decisions made by the operator of Roissy airport to
perform more significant reconstruction work on terminal 2
E than that declared by the client and his insurers when the
claim was launched will result in a reassessment of the gross
cost, the impact of which for SCOR should be significantly
reduced by the involvement of retrocessionaires. The impact on
the Groups accounts should be marginal.
Commutations
There were two commutations for USD 26.9 million of
reserves in the Bermudan subsidiary of SCOR (CRP) since
January 1, 2005, for which the discounted reserves have now
been reduced to EUR 216 millions, down by 32% compared to
the level as of December 31, 2003. Moreover, several
negotiations started in 2004 have recently been achieved.
On February 7, 2005, SCOR and its U.S. and Bermudan
subsidiaries, SCOR U.S. and Commercial Risk Companies
(CRP) signed a large commutation agreement for the SCOR
Group which will reduce the overall reserves of SCOR U.S. (and
CRP but to a lesser extent) by approximately USD
300 million and will be accounted for in the first quarter
of 2005.
These transactions reduce the Groups risk exposure and the
volatility of reserves, especially for segments exposed to
claims inflation.
Run off management in the United States
SCOR U.S. has set up a run off department,
which is managed separately from the Companys normal
underwriting business. This department administers all claims,
accounting and actuarial activities relating to market segments
in which SCOR U.S. is no longer writing new business.
25
Retrocession
The SCOR Group continues to pursue a conservative retrocession
policy based on acquiring capacity tailored to requirements and
uses. SCOR has selected market models to assess its exposure and
reinsurance policy in terms of catastrophic risks. The result is
a program better adapted to the requirements of the Group and
its customers, and a sharp reduction in retrocession expenses.
SCOR continues to retain the same level of risks for
catastrophic risks and individual events as in the past.
OCEANEs Issuance and Repayment
In July 2004, we issued EUR 200 million of OCEANEs,
consisting of 100 million bonds having a nominal value of
EUR 2 each, which are bonds convertible or exchangeable for
new or existing shares. The OCEANEs bonds will be fully redeemed
in 2010. We used the proceeds from the OCEANEs bond issuance,
together with available cash, to repay our OCEANEs bonds
originally issued in June 1999.
On January 3, 2005, SCOR repaid its OCEANEs bonds
originally issued in June 1999 in the original principal amount
of approximately EUR 233 million, at a price of
EUR 65.28 per bond, for an aggregate amount of
EUR 263 million, including repayment premium and
reimbursement value of previously repurchased bonds. In 2004, we
had previously repurchased 577,258 OCEANEs bonds, the
reimbursement value of which corresponds to EUR
37.7 million.
26
INDUSTRY OVERVIEW
Principles
Reinsurance is an arrangement in which a company, the reinsurer,
agrees to indemnify an insurance company, the ceding company,
against all or a portion of the primary insurance risks
underwritten by the ceding company under one or more insurance
contracts. Reinsurance business is similar to the insurance
business. The main differences stem from a greater complexity
due to a wider diversity of activities and from a more
international practice. Reinsurance can provide a ceding company
with several benefits, including a reduction in net liability on
individual risks and catastrophe protection from large or
multiple losses. Reinsurance also provides a ceding company with
additional underwriting capacity by permitting it to accept
larger risks and write more business than would be possible
without a concomitant increase in capital and surplus.
Reinsurance, however, does not discharge the ceding company from
its liability to policyholders. Reinsurers themselves may feel
the need to transfer some of the risks concerned to other
reinsurers, in a procedure known as retrocession.
Reinsurance provides three essential functions:
|
|
|
|
|
First, reinsurance helps to stabilize direct insurers
earnings when unusual and major events occur, by assuming the
high layers of these risks or relieving them of accumulated
individual exposures. |
|
|
|
Reinsurance allows insurers to increase the maximum amount they
can insure for a given loss or category of losses, by enabling
them to underwrite a greater number of risks, or larger risks,
without burdening their need to cover their solvency margin, and
hence their capital base. |
|
|
|
Reinsurance makes substantial quantities of liquidity available
to insurers in the event of major loss events. |
In addition, reinsurers also:
|
|
|
|
|
help ceding companies define their reinsurance needs and devise
the most effective reinsurance program, to better plan for their
capital adequacy and solvency margins; |
|
|
|
supply a wide array of support services, particularly in terms
of technical training, organization, accounting and information
technology; |
|
|
|
provide expertise in certain highly specialized areas such as
the analysis of complex risks and risk pricing; |
|
|
|
enable ceding companies to build up their business even if they
are undercapitalized, particularly in order to launch new
products requiring heavy investment. |
Types of Reinsurance
Treaty and Facultative Reinsurance
The two basic types of reinsurance arrangements are treaty and
facultative reinsurance. In treaty reinsurance, the ceding
company is contractually bound to cede and the reinsurer is
bound to assume a specified portion of a type or category of
risks insured by the ceding company. Treaty reinsurers,
including SCOR, do not separately evaluate each of the
individual risks assumed under their treaties and, consequently,
after a review of the ceding companys underwriting
practices, are dependent on the original risk underwriting
decisions made by the ceding companys primary policy
writers. Such dependence subjects reinsurers in general,
including SCOR, to the possibility that the ceding companies
have not adequately evaluated the risks to be reinsured and,
therefore, that the premiums ceded in connection therewith may
not adequately compensate the reinsurer for the risk assumed.
The reinsurers evaluation of the ceding companys
risk management and underwriting practices, as well as claims
settlement practices and procedures, therefore, will usually
impact the pricing of the treaty.
In facultative reinsurance, the ceding company cedes and the
reinsurer assumes all or part of the risk assumed by a
particular specified insurance policy. Facultative reinsurance
is negotiated separately for each insurance contract that is
reinsured. Facultative reinsurance normally is purchased by
ceding companies for individual risks not covered by their
reinsurance treaties, for amounts in excess of the monetary
limits of their reinsurance treaties and
27
for unusual risks. Underwriting expenses and, in particular,
personnel costs, are higher relative to premiums written on
facultative business because each risk is individually
underwritten and administered. The ability to separately
evaluate each risk reinsured, however, increases the probability
that the underwriter can price the contract more accurately to
reflect the risks involved.
Proportional and Non-Proportional Reinsurance
Both treaty and facultative reinsurance can be written on a
proportional, or pro rata, basis or a non-proportional, or
excess of loss or stop loss, basis. With respect to
proportional, or pro rata, reinsurance, the reinsurer, in return
for a predetermined portion or share of the insurance premium
charged by the ceding company, indemnifies the ceding company
against a predetermined portion of the losses and loss
adjustment expenses, or LAE, of the ceding company under the
covered insurance contract or contracts. In the case of
reinsurance written on a non-proportional, or excess of loss or
stop loss, basis, the reinsurer indemnifies the ceding company
against all or a specified portion of losses and LAE, on a claim
by claim basis or with respect to a line of business, in excess
of a specified amount, known as the ceding companys
retention or reinsurers attachment point, and up to a
negotiated reinsurance contract limit.
Although the frequency of losses under a pro rata reinsurance
contract is usually greater than on an excess of loss contract,
generally the loss experience is more predictable and the terms
and conditions of a pro rata contract can be structured to limit
aggregate losses from the contract. A pro rata reinsurance
contract therefore does not necessarily require that a
reinsurance company assume greater risk exposure than on an
excess of loss contract. In addition, the predictability of the
loss experience may better enable underwriters and actuaries to
price such business accurately in light of the risk assumed,
therefore reducing the volatility of results.
Excess of loss reinsurance is often written in layers. One or a
group of reinsurers accepts the risk just above the ceding
companys retention up to a specified amount, at which
point another reinsurer or a group of reinsurers accepts the
excess liability up to a higher specified amount or such
liability reverts to the ceding company. The reinsurer taking on
the risk just above the ceding companys retention layer is
said to write working layer or low layer excess of loss
reinsurance. A loss that reaches just beyond the ceding
companys retention will create a loss for the lower layer
reinsurer, but not for the reinsurers on the higher layers. Loss
activity in lower layer reinsurance tends to be more predictable
than that in higher layers due to a greater historical
frequency, and therefore, like pro rata reinsurance, better
enables underwriters and actuaries to more accurately price the
underlying risks.
Premiums payable by the ceding company to a reinsurer for excess
of loss reinsurance are not directly proportional to the
premiums that the ceding company receives because the reinsurer
does not assume a direct proportionate risk. In contrast,
premiums that the ceding company pays to the reinsurer for pro
rata reinsurance are proportional to the premiums that the
ceding company receives, consistent with the proportional
sharing of risk. In addition, in pro rata reinsurance the
reinsurer generally pays the ceding company a ceding commission.
The ceding commission is usually based on the ceding
companys cost of acquiring the business being reinsured,
including commissions, premium taxes, assessments and
miscellaneous administrative expense, and also may include a
profit factor for producing the business.
Retrocession
Reinsurers typically purchase reinsurance to cover their own
risk exposure or to increase their capacity. Reinsurance of a
reinsurers business is called a retrocession. Reinsurance
companies cede risks under retrocessional agreements to other
reinsurers, known as retrocessionaires, for reasons similar to
those that cause primary insurers to purchase reinsurance: to
reduce net liability on individual risks, protect against
catastrophic losses and obtain additional underwriting capacity.
Broker vs. Direct Reinsurance
Reinsurance can be written through professional reinsurance
brokers or directly from ceding companies. From a ceding
companys perspective, both the broker market and the
direct market have advantages and disadvantages. A ceding
companys selection of one market over the other will be
influenced by its perception of such
28
advantages and disadvantages relative to the reinsurance
coverage being placed. For example, broker coverages usually
involve a number of participating reinsurers that have been
assembled by a broker, each assuming a specified portion of the
risk being reinsured. A ceding company may find it easier to
arrange such coverage in a difficult underwriting environment
where risk capacity is constrained and reinsurers are seeking to
limit their risk exposure. In contrast, direct coverage is
usually structured by ceding companies directly with one or a
limited number of reinsurers. The relative amount of brokered
and direct business written by the Groups subsidiaries
varies according to local market practice.
Cyclicality
The insurance and reinsurance sectors, particularly in the Non
Life area, are cyclical and are characterized by periods of
intense price competition due to excessive underwriting capacity
and periods when shortages of underwriting capacity permit
favorable premium levels. The movement in reinsurance premiums
is closely linked to the yearly renewal of treaties and
contracts in specialty lines. If the claims experience and the
financial results of reinsurers is favorable in a given year,
ceding companies will be inclined to ask for price reductions in
the most profitable lines of business. At the same time, new
entrants to the reinsurance market may seek to take advantage of
the profitable situation of the business, thus increasing the
capacity and exerting pressure on premium rates. This situation
of downward trends may be offset by natural catastrophes or
large claims affecting certain lines of business or certain
countries. After three years of strong premium rate increases,
the reinsurance industry has been experiencing a plateau in most
lines of business in 2004, except general liability, and a
moderate decrease in the reinsurance market is expected in 2005,
notwithstanding the effects of a number of large and costly
natural catastrophes in the second half of 2004 which may reduce
the downward trend of the cycle in some countries.
29
PRODUCTS AND MARKETS
General
Our operations are organized into the following two business
segments: Non Life and Life/ Accident & Health. Non Life is
further organized into four sub-segments: Property-Casualty
Treaty; Facultatives and Large Corporate Accounts written on a
facultative basis by SCOR Business Solutions, or SBS; Credit,
Surety & Political Risks; and Alternative Reinsurance. The
Non Life and Life segments discussed below differ from the Non
Life and Life/Accident & Health segments contained in our
financial statements included elsewhere herein because on a
statutory basis the Accident and Health reinsurance business are
classified in the Non Life category. Within each segment, we
write various classes of business, as indicated below.
Responsibilities and reporting within the Group are established
based on this structure, and our consolidated financial
statements reflect the activities of each segment.
Credit, Surety and Political Risks relates to reinsurance
treaties, either proportional or non-proportional, with
companies specialized in credit insurance, such as COFACE,
Euler-Hermès and NCM. In 2004, SCOR merged its Credit,
Surety and Political Risks business into its Non Life segment in
its financial statements since it was a relatively small treaty
business and, accordingly, its Credit, Surety and Political
Risks business is no longer treated as a separate business
segment in its financial statements. The presentation and
discussion contained herein have been revised to reflect such
reclassification for prior years.
SCORs Alternative Reinsurance Treaty business, or ART, has
been limited to underwriting within its Bermudan subsidiary,
Commercial Risk Partners, which has been in run-off since
January 2003. Therefore, in 2004, SCOR merged its ART business
into its Non Life business segment in its financial statements
since SCOR is no longer active in this business. The
presentation and discussion contained herein have been revised
to reflect such reclassification for prior years.
The following table sets forth our gross premiums written by
segment and class of business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(Restated) | |
|
(Restated) | |
|
|
|
|
| |
|
| |
|
|
|
|
EUR | |
|
% | |
|
EUR | |
|
% | |
|
EUR | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions, except percentages) | |
By segment of business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Life
|
|
|
3,696 |
|
|
|
75 |
|
|
|
2,323 |
|
|
|
70 |
|
|
|
1,365 |
|
|
|
61% |
|
Life/ Accident & Health
|
|
|
1,218 |
|
|
|
25 |
|
|
|
983 |
|
|
|
30 |
|
|
|
880 |
|
|
|
39% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,914 |
|
|
|
100 |
|
|
|
3,306 |
|
|
|
100 |
|
|
|
2,245 |
|
|
|
100% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By class of business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property-Casualty Treaty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
|
1,139 |
|
|
|
52 |
|
|
|
972 |
|
|
|
58 |
|
|
|
608 |
|
|
|
57 |
|
|
Casualty
|
|
|
920 |
|
|
|
42 |
|
|
|
609 |
|
|
|
36 |
|
|
|
326 |
|
|
|
31 |
|
|
Marine, Aviation and Transportation
|
|
|
77 |
|
|
|
4 |
|
|
|
63 |
|
|
|
4 |
|
|
|
19 |
|
|
|
2 |
|
|
Construction
|
|
|
40 |
|
|
|
2 |
|
|
|
46 |
|
|
|
2 |
|
|
|
111 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Property-Casualty Treaty
|
|
|
2,176 |
|
|
|
100 |
|
|
|
1,690 |
|
|
|
100 |
|
|
|
1,064 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(Restated) | |
|
(Restated) | |
|
|
|
|
| |
|
| |
|
|
|
|
EUR | |
|
% | |
|
EUR | |
|
% | |
|
EUR | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions, except percentages) | |
Facultatives and Large Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts (SBS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
|
437 |
|
|
|
47 |
|
|
|
329 |
|
|
|
58 |
|
|
|
161 |
|
|
|
62 |
|
|
Casualty
|
|
|
278 |
|
|
|
30 |
|
|
|
85 |
|
|
|
15 |
|
|
|
30 |
|
|
|
11 |
|
|
Marine, Aviation and Transportation
|
|
|
79 |
|
|
|
8 |
|
|
|
36 |
|
|
|
6 |
|
|
|
41 |
|
|
|
16 |
|
|
Construction
|
|
|
136 |
|
|
|
15 |
|
|
|
119 |
|
|
|
21 |
|
|
|
29 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Facultatives and Large Corporate Accounts
|
|
|
930 |
|
|
|
100 |
|
|
|
569 |
|
|
|
100 |
|
|
|
261 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit, Surety & Political Risks
|
|
|
123 |
|
|
|
|
|
|
|
65 |
|
|
|
|
|
|
|
38 |
|
|
|
|
|
Alternative Reinsurance
|
|
|
467 |
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non Life
|
|
|
3,696 |
|
|
|
|
|
|
|
2,323 |
|
|
|
|
|
|
|
1,365 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life/ Accident & Health
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annuity-based
|
|
|
182 |
|
|
|
15 |
|
|
|
198 |
|
|
|
18 |
|
|
|
33 |
|
|
|
4 |
|
Individual & group life
|
|
|
493 |
|
|
|
40 |
|
|
|
384 |
|
|
|
46 |
|
|
|
511 |
|
|
|
58 |
|
Accident
|
|
|
100 |
|
|
|
8 |
|
|
|
132 |
|
|
|
12 |
|
|
|
97 |
|
|
|
11 |
|
Disability
|
|
|
56 |
|
|
|
5 |
|
|
|
50 |
|
|
|
4 |
|
|
|
39 |
|
|
|
5 |
|
Health
|
|
|
200 |
|
|
|
16 |
|
|
|
105 |
|
|
|
9 |
|
|
|
74 |
|
|
|
8 |
|
Unemployment
|
|
|
14 |
|
|
|
1 |
|
|
|
28 |
|
|
|
3 |
|
|
|
28 |
|
|
|
3 |
|
Long-term care
|
|
|
173 |
|
|
|
14 |
|
|
|
86 |
|
|
|
8 |
|
|
|
98 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Life/ Accident & Health
|
|
|
1,218 |
|
|
|
100 |
|
|
|
983 |
|
|
|
100 |
|
|
|
880 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Life
The Non Life segment is divided into four operational
subsegments:
|
|
|
|
|
Property-Casualty Treaty; |
|
|
|
Facultatives and Large Corporate Accounts. |
|
|
|
Credit, Surety & Political Risks; and |
|
|
|
Alternative Reinsurance. |
Property-Casualty Treaty
The Property-Casualty Treaty sub-segment includes: the
proportional and non-proportional treaty classes of property;
casualty; marine, aviation and transportation; and construction
reinsurance.
Property. The Groups proportional and
non-proportional property treaty business provides reinsurance
coverage for underlying insured property damage or business
interruption losses resulting from fire or other perils in the
homeowners, personal auto, industrial and general commercial
property lines. In addition, SCORs specialized excess of
loss coverage also provides catastrophe loss protection to
cedents.
Casualty. The Groups proportional and
non-proportional casualty treaty reinsurance business includes
auto liability and general third party liability coverage, as
well as the liability components of both homeowners and general
commercial coverage. Auto liability reinsurance covers bodily
injury and third party property and other liability risks
arising from both private passenger and commercial fleet auto
coverage.
Marine, Aviation and Transportation. The Groups
marine, aviation and transportation treaty business relates
primarily to ocean and inland marine risk, as well as a limited
amount of commercial aviation coverage.
Construction. The Groups construction treaty
business, primarily written on a proportional basis, includes
inherent defect insurance coverage, also known as decennial
insurance. As required by French and Spanish law,
31
decennial insurance covers major structural defects and collapse
for ten years after completion of construction of a building.
Facultatives and Large Corporate Accounts
The second sub-segment of the Non Life segment is Facultatives
and Large Corporate Accounts, which we refer to as SCOR Business
Solutions, or SBS. SBS consists of six industrial sectors:
energy & utilities, new technologies, including a unit
dedicated to space risks, finance & services, industry,
contracting & major projects and large facultatives in three
geographic areas: Europe, Asia Pacific and North America. SBS
consists mostly of facultative business, which is written by
specialized underwriting teams. It was reorganized in 2000 to
cover the activities of corporate buyers seeking global risk
financing solutions that combine traditional risk coverage and
alternative financing. It shares risks on a proportional or
non-proportional basis with cedents for large, complex
industrial or technical risks, such as automotive assembly
lines, semiconductor manufacturing plants, oil and gas or
chemical facilities, oil and gas exploration and production
sites, energy facilities, and boiler and machinery installations.
The Groups large facultative business is primarily written
in property, as well as, to a lesser degree, in the liability,
transportation, space and construction classes of business. SBS
also writes casualty facultative business, which encompasses
commercial fleet auto coverage, workers compensation, fraud and
commercial third party liabilities.
Space and transportation facultative coverage is written
particularly in the areas of space and offshore risks, and
requires the application of sophisticated, highly technical risk
analysis and underwriting criteria. Offshore business relates to
offshore oil and gas exploration and operations, while space
business relates to satellite assembly, launch and coverage for
commercial space programs.
Construction facultative coverage is typically provided against
risk of loss due to physical property damage caused during the
construction period as well as, in certain cases, business
interruption or other financial losses incurred as a result of
completion delays for large and complex construction and
industrial projects. The Group has acted or is acting as lead or
principal reinsurer on several world scale infrastructure
projects. For these leading projects, SCOR takes an active role
in all phases of the development, and works with cedents,
brokers, insureds, risk managers and project sponsors in
optimizing the combination of risk management techniques and
insurance solutions.
Industrial clients are particularly sensitive to the ratings of
the reinsurers who are covering their risks. See
Item 3.D. Risk Factors
Ratings are important to our business.
Credit, Surety & Political Risks
SCORs Credit, Surety and Political Risks business is
conducted by teams based primarily in Europe and to a lesser
extent in the United States. In credit insurance contracts, the
insurer covers risks of loss due to non-payment of debts, while
in surety insurance contracts, the insurer acts as guarantor to
pay, or make pay, a debt. Political risks insurance covers risks
of loss as a result of measures taken by governments or
governmental entities jeopardizing a sales contract or an
obligation.
Alternative Reinsurance
SCORs ART business has been limited to underwriting within
its Bermudan subsidiary, Commercial Risk Partners, and has been
in run-off since January 2003.
Life/Accident & Health
Life/Accident & Health reinsurance includes life
reinsurance products, as well as personal casualty reinsurance,
namely accident, disability, health, unemployment and long-term
care.
32
Life. The Groups Life business, written primarily
on a proportional and non-proportional treaty basis, provides
life reinsurance coverage with respect to individual and group
life, reinsurance of annuity-based products, and longevity
reinsurance, to primary life insurers and pension funds.
Accident, disability, health, unemployment and long-term
care. The segments of this business are written primarily on
a proportional treaty basis.
Distribution by geographic area
In 2004, SCOR generated approximately 60% of its gross premiums
written in Europe, with significant market positions in France,
Germany, Spain and Italy, 19% of its gross premiums written in
North America, including Bermuda and the Caribbean region and
21% of its gross premiums written in Asia and the rest of the
world.
As part of its strategic reassessment in 2002, the Group has
pursued and is continuing to pursue the reorientation of its
Non Life business portfolio by geographic zone,
particularly by a deliberate reduction of underwriting in the
United States. The strategic reorientation pursued since
September 2002 has allowed the Group to write better quality
business. As a result of its efforts, SCOR reduced the
percentage of Non Life premium income in the U.S. from
approximately 37% in the year ended December 31, 2002 to
approximately 16% in the year ended December 31, 2003 and
approximately 9% in the year ended December 31, 2004, while
increasing the percentage of Non Life premium income in
Europe from approximately 42% in the year ended
December 31, 2002 to approximately 53% in the year ended
December 31, 2003 and approximately 60% in the year ended
December 31, 2004. In connection with its Asian operations,
SCOR has submitted a file for converting its representation
bureau in Beijing into a subsidiary and on April 16, 2004
obtained a license for its Seoul bureau to be converted into a
branch.
The following table shows the distribution of the Groups
gross Life and Non Life premiums written by geographic area:
Gross Premiums Written by Geographic
Area(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(Restated) | |
|
(Restated) | |
|
|
|
|
| |
|
| |
|
|
|
|
EUR | |
|
% | |
|
EUR | |
|
% | |
|
EUR | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(EUR figures in millions) | |
Total Europe
|
|
|
2,217 |
|
|
|
45% |
|
|
|
1,925 |
|
|
|
58% |
|
|
|
1,355 |
|
|
|
60% |
|
|
France
|
|
|
840 |
|
|
|
17% |
|
|
|
720 |
|
|
|
22% |
|
|
|
480 |
|
|
|
21% |
|
|
Europe (Outside of France)
|
|
|
1,377 |
|
|
|
28% |
|
|
|
1,205 |
|
|
|
36% |
|
|
|
875 |
|
|
|
39% |
|
North America
|
|
|
1,934 |
|
|
|
39% |
|
|
|
822 |
|
|
|
25% |
|
|
|
430 |
|
|
|
19% |
|
Asia-Pacific and Other International
|
|
|
763 |
|
|
|
16% |
|
|
|
559 |
|
|
|
17% |
|
|
|
460 |
|
|
|
21% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,914 |
|
|
|
100% |
|
|
|
3,306 |
|
|
|
100% |
|
|
|
2,245 |
|
|
|
100% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Premiums are allocated by geographic area based on information
received by the Group from its cedents concerning the primary
location of the cedents underlying insured risks. |
33
RATINGS
Ratings are important to all reinsurance companies, including
SCOR, as ceding companies will seek reinsurance from
institutions with a higher quality financial standing. Our Life
reinsurance business and large facultative and direct
underwriting areas are particularly sensitive to the way our
clients and ceding companies perceive our financial strength as
well as to our credit ratings. See
Item 3.D. Risk Factors
Ratings are important to our business.
Our current solicited Group ratings by Standard &
Poors, A.M. Best Co. (A.M. Best) and
Moodys are as follows:
|
|
|
|
|
|
|
|
|
Insurer Financial Strength |
|
Senior Debt |
|
Subordinated Debt |
|
|
|
Standard & Poors
November 9, 2004 |
|
BBB+
(positive outlook) |
|
BBB+
(positive outlook) |
|
BBB-
(positive outlook) |
AM Best
December 1st, 2004 |
|
B++
(positive outlook) |
|
bbb
(positive outlook) |
|
bbb-
(positive outlook) |
Moodys
December 7, 2004 |
|
Baa2
(positive outlook) |
|
Baa3
(positive outlook) |
|
Ba2
(positive outlook) |
In November 2004, Standard & Poors Rating
Services revised its outlook on SCOR and guaranteed subsidiaries
rating to positive from stable. At the same time, SCORs
BBB+ ratings for insurer financial strength and
senior debt were affirmed.
In December 2004, A.M. Best affirmed the financial strength
rating of B++ (Very Good) of SCOR (Paris) and its core
subsidiaries and assigned an issuer credit rating of
bbb+ to these companies. The rating on SCORs
commercial paper program has been affirmed. The outlook for all
these ratings has been changed to positive from stable.
In December 2004, Moodys Investors Service announced that
it had upgraded SCORs Insurance Financial Strength Rating
to Baa2 from Baa3, Senior Debt Rating to Baa3 from Ba2, and
Subordinated Debt Rating to Ba2 from Ba3. These ratings all have
a positive outlook.
34
UNDERWRITING, RISK MANAGEMENT AND RETROCESSION
Underwriting
Consistent with its strategy of selective market and business
segment development, the Group seeks to maintain a portfolio of
business risks that is strategically diversified both
geographically and by line and class of business. Consistent
with the Moving Forward plan, SCOR has sought to
reduce its exposure to the U.S. market by declining to
underwrite large national insurers. SCOR furthered the
geographic rebalancing of its business in 2004 by reducing the
percentage of Non Life premium income in the U.S. from
approximately 37% in the year ended December 31, 2002 to
approximately 16% in the year ended December 31, 2003 and
approximately 9% in the year ended December 31, 2004, while
increasing the percentage of Non Life premium income in
Europe from approximately 42% in the year ended
December 31, 2002 to approximately 53% in the year ended
December 31, 2003 and approximately 60% in the year ended
December 31, 2004. In addition, the Company has centrally
established underwriting guidelines for its subsidiary companies
to ensure the diversification and management of risk with
respect to its business by line and class of business.
The Groups underwriting is conducted through
Property-Casualty Treaty and Facultative and Large Corporate
Accounts underwriting teams in its Non Life segment and
through its Life underwriting team, with the support of
technical departments such as actuarial, claims, legal,
retrocession and accounting.
Underwriting, actuarial, accounting and other support staff are
located in the Groups Paris headquarters as well as in
local subsidiaries and branches. While underwriting is carried
out at decentralized subsidiary or division level, the
Groups overall exposure to particular risks and in
particular geographic zones is centrally monitored from Paris.
Property-Casualty Treaty underwriters manage client
relationships and offer reinsurance support after a careful
review and assessment of the cedents underwriting policy,
portfolio profile, exposures and management procedures. They are
responsible for writing treaty business as well as small
facultative risks in their respective territories within the
limits of their delegated underwriting authority and the scope
of underwriting guidelines approved by the Group general
management.
The underwriting teams are supported by a technical underwriting
unit based in the Group head office. The technical underwriting
unit provides worldwide treaty and small facultative
underwriting guidelines, the delegation of capacity,
underwriting support to specific classes or individual risks
when required, ceding company portfolio analyses and risk
surveys.
The underwriting teams are also supported by a Group actuarial
unit responsible for pricing and reserving methods and tools to
be applied by the actuarial units based in the treaty operating
units. The Group audit department conducts frequent underwriting
audits in the operating units.
Most facultative underwriters belong to the Groups SCOR
Business Solutions integrated division, which operates on a
worldwide basis, from four underwriting centers in Paris,
London, New York and Singapore and with underwriting entities
located in certain of the Groups subsidiaries and
branches. This division is dedicated to large corporate business
and is geared to provide its clients with solutions for
conventional risks. Small Property and Casualty facultative
underwriting is handled by the Property-Casualty Treaty
underwriting team.
Life underwriting within the Group is under the worldwide
responsibility of SCOR VIE. Our Life clients are life or
accident and health insurance companies worldwide. They are
served by specialized Life underwriters familiar with the
specific features of each of the markets in which they operate,
including mortality tables, morbidity risks, disability and
pension coverage, product development, financing and specific
market coverage and policy conditions. Life underwriting
consists of the consideration of many factors, including the
type of risks to be covered, ceding company retention levels,
product and pricing assumptions and the ceding companys
underwriting standards and financial strength.
Life underwriters worldwide are supported by the Life
Underwriting Department, or LUD, which coordinates underwriting
activities at the Group level and conducts underwriting audits
in the operating units, and by the Technical and Development
Department, or TDD, responsible for pricing tools, reserving
rules, product
35
development and retrocession. These two departments set the
underwriting guidelines, which are approved by the Underwriting
Innovation Committee, comprising SCOR Vie General Management,
and the heads of underwriting units LUD and TDD. This Committee
periodically reviews and updates the four levels of underwriting
authority delegated to each underwriter.
Catastrophe Risk and Exposure Controls
Like other reinsurance companies, SCOR is exposed to multiple
insured losses arising out of a single occurrence, whether a
natural event such as a hurricane, windstorm, flood, hail or
severe winter weather storm or an earthquake, or a man-made
catastrophe such as an explosion or fire at a major industrial
facility or an act of terrorism. Any such catastrophic event
could generate insured losses in one or many of SCORs
lines of business.
In 2004, SCOR, like most other reinsurers, was adversely
affected by the unusually high frequency of natural catastrophes
around the world, including four hurricanes in the United States
and the Caribbean and a number of typhoons in Asia. Hurricanes
Ivan, Charley, Frances and Jeanne produced an estimated
aggregate pre-tax catastrophic loss for the Group, gross of
retrocession, of EUR 34 million by the year end. Similarly,
Typhoon Songda produced an estimated pre-tax catastrophic loss
for the Group, gross of retrocession, of EUR 30 million,
while Typhoons Rananim and Chaba, as well as the tsunami in
December 2004 had an estimated aggregate pretax catastrophic
loss for the Group, gross of retrocession, of approximately
EUR 12 million. The aggregate catastrophic loss for
these events for the year ended December 31, 2004 is
estimated by the Group, before tax and retrocession, at
EUR 76 million.
In 2003, SCOR experienced no major natural catastrophic losses,
the largest one being the storms in the Midwest of the U.S. for
a cost of approximately EUR 20 million as of
December 31, 2004, net of retrocession, down from the
EUR 30 million reported in 2003.
During the summer of 2002, the catastrophic floods in Central
Europe affecting the Czech Republic, Germany and Austria
produced a pre-tax catastrophe loss for the Group, net of
retrocession, of EUR 95 million for 2002. These events did
not produce additional loss for the Group in 2004. Typhoon Rusa
in Korea in August 2002, the flooding in the southeast of France
in September 2002 and the windstorm Jeannet in Northern Europe
in October 2002 did not have any new material impact on SCOR in
the year ended December 31, 2004.
SCOR carefully evaluates its potential natural event and other
risk accumulation for its entire property business at the head
office level, including exposures underwritten by its
subsidiaries worldwide. Pursuant to overall guidelines and
procedures established from the Paris headquarters, each
subsidiary monitors its own accumulation for the relevant
country or region, and the Accumulation Department based in
Paris centrally consolidates the results for the Group.
SCOR employs various techniques, depending upon the region and
peril, to assess and manage its accumulated exposure to property
natural catastrophe losses in any one region of the world and
quantifies that exposure in terms of its potential maximum loss.
SCOR defines this as its anticipated maximum loss, taking into
account contract limits, caused by a single catastrophe
affecting a broad contiguous geographic area, such as that
caused by a windstorm, a hurricane or an earthquake, occurring
within a given return period. SCOR estimates that its current
Group-wide potential maximum loss from natural catastrophe
events, before retrocessional reinsurance, is related primarily
to earthquake risks in Japan, Italy, Taiwan, Chile, Israel,
Turkey and Portugal and wind and other weather-related risks
concentrated primarily in North America, Europe and Asia.
The following table summarizes the main projected natural
catastrophe exposures of the Group by geographic area:
|
|
|
Range of Potential Catastrophe Exposure(1) |
|
Subject countries as of December 2004 |
|
|
|
(EUR, in millions) |
|
|
100 to 200
|
|
Canada, Colombia, Greece, Peru, United States, Mexico |
200 to 300
|
|
Chile, Israel, Italy, Portugal, Taiwan, Turkey |
300 and over
|
|
Japan, Europe |
|
|
(1) |
Calculated on a potential maximum loss basis for a given return
period before retrocession. |
36
For more than 15 years, SCOR has been using its own
internally-developed and regularly updated software program for
evaluating earthquake potential maximum losses for 20 countries.
SCOR currently utilizes SERN for the simulation of events and of
their consequential damages. SERN (Système
dEvaluation des Risques Naturels or Natural
Risks Evaluation System) is an enhancement of existing models
initiated in 1997 by SCOR and partners from prominent research
institutes and recognized private IT companies. This software
program is linked directly to our worldwide database and
available to all of SCORs subsidiaries and operating
units. As of December 31, 2004, SERN was operational for
earthquake exposure in Australia, Algeria, Canada, Chile,
Colombia, Greece, Indonesia, Israel, Jordan, Italy, Japan,
Mexico, New Zealand, Peru, Philippines, Portugal, Taiwan,
Turkey, the United States and Venezuela. For countries such as
Japan and the United States, SCORs analyses are compared
with other calculations performed using programs developed by
specialized independent consultants.
The potential accumulation for hurricanes in the United States
is analyzed in a similar fashion, using third-party software and
simulation tools. The potential accumulation for typhoons in
Japan is analyzed using maximum liability for non-proportional
treaties and scenarios based on Mireille, a major typhoon in
Japan in 1991, for pro rata treaties. European windstorm
accumulation in the treaty portfolio is also assessed by SERN,
which has been adapted to analyze windstorm events and is now
operational in eight European countries, reproducing past
events. SCOR continues to refine its loss estimation
methodologies internally with the assistance of outside
consultants.
The following table sets forth certain data regarding the
Groups catastrophe loss experience in each of the three
years ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Number of
catastrophes(1)
|
|
|
1 |
|
|
|
4 |
|
|
|
2 |
|
Incurred losses and LAE from catastrophes, gross
|
|
|
95 |
(2) |
|
|
78 |
(3) |
|
|
40 |
(4) |
Incurred losses and LAE from catastrophes, net of retrocession
|
|
|
94 |
(2) |
|
|
72 |
(3) |
|
|
40 |
(4) |
Group loss
ratio(5)
|
|
|
97 |
% |
|
|
99 |
% |
|
|
69 |
% |
Group loss ratio excluding catastrophes
|
|
|
94 |
% |
|
|
96 |
% |
|
|
67 |
% |
|
|
(1) |
A catastrophe is defined by SCOR as an event involving multiple
insured risks causing pre-tax losses, net of retrocession, of
EUR 10 million or more. |
|
(2) |
Catastrophic floods in Central Europe. |
|
(3) |
Floods in Italy and Southwestern France, storms in the
Midwestern United States and Typhoon Maemi in South Korea. |
|
(4) |
Typhoon Sondga plus Hurricane Ivan. |
|
(5) |
Loss incurred prior to discount on workers compensation reserves
on North American operations expressed as a percentage of
premiums earned. |
As previously reported, incurred losses and LAE from
catastrophes were EUR 670 million on a gross basis and EUR
215 million net of retrocession for the year ended
December 31, 2001. Such amounts reflected the impact of the
September 11 attack on the World Trade Center.
Claims
SCORs Group Claims Division, created in April 2003, is
tasked with implementing the general claims handling policy for
the Group, implementing worldwide control and reporting
procedures and managing commutation of claim portfolios.
The claims handling function is performed by the subsidiary
Claims Departments, which initially process and monitor reported
claims. The Group Claims Division supports and controls their
general activity and takes over the direct management of large,
litigious, serial and latent claims. Additionally, 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
adjusting process, valuation of reserves and overall
performance. Technical and legal assistance is provided to
underwriters before and after accepting certain risks. When
needed, recommendations are given to underwriters, local claims
adjusters and management.
37
The main objectives of the Group Large Claims Committee, chaired
by the Group Chief Operating Officer, are to review the
consolidated impact of large and strategic claims and to monitor
the management of such claims across lines of business and
countries. It reviews on a monthly basis all reported new large
and strategic claims and follows the development of all such
claims.
Retrocessional Reinsurance
The Group retrocedes a portion of the risks it underwrites in
order to control its exposures and losses, and pays premiums
based upon the risks and exposures of its facultative and treaty
acceptance, subject to such retrocession reinsurance. The Group
generally limits retrocession to catastrophe and property large
risks. Retrocession reinsurance is subject to collectibility in
all cases where the original business accepted by the Group
suffers from a loss. The Group remains primarily liable to the
direct insurer on all risks reinsured although the
retrocessionaire is liable to the Group to the extent of the
reinsurance limits purchased. The Group then monitors the
financial condition of retrocessionaires on an ongoing basis. In
recent years, the Group has not experienced any material
difficulties in collecting recoverable amounts from its
retrocessional reinsurers. The Group reviews its retrocession
arrangements periodically, to ensure that they fit closely to
the development of its business.
Retrocession procedures are centralized in the retrocession
department of the non life sector. The Group utilizes a variety
of retrocession agreements with non-affiliated retrocessionaires
to control its exposures to large property losses. In
particular, the Group has implemented an overall program set in
place on an annual basis that provides partial coverage for up
to three major catastrophic events within one occurrence year. A
major event is likely to be a natural catastrophe such as an
earthquake, a windstorm, a hurricane or a typhoon in a region
where the Group has major aggregate exposures stemming from the
business written.
IRP Holdings was established in December 2001 to reinsure (as a
retrocessionaire) certain of SCORs Non Life
reinsurance business on a quota share basis from 2002 forward.
The purpose of the vehicle was to expand capacity in order to
underwrite business at a time when premium levels were
considered to be attractive. The retrocession rate in 2004 was
25%. The relevant quota share agreements were terminated with
effect from January 1, 2005, and IRP Holdings
minority shareholders must exit IRP not later than May 31, 2006.
SCORs initial ownership interest in IRP Holdings was
41.70%, and increased to 53.35% as of June 30, 2003. IRP
Holdings has been fully consolidated with SCOR since fiscal year
2001. For more information on IRP Holdings, see
Item 9.A. The Offer and Listing IRP and
Item 8.A. Consolidated Statements and Other Financial
Information Legal Proceedings.
On December 28, 2001, the Group purchased a USD
150 million multi-year reinsurance cover, to provide
coverage against the occurrence of an earthquake in California
or in Japan, or a severe windstorm in Northern Europe, subject
to a limit of USD 100 million per occurrence. The contract,
provided by Atlas Reinsurance II p.l.c., a public limited
company incorporated under the laws of Ireland, protected
SCORs property and construction business for a period of
three years from January 1, 2002 to December 31, 2004.
Atlas Reinsurance II p.l.c. issued two classes of notes for
a total of USD 150 million with principal reduction
contingent on the parametric model designed by Risk Management
Solutions (RMS) based on SCORs exposure. This coverage
expired on December 31, 2004, and the notes were redeemed
pursuant to the agreement on the scheduled redemption date on
January 7, 2005. Atlas II is in the course of being
liquidated.
38
RESERVES
Significant periods of time may elapse between the occurrence of
an insured loss, the reporting of the loss to the ceding company
and the reinsurer and the ceding companys payment of that
loss and subsequent payments to the ceding company by the
reinsurer. To recognize liabilities for unpaid losses, LAE and
future policy benefits, insurers and reinsurers establish
reserves, which are balance sheet liabilities representing
estimates of future amounts needed to be paid in respect of not
yet reported (IBNYR) and not enough reserved (IBNER) claims that
are incurred but not yet reported, which are referred to as
IBNR, and related expenses.
The Group maintains reserves to cover its estimated ultimate
liability for losses and LAE with respect to reported and not
yet reported claims. Because reserves are estimates of ultimate
losses and LAE, management monitors reserve adequacy over time,
evaluating new information as it becomes known and adjusting
reserves, as necessary. Management considers many factors when
setting reserves, including the following:
|
|
|
|
|
information from ceding companies; |
|
|
|
historical trends, such as reserving patterns, loss payments,
pending levels of unpaid claims and product mix; |
|
|
|
internal methodologies that analyze the Groups experience
with similar cases; |
|
|
|
current legal interpretations of coverage and liability; and |
|
|
|
economic conditions. |
Based on these considerations, management believes that adequate
provision has been made for the Groups Life and Non Life
loss and LAE reserves as of December 31, 2004. In the Life
business the reserves totaled EUR 2,635 million (net
of retrocession) as of December 31, 2004 and the Non Life
loss and LAE reserves totaled EUR 5,583 million as of
December 31, 2004. Actual loss and LAE paid may deviate,
perhaps significantly, from such reserves. To the extent
reserves prove to be insufficient to cover actual losses and LAE
after taking into account available retrocessional coverage, the
Group would have to augment such reserves and incur a charge to
earnings which could have a material adverse effect on the
Groups consolidated financial condition and results of
operations. See Item 3.D. Risk
Factors If our reserves prove to be inadequate, our
net income, results of operations and financial condition may be
adversely affected.
The Group Chief Risk Officer conducted an appraisal of the
technical reserves as at December 31, 2004, based on
reports by internal and external actuaries.
General
Non Life business
As part of the reserving process, insurers and reinsurers review
historical data and anticipate the impact of various factors
such as legislative enactments and judicial decisions that may
tend to affect potential losses from casualty claims, changes in
social and political attitudes that may increase exposure to
losses, mortality and morbidity trends and trends in general
economic conditions. This process assumes that past experience,
adjusted for the effects of current developments, is an
appropriate basis for anticipating future events. The reserving
process implicitly recognizes the impact of inflation and other
factors affecting losses by taking into account changes in
historical claim patterns and perceived trends. There is no
precise method, however, for subsequently evaluating the impact
of any specific item on the adequacy of reserves, because the
eventual deficiency or redundancy of reserves is affected by
many factors.
The Group periodically reviews and updates its methods of
determining the IBNR reserves. Estimation of loss reserves is a
difficult process, however, especially in view of changes in the
legal and tort environment that may impact the development of
loss reserves. While the reserving process is difficult and
subjective for ceding companies, the inherent uncertainties of
estimating such reserves are even greater for reinsurers, due
primarily to the longer time between the date of an occurrence
and the reporting of any attendant claims to the reinsurer, the
diversity of development patterns among different types of
reinsurance treaties or facultative contracts, the necessary
reliance on the ceding companies for information regarding
reported claims and differing reserving
39
practices among ceding companies. In addition, trends that have
affected development of liabilities in the past may not
necessarily occur or affect liability development to the same
degree in the future. Thus, actual losses, LAE and future policy
benefits may deviate, perhaps significantly, from estimates of
reserves reflected in the Groups consolidated financial
statements.
When a claim is reported to the ceding company, its claims
personnel establish a case reserve for the estimated amount of
the ultimate settlement, if any, with respect to such claim. The
estimate reflects the judgment of the ceding companys
claims personnel, based on its reserving practices. The ceding
company reports the claim to the Group entity from which it
obtained the reinsurance, together with the ceding
companys suggested estimate of the claims cost. The
Group records the ceding companys suggested reserve and
may establish additional reserves based on review by the
Groups claims department and internal actuaries. Such
additional reserves are based upon the consideration of many
factors, including coverage, liability, severity and the
Groups assessment of the ceding companys ability to
evaluate and handle the claim.
In accordance with industry practice, the Group maintains IBNR
reserves. IBNR reserves are actuarially determined and reflect
the ultimate loss amount which may have to be paid by the Group
on claims for events and circumstances which have occurred but
which have not yet been reported either to the ceding company or
to the Group, and the expected change in the value of those
claims, which have already been reported to the Group.
In its actuarial determination of IBNR reserves, the Group uses
generally accepted actuarial reserving techniques that take into
account quantitative loss experience data, together with, where
appropriate, qualitative factors. IBNR reserves are also
adjusted to reflect changes in the volume of business written,
reinsurance contract terms and conditions, the mix of business
and claims processing that can be expected to affect the
Groups liability for losses over time. The Group does not
discount Non Life reserves, except for most of CRPs
reserves and certain reserves associated with workers
compensation that are discounted pursuant to applicable U.S. and
Bermudian regulation.
Life business
In the Life area, reserves for future policy benefits and claims
are established based upon the Groups best estimates of
mortality, morbidity, persistency and investment income, with
provision for adverse deviation. The liabilities for future
policy benefits established by the Group with respect to
individual risks or classes of business may be greater or less
than those established by ceding companies due to the use of
different mortality and other assumptions. Reserves for policy
claims and benefits include both mortality and morbidity claims
in the process of settlement and claims that have been incurred
but not yet reported. Actual experience in a particular period
may be worse than assumed experience and, consequently, may
adversely affect the Groups operating results for such
period.
Catastrophe Equalization Reserves
In addition to loss, LAE, future policy benefits and IBNR
reserves, under French GAAP and pursuant to applicable French
insurance regulations, and in the case of certain non-French
subsidiaries pursuant to applicable local regulations, SCOR is
required to establish certain equalization reserves for future
catastrophes and other losses. These reserves are generally
established by setting aside in each year a specified portion of
underwriting gains, if any, for such year, subject to specified
aggregate limits based on premium volumes in lines of business
affected by catastrophes or other events. These reserves are not
recorded as liabilities in the financial statements prepared in
accordance with U.S. GAAP. The U.S. GAAP financial statements
do, however, include an allocation of retained earnings to a
catastrophe reserve recorded as an account in
shareholders equity. Retained earnings allocated to the
catastrophe reserve represent amounts expensed as catastrophe
coverage premium expense under French GAAP but not under U.S.
GAAP. Because such amounts have been expensed for French
accounting purposes, these amounts are not distributable as
dividends and consequently have been shown as an allocation of
retained earnings in the U.S. GAAP financial statements.
40
Changes in Historical Reserves
The table below shows changes in historical loss reserves, on a
U.S. GAAP basis, for the Groups Property-Casualty
operations for 1995 and subsequent years, net of retrocessional
reinsurance. The Groups reinsurance contracts are
generally written on an underwriting year basis and the Group
maintains its records on this same basis. As compared to loss
development tables presented on an accident year basis by U.S.
registrants, presentation on an underwriting year basis
accelerates the timing of the presentation of loss reserve
development by moving development of losses that actually occur
in an accident year subsequent to the end of the applicable
underwriting year back into such underwriting year. As discussed
in the third paragraph below, the Companys underwriting
year loss development data is, as a result, not fully comparable
with accident year data presented by U.S. registrants.
The top line of the table shows the initial estimated gross
reserves for unpaid losses and LAE recorded at each year-end
date, as well as the amount of such initial reserve. The upper
(paid) portion of the table presents the cumulative amounts paid
through each subsequent year on those claims for which reserves
were carried as of each specific year-end. The lower (liability
re-estimated) portion shows the re-estimated amount of the
previously recorded reserves, net of retrocession, based on
experience as of the end of each succeeding year. The estimate
changes as more information becomes known about the actual
claims for which the initial reserves were created. The
cumulative redundancy/deficiency line represents the cumulative
change in estimates since the initial reserve was established.
It is equal to the latest liability re-estimated amount less the
initial reserve.
An underwriting year reinsurance contract reinsures losses
incurred on underlying insurance policies that begin at any time
during the reinsurance contract term. This means that, if both
the underlying insurance contracts and the reinsurance contract
have twelve-month terms, the reinsurance contract will cover
underlying losses occurring over a twenty-four month period. For
example, if an underwriting year reinsurance contract term was
from January 1 to December 31, 2004, it would cover
underlying policies with terms beginning on both January 1,
2004 and December 31, 2004. Losses incurred on underlying
policies beginning on January 1, 2004 could occur as early
as January 1, 2004 while losses incurred on underlying
policies beginning on December 31, 2004 could occur as late
as December 30, 2005.
For purposes of the loss reserve development table, the Group
has assigned all losses incurred under reinsurance contracts
written in a particular year to that year, even though some of
those losses may not have been incurred until twelve months
after the end of the year. Since losses have been so assigned,
the reserve re-estimated x years later
set forth in the table includes all those losses incurred during
the x years following the reference year, but
related to an underwriting year prior to and including the
reference year. As a result, the amounts on the line labeled
cumulative redundancy/ (deficiency) before premium
development in the loss development tables are not a
precise indication of the adequacy of the initial reserves that
appear on the first and third lines of the tables.
This has been partially corrected by inclusion in the line
labeled premium development of all the premiums
attributable to the underwriting year and which are earned in
subsequent years. Such earned premiums are comprised primarily
of amounts included in the unearned premium reserves at the end
of a given reference year and which are progressively earned
during the years following such reference year, but also include
experience rated premiums received under certain reinsurance
contracts written in such underwriting year. The Group does not
specifically segregate experience rated premiums in its
accounting systems, but management does not believe such amounts
are material. This presentation permits a comparison of the
reserves for claims and claims expenses as initially established
with the re-estimated reserves for claims and claims expenses,
which have been adjusted for the effect of claims and claims
expenses incurred subsequent to the reference year-end. While
the resulting adjusted cumulative redundancy/deficiency is not a
precise measurement and is not fully comparable to the amounts
that would be determined using accident year data, management
believes it to be a reasonable indication of the adequacy of the
Groups loss and LAE reserves as recorded in its
consolidated financial statements as of the referenced year ends.
The following tables present ten-year loss development on a U.S.
GAAP basis and a three-year reconciliation of beginning and
ending reserve balances on a U.S. GAAP basis. The U.S. GAAP loss
development data is presented on an underwriting year basis,
while the reserve reconciliation data represents the
Companys
41
allocation of incurred and paid losses and LAE between current
and prior years on a calendar year basis. See also Note 18
to the consolidated financial statements.
Ten-Year Loss Development Table Presented Net of
Reinsurance with Supplemental Gross Data (U.S.
GAAP)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1994 | |
|
1995 | |
|
1996 | |
|
1997 | |
|
1998 | |
|
1999 | |
|
2000 | |
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Initial gross reserves for unpaid loss and LAE
|
|
|
2,760 |
|
|
|
2,600 |
|
|
|
3,361 |
|
|
|
3,723 |
|
|
|
3,942 |
|
|
|
4,774 |
|
|
|
5,575 |
|
|
|
8,365 |
|
|
|
7,966 |
|
|
|
7,004 |
|
|
|
6,119 |
|
Initial retroceded reserves
|
|
|
351 |
|
|
|
234 |
|
|
|
316 |
|
|
|
306 |
|
|
|
337 |
|
|
|
421 |
|
|
|
507 |
|
|
|
1,448 |
|
|
|
1,033 |
|
|
|
673 |
|
|
|
536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial net reserves
|
|
|
2,409 |
|
|
|
2,366 |
|
|
|
3,045 |
|
|
|
3,417 |
|
|
|
3,605 |
|
|
|
4,353 |
|
|
|
5,068 |
|
|
|
6,917 |
|
|
|
6,933 |
|
|
|
6,331 |
|
|
|
5,583 |
|
Paid (Cumulative) as
of:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year later
|
|
|
354 |
|
|
|
420 |
|
|
|
654 |
|
|
|
874 |
|
|
|
1,040 |
|
|
|
1,399 |
|
|
|
1,807 |
|
|
|
2,514 |
|
|
|
2,627 |
|
|
|
1,426 |
|
|
|
|
|
|
Two years later
|
|
|
717 |
|
|
|
901 |
|
|
|
1,136 |
|
|
|
1,440 |
|
|
|
1,570 |
|
|
|
2,294 |
|
|
|
3,163 |
|
|
|
3,614 |
|
|
|
3,736 |
|
|
|
|
|
|
|
|
|
|
Three years later
|
|
|
1,054 |
|
|
|
1,188 |
|
|
|
1,405 |
|
|
|
1,778 |
|
|
|
1,946 |
|
|
|
3,046 |
|
|
|
4,390 |
|
|
|
3,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Four years later
|
|
|
1,292 |
|
|
|
1,368 |
|
|
|
1,599 |
|
|
|
2,015 |
|
|
|
2,356 |
|
|
|
3,606 |
|
|
|
5,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five years later
|
|
|
1,431 |
|
|
|
1,505 |
|
|
|
1,731 |
|
|
|
2,306 |
|
|
|
2,626 |
|
|
|
4,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six years later
|
|
|
1,542 |
|
|
|
1,590 |
|
|
|
1,953 |
|
|
|
2,488 |
|
|
|
2,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seven years later
|
|
|
1,613 |
|
|
|
1,779 |
|
|
|
2,073 |
|
|
|
2,646 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight years later
|
|
|
1,777 |
|
|
|
1,871 |
|
|
|
2,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine years later
|
|
|
1,853 |
|
|
|
1,948 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ten years later
|
|
|
1,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eleven years later
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve re-estimated as
of:(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year later
|
|
|
2,595 |
|
|
|
2,630 |
|
|
|
3,458 |
|
|
|
3,690 |
|
|
|
4,057 |
|
|
|
4,996 |
|
|
|
5,938 |
|
|
|
8,030 |
|
|
|
8,344 |
|
|
|
6,466 |
|
|
|
|
|
|
Two years later
|
|
|
2,665 |
|
|
|
2,733 |
|
|
|
3,411 |
|
|
|
3,772 |
|
|
|
4,082 |
|
|
|
5,278 |
|
|
|
6,358 |
|
|
|
8,699 |
|
|
|
7,984 |
|
|
|
|
|
|
|
|
|
|
Three years later
|
|
|
2,767 |
|
|
|
2,702 |
|
|
|
3,401 |
|
|
|
3,810 |
|
|
|
4,117 |
|
|
|
5,446 |
|
|
|
7,385 |
|
|
|
8,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Four years later
|
|
|
2,758 |
|
|
|
2,692 |
|
|
|
3,404 |
|
|
|
3,807 |
|
|
|
4,209 |
|
|
|
5,952 |
|
|
|
7,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five years later
|
|
|
2,748 |
|
|
|
2,675 |
|
|
|
3,379 |
|
|
|
3,887 |
|
|
|
4,479 |
|
|
|
5,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six years later
|
|
|
2,722 |
|
|
|
2,653 |
|
|
|
3,429 |
|
|
|
4,002 |
|
|
|
4,454 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seven years later
|
|
|
2,711 |
|
|
|
2,711 |
|
|
|
3,522 |
|
|
|
3,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight years later
|
|
|
2,777 |
|
|
|
2,792 |
|
|
|
3,507 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine years later
|
|
|
2,834 |
|
|
|
2,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ten years later
|
|
|
2,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eleven years later
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative redundancy/(deficiency) before premium development
|
|
|
(414) |
|
|
|
(414) |
|
|
|
(462) |
|
|
|
(573) |
|
|
|
(849) |
|
|
|
(1,609) |
|
|
|
(2,344) |
|
|
|
(1,877) |
|
|
|
(1,052) |
|
|
|
(136) |
|
|
|
|
|
% before premium development
|
|
|
(17) |
% |
|
|
(18) |
% |
|
|
(15) |
% |
|
|
(17) |
% |
|
|
(24) |
% |
|
|
(37) |
% |
|
|
(46) |
% |
|
|
(27) |
% |
|
|
(15) |
% |
|
|
(2) |
% |
|
|
|
|
Premium development
|
|
|
245 |
|
|
|
229 |
|
|
|
361 |
|
|
|
343 |
|
|
|
390 |
|
|
|
487 |
|
|
|
942 |
|
|
|
1,215 |
|
|
|
676 |
|
|
|
339 |
|
|
|
|
|
Cumulative redundancy/(deficiency) after premiums development
|
|
|
(169) |
|
|
|
(185) |
|
|
|
(101) |
|
|
|
(230) |
|
|
|
(459) |
|
|
|
(1,122) |
|
|
|
(1,402) |
|
|
|
(662) |
|
|
|
(376) |
|
|
|
203 |
|
|
|
|
|
Percentage
|
|
|
(7) |
% |
|
|
(8) |
% |
|
|
(3) |
% |
|
|
(7) |
% |
|
|
(13) |
% |
|
|
(26) |
% |
|
|
(28) |
% |
|
|
(10) |
% |
|
|
(5) |
% |
|
|
3 |
% |
|
|
|
|
Gross re-estimated liability at December 31, 2004
|
|
|
3,328 |
|
|
|
3,134 |
|
|
|
4,020 |
|
|
|
4,700 |
|
|
|
5,181 |
|
|
|
7,113 |
|
|
|
8,639 |
|
|
|
12,841 |
|
|
|
9,702 |
|
|
|
7,532 |
|
|
|
|
|
Re-estimated receivable at December 31, 2004
|
|
|
505 |
|
|
|
354 |
|
|
|
513 |
|
|
|
710 |
|
|
|
727 |
|
|
|
1,151 |
|
|
|
1,227 |
|
|
|
4,047 |
|
|
|
1,718 |
|
|
|
1,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net re-estimated liability at December 31, 2004
|
|
|
2,823 |
|
|
|
2,780 |
|
|
|
3,507 |
|
|
|
3,990 |
|
|
|
4,454 |
|
|
|
5,962 |
|
|
|
7,412 |
|
|
|
8,794 |
|
|
|
7,984 |
|
|
|
6,466 |
|
|
|
|
|
Gross cumulative redundancy/(deficiency) before premium
development
|
|
|
(568) |
|
|
|
(534) |
|
|
|
(659) |
|
|
|
(977) |
|
|
|
(1,239) |
|
|
|
(2,339) |
|
|
|
(3,064) |
|
|
|
(4,476) |
|
|
|
(1,736) |
|
|
|
(529) |
|
|
|
|
|
Gross premium adjustments
|
|
|
288 |
|
|
|
281 |
|
|
|
332 |
|
|
|
366 |
|
|
|
360 |
|
|
|
459 |
|
|
|
784 |
|
|
|
1,154 |
|
|
|
735 |
|
|
|
495 |
|
|
|
|
|
Gross Cumulative redundancy/(deficiency) after premiums
development
|
|
|
(280) |
|
|
|
(253) |
|
|
|
(327) |
|
|
|
(611) |
|
|
|
(879) |
|
|
|
(1,880) |
|
|
|
(2,280) |
|
|
|
(3,322) |
|
|
|
(1,001) |
|
|
|
(34) |
|
|
|
|
|
Percentage
|
|
|
- 10.15 |
% |
|
|
- 9.74 |
% |
|
|
- 9.74 |
% |
|
|
- 16.41 |
% |
|
|
- 22.31 |
% |
|
|
- 39.38 |
% |
|
|
- 40.90 |
% |
|
|
- 39.71 |
% |
|
|
-13 |
% |
|
|
- 0.49 |
% |
|
|
|
|
|
|
(1) |
Initial gross, initial retroceded and initial net reserves are
shown on a U.S. GAAP basis. Paid (cumulative) amounts and
reserves re-estimated amounts are shown on an underwriting year
basis, consistent with the reporting practices of the Company
and its cedents, particularly in the European market. |
42
|
|
(2) |
Cash commutation payments (i) received in 1993 of
EUR 60 million and in 1994 of EUR 129 million and
(ii) paid in 1994 of EUR 48 million have been
excluded from the paid (cumulative) amounts presented. |
|
|
|
The EUR 260 million North American portfolio acquired in
1996 has been excluded from the paid (cumulative) amount
presented for the years concerned. |
|
|
(3) |
Re-estimated gross claims reserves for a given underwriting year
are reduced by the amount of any premiums earned subsequent, but
related, to that underwriting year, including experience-rated
premiums received and accrued from the ceding insurers as
assumed losses were incurred. |
Reconciliation of Reserves for Losses and LAE (U.S. GAAP)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(Restated) | |
|
(Restated) | |
|
|
|
|
(EUR, in millions) | |
Reserves for losses and LAE at beginning of year, net
|
|
|
6,917 |
|
|
|
6,933 |
|
|
|
6,331 |
|
Effect of changes in foreign currency exchange rates
|
|
|
(745 |
) |
|
|
(656 |
) |
|
|
(203 |
) |
Effect of claims portfolio transfer and other reclassifications
|
|
|
107 |
|
|
|
31 |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
Incurred related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
2,802 |
|
|
|
1,661 |
|
|
|
1,002 |
|
|
Prior years
|
|
|
660 |
|
|
|
1,078 |
|
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total incurred losses and
LAE(1)
|
|
|
3,462 |
|
|
|
2,739 |
|
|
|
1,176 |
|
|
|
|
|
|
|
|
|
|
|
Paid related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
450 |
|
|
|
316 |
|
|
|
116 |
|
|
Prior years
|
|
|
2,358 |
|
|
|
2,400 |
|
|
|
1,614 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total paid losses and
LAE(1)
|
|
|
2,808 |
|
|
|
2,716 |
|
|
|
1,730 |
|
|
|
|
|
|
|
|
|
|
|
Reserves for losses and loss expenses at end of year
net
|
|
|
6,933 |
|
|
|
6,331 |
|
|
|
5,583 |
|
Reinsurance recoverable on unpaid losses
|
|
|
1,033 |
|
|
|
673 |
|
|
|
536 |
|
|
|
|
|
|
|
|
|
|
|
Reserves for losses and loss expenses at end of year
gross
|
|
|
7,966 |
|
|
|
7,004 |
|
|
|
6,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Initial gross, initial retroceded and initial net reserves are
shown on a U.S. GAAP basis. Paid (cumulative) amounts and
reserve re-estimated amounts are shown on a calendar year basis. |
Asbestos and environmental
The Groups reserves for losses and LAE include an estimate
of its ultimate liability for asbestos and environmental claims
for which an ultimate value cannot be estimated using
traditional reserving techniques and for which there are
significant uncertainties in estimating the amount of the
Groups potential losses. SCOR and its subsidiaries have
received and continue to receive notices of potential
reinsurance claims from ceding insurance companies which have in
turn received claims asserting environmental and asbestos losses
under primary insurance policies, in part reinsured by Group
companies. Such claims notices are frequently merely
precautionary in nature and generally are unspecific, and the
primary insurers often do not attempt to quantify the amount,
timing or nature of the exposure. Due to the imprecise nature of
these claims, the uncertainty surrounding the extent of coverage
under insurance policies and whether or not particular claims
are subject to an aggregate limit, the number of occurrences
involved in particular claims and new theories of insured and
insurer liability, we can, like other reinsurers, only give a
very approximate estimate of our potential exposures to
environmental and asbestos claims that may or may not have been
reported. Nonetheless, due to the changing legal and regulatory
environment, including changes in tort law, the final cost of
our exposure to asbestos-related and environmental claims may be
increasing in undefined proportions. Diverse factors could
increase our exposure to the consequences of asbestos-related
risks, such as an increase in the number of claims filed or in
the number of persons likely to be covered by these claims.
These uncertainties inherent to environmental and asbestos
claims are unlikely to be resolved in the near future, despite
several aborted regulatory attempts in the U.S. for containing
the overall costs related to asbestos. Evaluation of these risks
is all the more difficult given that claims related to asbestos
and environmental pollution are often subject to payments over
long periods of
43
time. In these circumstances, it is difficult for us to estimate
the reserves that should be recorded for these risks and to
guarantee that the amount reserved will be sufficient.
Case reserves have been established when sufficient information
has been developed to indicate the involvement of a specific
reinsurance contract. In addition, incurred but not reported
reserves have been established to provide for additional
exposure on both known and unasserted claims. These reserves are
reviewed and updated continually. In establishing liabilities
for asbestos and environmental claims, management considers
facts currently known and the current legal and tort
environment. The Group may be required to increase the reserves
in future periods if evidence becomes available to support that
the latent claims will develop above the recorded amounts. As a
result of all these uncertainties, it cannot be excluded that
the final settlement of these claims may have a material effect
on the Groups results of operations and financial
condition.
See Item 3.D. Risk Factors We
could be subject to losses as a result of our exposure to
environmental and asbestos-related risks.
The following table shows information related to the
Groups asbestos and environmental gross claims reserves
and LAE paid:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
Asbestos(1) | |
|
Environmental(1) | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Gross Non Life claims reserves, including IBNR reserves
|
|
|
157 |
|
|
|
109 |
|
|
|
98 |
|
|
|
88 |
|
|
|
59 |
|
|
|
54 |
|
% of total loss and LAE reserves
|
|
|
2 |
% |
|
|
1.5 |
% |
|
|
1.6 |
% |
|
|
1.1 |
% |
|
|
0.8 |
% |
|
|
0.9 |
% |
Non Life claims and LAE paid
|
|
|
7 |
|
|
|
15 |
|
|
|
15 |
|
|
|
71 |
|
|
|
13 |
|
|
|
5 |
|
% of the Groups total net property-casualty claims
and LAE paid
|
|
|
0.3 |
% |
|
|
0.6 |
% |
|
|
0.9 |
% |
|
|
2.5 |
% |
|
|
0.5 |
% |
|
|
0.3 |
% |
|
|
(1) |
Asbestos and environmental (A&E) reserve data includes
SCORs estimated A&E exposures in respect of its
participation in the Anglo French Reinsurance Pool, for which
A&E exposures for the years shown were as follows: |
|
|
|
|
|
The 2002 reserves were EUR 30 million and EUR
28 million for asbestos and environmental, respectively.
The 2002 paid claims and LAE were EUR 0.8 million and EUR
0.7 million for asbestos and environmental, respectively. |
|
|
|
The 2003 reserves were EUR 19 million and EUR
18 million for asbestos and environmental, respectively.
The 2003 paid claims and LAE were EUR 0.6 million and EUR
0.9 million for asbestos and environmental, respectively. |
|
|
|
The 2004 reserves were EUR 18 million and EUR
16 million for asbestos and environmental, respectively.
The 2004 paid claims and LAE were EUR 0.3 million and EUR
0.3 million for asbestos and environmental, respectively. |
More generally, SCOR has developed a policy of buying back its
longstanding liabilities on asbestos and environmental exposures
whenever the possibility exists to do so on a commercially
reasonable basis, whenever SCOR determines, based on its
assessment of the potential exposure of the Group based on
actuarial techniques and market practices, that the terms of the
final negotiated settlement are attractive in light of the
possible development of future liabilities. Preference is given
to selected treaties with regard to specific circumstances such
as the maturity of claims, the level of claims information
available, the status of cedents and market settlements.
SCORs exposure to asbestos was reduced in 2004 by EUR
9.3 million compared to 2003, due to commutations.
Environmental exposure also decreased by EUR 2.5 million over
the same period for the same reason. It is the intention of
management that this commutation policy be further pursued and
developed in 2005 and in subsequent years. It is anticipated
that the policy will affect settlement patterns to a limited
degree in future years. Although the changes in settlement
patterns may improve predictability and reduce potential
volatility in the reserves, they may also have an adverse effect
on the Groups cash flows linked to these reserves.
SCORs exposure to asbestos and environmental liabilities
stems from its participation in both proportional and
non-proportional treaties and in facultative contracts which
have generally been in run-off for many years.
Proportional treaties typically provide claims information on a
global treaty basis, and as a result specific claims data is
rarely available. With respect to non-proportional treaties and
facultative contracts, normal market practice
44
is to provide a specific proof of loss for each individual
claim, making it possible to record total claims notified for
such contracts. With respect to environmental exposures, most of
SCORs identified claims stem from its U.S. subsidiary
operations, with less significant amounts recorded by its
European subsidiaries. When applicable, LAE are part of the
claims submitted by cedents and as such are included in the
figures above for both asbestos and environmental exposures.
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004 | |
|
|
| |
|
|
Asbestos | |
|
Environmental | |
|
|
| |
|
| |
Number of claims notifications with respect to non-proportional
treaties and facultative contracts
|
|
|
7,725 |
|
|
|
7,116 |
|
Average cost per
claim(1)
|
|
|
EUR 13,298 |
|
|
|
EUR 4,556 |
|
|
|
(1) |
Not including claims that were settled at no cost, and claims of
a precautionary nature not quantified in amount. |
45
INVESTMENTS
General
SCORs overall investment strategy is to achieve
satisfactory returns on managed assets with minimal exposure to
risk. This investment strategy also reflects the structure of
SCORs liability profile, and the duration of the assets of
each subsidiary is generally established based upon the expected
duration of liabilities. At December 31, 2004, the weighted
average duration of the Groups fixed maturity portfolio
was approximately 6.2 years. See Changes in
Historical Reserves for a discussion of the expected
duration of the Groups reinsurance liabilities, and the
tabular summary of the Groups fixed maturities by
remaining contract maturity, set forth in Note 4 to the
consolidated financial statements, for information concerning
the duration of the Groups assets. As a general practice,
the Group does not invest in derivative securities for the
purpose of managing the relative duration of its assets and
liabilities. Similarly, assets are generally invested in
currencies corresponding to those in which the related
liabilities are denominated in order to minimize exposure to
currency fluctuations. The Group does use currency spot and
forward contracts, as well as swap and other derivative
contracts, to a limited extent, to manage its foreign currency
exposure.
SCORs investment policy is largely centralized. Investment
guidelines are established annually and regularly reviewed and
updated by the Investment Committee, subject to supervision by
the Companys Board of Directors. Regular meetings of the
Investment Committee are held to review portfolio performance
and monitor market and portfolio developments.
The Groups portfolio consists primarily of government and
government-guaranteed bonds with medium term maturities. The
remainder of the portfolio is divided among equity securities,
real estate and liquid and short-term assets. The Company
manages its investment portfolio to maximize income and
generally does not manage such portfolio for the purpose of
generating capital gains, but seeks to realize capital gains or
losses when and as they become available as a result of its
normal investing activities.
The following table summarizes net investment income of the SCOR
Groups portfolio for 2002, 2003 and 2004. See also
Note 4 to the consolidated financial statements.
Consolidated Net Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(Restated) | |
|
(Restated) | |
|
|
|
|
|
|
Realized | |
|
|
|
Realized | |
|
|
|
Realized | |
|
|
|
|
Pre-tax | |
|
Gains | |
|
|
|
Pre-tax | |
|
Gains | |
|
|
|
Pre-tax | |
|
Gains | |
|
|
Income | |
|
Yield(1) | |
|
(Losses) | |
|
Income | |
|
Yield(1) | |
|
(Losses) | |
|
Income | |
|
Yield(1) | |
|
(Losses) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(EUR in millions) | |
Fixed maturity securities
|
|
|
318 |
|
|
|
5.6% |
|
|
|
72 |
|
|
|
265 |
|
|
|
4.8% |
|
|
|
93 |
|
|
|
244 |
|
|
|
4.4% |
|
|
|
27 |
|
Equity securities
|
|
|
6 |
|
|
|
4.0% |
|
|
|
(123 |
) |
|
|
3 |
|
|
|
1.1% |
|
|
|
14 |
|
|
|
6 |
|
|
|
1.4% |
|
|
|
17 |
|
Trading equity securities
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
Short term and
other(2)
|
|
|
105 |
|
|
|
2.6% |
|
|
|
93 |
|
|
|
100 |
|
|
|
4.7% |
|
|
|
10 |
|
|
|
112 |
|
|
|
4.4% |
|
|
|
(2 |
) |
Less investment expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap interest
|
|
|
(17 |
) |
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
Administration expense
|
|
|
(16 |
) |
|
|
|
|
|
|
|
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
Other
|
|
|
(68 |
) |
|
|
|
|
|
|
|
|
|
|
(52 |
) |
|
|
|
|
|
|
|
|
|
|
(43 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
367 |
|
|
|
|
|
|
|
|
|
|
|
326 |
|
|
|
|
|
|
|
|
|
|
|
282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Pre-tax yield is calculated as investment income (including
dividends in the case of equities) divided by the average of the
beginning and end of year investment balances. Investment
balances were at fair value, except for equities for which cost
was used. To the applicable, investment balances were converted
into euro from local currencies at year-end exchange rates. |
|
(2) |
Includes swap income of EUR 10 million in 2002,
EUR 3 million in 2003 and EUR 8 million in
2004. Other swap-related net income is included in realized and
unrealized capital gains (and losses). |
46
Portfolios
The following table details the distribution by category of
investment of the Groups insurance investment portfolio by
net carrying value:
Consolidated Investment Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying | |
|
value as of De | |
|
cember 31, | |
|
|
| |
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
|
|
|
| |
|
| |
|
|
|
|
|
|
|
|
2004 | |
|
|
|
|
|
|
| |
|
|
(Restated) | |
|
(Restate | |
|
d | |
|
|
|
|
|
|
(EUR in millions) | |
Fixed maturities available for sale, at fair value
|
|
|
5,805 |
|
|
|
63 |
% |
|
|
5,130 |
|
|
|
64 |
% |
|
|
5,272 |
|
|
|
63 |
% |
Equity securities, available for sale
|
|
|
440 |
|
|
|
5 |
% |
|
|
109 |
|
|
|
1 |
% |
|
|
265 |
|
|
|
3 |
% |
Trading Investments
|
|
|
433 |
|
|
|
5 |
% |
|
|
740 |
|
|
|
9 |
% |
|
|
778 |
|
|
|
9 |
% |
Short term investments
|
|
|
198 |
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term investments
|
|
|
434 |
|
|
|
5 |
% |
|
|
316 |
|
|
|
4 |
% |
|
|
322 |
|
|
|
4 |
% |
Cash and cash equivalents
|
|
|
1,788 |
|
|
|
20 |
% |
|
|
1,824 |
|
|
|
22 |
% |
|
|
1,798 |
|
|
|
21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,098 |
|
|
|
100 |
% |
|
|
8,119 |
|
|
|
100 |
% |
|
|
8,435 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 4 to the consolidated financial statements for a
breakdown of amortized costs and estimated fair values of fixed
maturity investments by major type of security, including fixed
maturities held to maturity and available for sale as of
December 31, 2002, 2003 and 2004.
The following table presents the Groups fixed maturities
by counterparty credit quality, including fixed-maturities
classified as trading, as of December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2004 | |
|
|
| |
|
|
|
|
% of total net | |
Rating |
|
Net carrying value | |
|
book value | |
|
|
| |
|
| |
|
|
(EUR, in millions) | |
Guaranteed by the French or European government or its agencies,
or the European
Union(1)
|
|
|
273 |
|
|
|
5 |
% |
AAA
|
|
|
4,040 |
|
|
|
70 |
% |
AA
|
|
|
396 |
|
|
|
7 |
% |
A
|
|
|
608 |
|
|
|
10 |
% |
BBB
|
|
|
347 |
|
|
|
6 |
% |
Below BBB
|
|
|
4 |
|
|
|
0 |
% |
Unrated
|
|
|
125 |
|
|
|
2 |
% |
|
|
|
|
|
|
|
|
Total
|
|
|
5,793 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
(1) |
Debt securities issued or guaranteed by the French government,
by another European government or by the European Union, none of
which are rated. |
See Note 4 to the consolidated financial statements for a
breakdown of fixed maturities included in the Groups
portfolio by remaining maturity as of December 31, 2004.
47
INFORMATION TECHNOLOGY
SCOR has a uniform global Information System used in all
locations worldwide, with the exception of CRP.
Its core reinsurance back-office system is a custom application,
called Omega. Omega is designed to allow for Group-wide
relationship, follow up with clients and insureds, worldwide
online facultative clearance, analysis of the technical
profitability of contracts, and quarterly closing based on
ultimate result estimates.
In addition to the reinsurance administration system, SCOR has
implemented the PeopleSoft software package solutions for human
resources and finance. SCOR is promoting a paperless
environment. Internally, imaging solutions have been implemented
worldwide for document sharing within the Group. With business
partners, SCOR is able to receive and process automatically
electronic reinsurance accounts, formatted in the ACORD
standard, without any re-keying. New exchanges have been
launched in 2004 with large international brokers.
The SCOR technical environment is based on an international
secured network. Corporate technical standards have been
implemented in all locations, either on personal computers or
servers. The Group has implemented an ambitious security plan,
with a strong focus on internet and disaster recovery in 2004.
The Group has defined a strategic plan called the IS2005
strategy, which sets out the evolutions of the information
system based on the SCOR business strategy. The IS2005 strategy
is the first component of the Groups information system
governance, which is now largely set up, and provides scorecards
and a standard way to evaluate value created by systems.
Most of SCORs efforts in 2004 have been dedicated to
front-office applications for an improved risk selection,
anticipation and reactivity on markets and products. A
management system has also been developed to provide decision
makers with information on business lines and market
development. From the underwriting plan, an accounting forecast
is built, and comparative analyses are performed through
standard adequate reports. Finally, a strong emphasis is put on
the reinforcement of risk control where important projects are
underway, integrating SCOR standard pricing models,
profitability rules, and catastrophe simulation facilities
information.
The portal has been designated as the central repository for
sharing all information, internal or collected from outside
sources.
REGULATION OF THE REINSURANCE INDUSTRY
French corporations exclusively engaged in the reinsurance
business are subject to reporting requirements and are
controlled by the French Insurance Control Commission
(Commission de Contrôle des Assurances, des Mutuelles et
des Institutions de Prévoyance or C.C.A.M.I.P.) in
application of the French Law dated August 8, 1994 (Law
no. 94-679). This regime has been modified significantly by
the May 15, 2001 New Economic Regulation Act
(Law no. 2001-420), which institutes a system of prior
authorization. This regime applies equally to companies already
engaged in the reinsurance business at the time of entry into
force. However, pending publication of the enabling decrees,
this new regime has not come into effect.
Under the new regime, reinsurance companies will be required to
file an application with the C.C.A.M.I.P., which will have
authority to issue and revoke operating licenses. Within the
framework of its supervisory mission, which has been enhanced by
the New Economic Regulation Act, the C.C.A.M.I.P.
will in particular have the power to conduct onsite inspections,
to place reinsurers whose solvency is impaired or is liable to
be impaired under special surveillance, and to impose sanctions
on reinsurers found to be in breach of the regulations
applicable to them. The New Economic Regulation Act
has broadened the range of sanctions, which now include
revocation of a companys license to engage in reinsurance
operations.
There is no European regulatory framework, at present,
harmonizing the supervision of reinsurance across Europe. The
European Commission has been working closely with the member
states of the European Union since 2001 on a draft directive
aimed at instituting solvency ratios and mutual recognition of
reinsurance companies in the EU member states. It is expected
that this directive will be adopted in 2005.
In the United States, the Groups reinsurance and insurance
subsidiaries are regulated primarily by the insurance regulators
in the State in which they are domiciled, but they are also
subject to regulation in each State in which
48
they are licensed or authorized. SCOR Reinsurance Company, the
Groups principal Non Life subsidiary in the United
States, is domiciled in New York State and SCOR Life U.S. Re
Insurance Company, the principal Life subsidiary in the United
States, is domiciled in Texas. The Groups other
subsidiaries in the United States are domiciled in Arizona,
Delaware, Texas and Vermont, and one subsidiary is also
commercially domiciled in California.
Solvency margin
In the reinsurance industry, the solvency margin is defined as
the ratio between 100% of shareholders equity to net
premiums, and serves to indicate the amount of capital base
required to write reinsurance contracts.
The book solvency margin is defined as the ratio to book
shareholders equity, while the economic solvency margin
also comprises certain components of long-term borrowing that
qualify for inclusion in equity.
Even though there is no regulatory solvency margin defined in
the reinsurance sector in the European Union, (except in the
United Kingdom), European reinsurers consider economic solvency
margins of between 40% and 50% of net written premium
appropriate. This ratio is between 80% and 100% for American
reinsurers. In light of the loss accounted for in 2003, the
Groups solvency margin has been reduced. But, following
the completion of the capital increase in January 2004 and the
reduction of the gross premiums written in 2004, the
Groups solvency margin improved in 2004.
B. ORGANIZATIONAL STRUCTURE
OPERATIONS
General
The Groups Non Life reinsurance operations are
conducted primarily through the Property-Casualty Treaty
reinsurance, Facultatives and Large Corporate Accounts operating
divisions of SCOR, respectively known as Division SCOR Non-Vie
and Division SCOR Business Solutions, as well as through ten
European, North American and Asian subsidiaries, each of which
operates primarily in its regional market. The life, accident,
disability, health, unemployment and long-term care operations
of the Group are conducted mainly through SCOR Vie, which was
made a subsidiary on December 1, 2003. SCOR Vie operates
mainly through its branches in Italy, Germany and Canada as well
as through SCOR Life Re U.S. Commercial Risk Partners
(CRP) Bermuda is an ART specialized subsidiary which has
been placed in run-off since January 2003. The following sets
forth the Groups primary reinsurance subsidiaries as of
December 31, 2004, their respective country of
incorporation, and between parentheses, the main markets served
by each entity:
|
|
(1) |
SCOR has currently submitted a file for converting its
representation bureau in Beijing into a subsidiary, and obtained
on April 16, 2004, a licence for its Seoul Bureau to be
converted into a branch. The Honk Kong office is linked to the
Singapore office. |
49
The current Group structure has been developed to facilitate
access to domestic markets through local subsidiaries and branch
offices, to provide for clearly identified profit centers in
each major primary reinsurance market, and to develop local
management and underwriting expertise in order to better
attract, service and maintain relationships with local cedents
and better understand the unique nature of local risks.
The Groups headquarters in Paris provides underwriting
policy and risk accumulation direction and control claims,
actuarial, accounting, legal, administrative, systems, internal
audit, investment, human resources and other support to the
Groups subsidiaries. The Groups worldwide offices
are connected through a backbone network and application, data
and exchange systems, allowing local access to centralized risk
analysis, underwriting or pricing databases, while at the same
time allowing information on local market conditions to be
shared among the Groups offices worldwide. In addition,
through regular exchanges of personnel between Group
headquarters in Paris and its non-French subsidiaries and branch
offices, the Group encourages professional development and
training across its various geographic markets and business
lines.
C. PROPERTY, PLANTS AND EQUIPMENT
In 2003, SCOR sold the Groups headquarters, consisting of
30,000 square meters of offices located in the business district
of Paris La Défense. The Group remains a tenant of these
offices. Under U.S. GAAP, SCOR is still considered for
financial reporting purposes as the owner of the building.
The Group also rents space separate from its home office for the
purpose of safeguarding its data handling capability in case of
emergency. The Group also owns properties in Hanover (Germany),
Milan (Italy) and Singapore, where its local subsidiaries have
their home offices, and rents space for other subsidiaries. SCOR
U.S.s headquarters, located at the World Trade Center in
New York, were destroyed in the attack of September 11,
2001 and have since been relocated to other facilities in Lower
Manhattan. SCOR believes that the Groups facilities are
adequate for its present needs in all material respects. SCOR
also holds other investment properties in connection with its
reinsurance operations.
Item 5. Operating and Financial Review and
Prospects
A. OPERATING RESULTS
You should read the following discussion together with the
consolidated financial statements of SCOR and the notes thereto
included elsewhere in this annual report. The consolidated
financial statements of SCOR included herein and the financial
information discussed below have been prepared in accordance
with U.S. GAAP. SCOR also publishes consolidated financial
statements, not included herein, prepared in accordance with
French GAAP, which differ in certain respects from
U.S. GAAP.
Restatement
In the course of implementing International Financial Reporting
Standards, or IFRS, which the Group will be required to follow
in France as of January 1, 2005 for purposes of satisfying
French regulatory requirements, the Group identified a number of
errors in its financial statements for 2003 and 2002 that had
been prepared in accordance with U.S. GAAP, including the 2002
opening balance sheet. As a result, the Group determined that it
was necessary to restate its previously issued U.S. GAAP
consolidated financial statements.
The restatement principally relates to:
|
|
|
|
|
consolidation: capital leases and mutual fund; |
|
|
|
accounting for taxation: deferred taxes on the reserve de
capitalisation and valuation allowance; |
|
|
|
accounting for foreign currency: foreign currency transaction
and financial statement, translation of goodwill and impact of
currency fluctuations on available for sale debt securities held
in currencies other than the functional currency; |
|
|
|
accounting for post-retirement benefits; and |
50
|
|
|
|
|
accounting for other issues: impairment of securities,
derivative contracts, several minor unadjusted difference items
for the periods concerned and costs incurred in connection with
the creation of the SCOR Vie subsidiary. |
The impacts of the restatements on net loss and
shareholders equity are detailed in the following table
(summary table). All items are present net of tax.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In millions of Euros | |
|
|
| |
|
|
|
|
Shareholders | |
|
|
|
Shareholders | |
|
|
Net loss | |
|
equity | |
|
Net loss | |
|
equity | |
|
|
2002 | |
|
2002 | |
|
2003 | |
|
2003 | |
|
|
| |
|
| |
|
| |
|
| |
Previously Reported
|
|
|
(561 |
) |
|
|
1,145 |
|
|
|
(577 |
) |
|
|
428 |
|
Consolidation
|
|
|
45 |
|
|
|
|
|
|
|
12 |
|
|
|
|
|
Capital lease
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
Consolidation of mutual funds
|
|
|
45 |
|
|
|
|
|
|
|
13 |
|
|
|
|
|
Taxation
|
|
|
(7 |
) |
|
|
(29 |
) |
|
|
28 |
|
|
|
(1 |
) |
Deferred taxes on Réserve de capitalisation
|
|
|
(7 |
) |
|
|
(29 |
) |
|
|
(11 |
) |
|
|
(40 |
) |
Valuation allowance
|
|
|
|
|
|
|
|
|
|
|
39 |
|
|
|
39 |
|
Foreign Currency
|
|
|
56 |
|
|
|
(9 |
) |
|
|
14 |
|
|
|
(57 |
) |
Foreign exchange
|
|
|
|
|
|
|
|
|
|
|
(24 |
) |
|
|
(37 |
) |
Goodwill
|
|
|
|
|
|
|
(9 |
) |
|
|
|
|
|
|
(20 |
) |
Available for sale securities
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
Foreign currency transactions
|
|
|
56 |
|
|
|
|
|
|
|
24 |
|
|
|
|
|
Employee Benefits
|
|
|
(2 |
) |
|
|
(9 |
) |
|
|
(4 |
) |
|
|
(13 |
) |
Other Adjustments
|
|
|
(24 |
) |
|
|
(20 |
) |
|
|
15 |
|
|
|
(1 |
) |
Other Than Temporary Impairments of Investments
|
|
|
(3 |
) |
|
|
|
|
|
|
1 |
|
|
|
|
|
Horizon
|
|
|
(7 |
) |
|
|
|
|
|
|
(8 |
) |
|
|
1 |
|
Creation of SCOR Vie subsidiary
|
|
|
|
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
Miscellaneous adjustments
|
|
|
(14 |
) |
|
|
(20 |
) |
|
|
25 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Impact Due to Restatements
|
|
|
68 |
|
|
|
(67 |
) |
|
|
65 |
|
|
|
(72 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restated
|
|
|
(493 |
) |
|
|
1,078 |
|
|
|
(512 |
) |
|
|
356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 | |
|
|
|
2003 | |
|
|
|
|
| |
|
|
|
| |
|
|
Basic earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
|
(4.11 |
) |
|
|
|
|
|
|
(4.23 |
) |
|
|
|
|
|
Total impact due to restatements*
|
|
|
(8.92 |
) |
|
|
|
|
|
|
0.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share, as restated
|
|
|
(13.03 |
) |
|
|
|
|
|
|
(3.76 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As previously reported
|
|
|
(4.11 |
) |
|
|
|
|
|
|
(4.23 |
) |
|
|
|
|
|
Total impact due to restatements
|
|
|
(8.92 |
) |
|
|
|
|
|
|
0.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share, as restated
|
|
|
(13.03 |
) |
|
|
|
|
|
|
(3.76 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Including impact of changes to the calculation of the
weighted average number of shares.
Consolidation
Accounting for capital leases
In connection with its review of certain leases related to
office buildings, the Group determined that two leases should
have been accounted for as capital leases rather than operating
leases. Accordingly, the Group restated its prior year
U.S. GAAP consolidated financial statements to record these
assets in its U.S. GAAP consolidated balance sheet, with an
approximately equal increase in its debt in respect of capital
leases. The effects on the U.S. GAAP consolidated
statements of operations was relatively minor as the additional
depreciation expense for
51
the capital lease properties was substantially offset by the
reduction in rental expense. There was no net significant effect
on the U.S. GAAP consolidated statements of cash flows.
This restatement has the following effects on the U.S. GAAP
consolidated balance sheets:
Increasing other long term investments under capital leases by:
|
|
|
|
|
January 1, 2002
|
|
|
|
|
December 31, 2002
|
|
|
EUR 90 million |
|
December 31, 2003
|
|
|
EUR 101 million |
|
Increasing other long term debt in respect of capital leases by:
|
|
|
|
|
January 1, 2002
|
|
|
|
|
December 31, 2002
|
|
|
EUR 90 million |
|
December 31, 2003
|
|
|
EUR 101 million |
|
The effects on the U.S. GAAP consolidated net loss and
shareholders equity are given in the summary table above.
Consolidation of mutual funds
The Group has determined that six wholly-owned mutual funds
known as Organismes de Placement Collectif en Valeurs
Mobilières or OPCVMs that the Group previously
reported as available for sale investments under FAS 115
(Accounting for Certain Investments in Debt and Equity
Securities), should have been consolidated in the past,
because the Group has economic control of these funds.
To correct these errors, the Company consolidated the six mutual
funds and classified the related investment portfolio as trading
(i.e. carried at fair value with changes in fair value reported
through earnings) in the restated financials statements. The
impact on opening equity is a reclassification between other
comprehensive income and retained earnings (see summary table
above).
Accounting for deferred taxes
Deferred taxes on the réserve de
capitalisation
French insurance companies are required by law to establish a
réserve de capitalisation, which is equal to
the cumulative amount of realized gains and losses on investment
securities. Each time a gain is realized, which is taxable, an
equivalent amount is deducted and credited to this reserve so
that the net amount taxed is zero. Similarly, realized losses
are offset by a reduction in this reserve so that there is no
net loss for tax purposes. Accordingly, this deferral of taxable
income creates a temporary difference and gives rise to a
deferred tax liability. Insurance companies would generally
expect over time that their net investment gains realized would
be positive, and thus the réserve de
capitalisation would never reverse until liquidation of
the company. This reserve is not established for U.S. GAAP,
so there is a future taxable book-tax difference for this
amount. Under Statement of Financial Accounting Standard
(FAS) No. 109 Accounting for Income
Taxes, because this difference does not meet the
definition of a permanent difference and does not fall into
exemptions allowed by FAS 109, a deferred tax liability
related to this reserve should have been recorded in the
consolidated financial statements.
The effects on the U.S. GAAP consolidated net loss and
shareholders equity are given in the summary table above.
Valuation allowance
In 2003, the Company recognized a full valuation allowance
against its deferred tax assets due to a cumulative loss
position. The Company has determined that the calculation of
that tax valuation allowance did not include a tax planning
strategy that is available to the Company to recapture some of
the deferred tax assets. That strategy involves the sale of
certain real estate assets owned by the Company. Accordingly the
valuation allowance has
52
been restated to reflect the tax strategy that is available to
the Company. The effects on the U.S. GAAP consolidated net
loss and shareholders equity are given in the summary
table above.
Reduced rate items
There exist certain tax asset temporary differences that due to
the nature of the items were determined by the Company to be
unlikely to be recovered. Previously, the Company did not
recognize either the deferred tax asset or the corresponding
valuation allowance. As a result the Group restated its prior
year U.S. GAAP consolidated financial statements to record
these deferred tax assets and valuation allowances.
The effect of recording these deferred tax assets and related
valuation allowances in the U.S. GAAP consolidated balance
sheets in prior periods is be as follows:
Increasing deferred tax assets by
|
|
|
|
|
January 1, 2002
|
|
|
|
|
December 31, 2002
|
|
|
EUR 40 million |
|
December 31, 2003
|
|
|
EUR 130 million |
|
Increasing valuation allowance by
|
|
|
|
|
January 1, 2002
|
|
|
|
|
December 31, 2002
|
|
|
EUR 40 million |
|
December 31, 2003
|
|
|
EUR 130 million |
|
Net effects on the statements of operations:
Increase/(decrease) in income tax expense and
increased/(reduced) net loss of
|
|
|
|
|
Year ended December 31, 2002
|
|
|
|
|
Year ended December 31, 2003
|
|
|
|
|
This previous error does not effect either the net loss or
shareholders equity and, accordingly, has not been
included in the summary table above.
Accounting for translation of foreign currency
transactions and foreign currency financial statements
Foreign exchange
The Company discovered an error in its 2003 financial statements
related to the accounting for a forward sale of
USD 400 million initiated in September 2003. As at
December 31, 2003, the mark-to-market adjustment for this
derivative carried at fair value in the balance sheet had been
accounted for twice: once as a gain through income with a
related tax effect, and again through the 2003 foreign currency
translation adjustment without a related tax effect in a
separate component of U.S. GAAP shareholders equity,
for an amount of EUR 37 million gross of tax. The Company
has determined that there was a hedging relationship and
therefore the amount recorded in income should be reversed. At
the same time, the tax effect on the equity was booked.
The effects on the U.S. GAAP consolidated net loss and
shareholders equity are given in the summary table above.
Goodwill
The Company has determined that it should have accounted for
goodwill related to a certain block of its US Non Life
operations as US dollar-denominated and converted it into
EUR at each closing, instead of considering it as a
Euro-denominated asset.
The effects on U.S. GAAP consolidated net loss and
shareholders equity are given in the summary table above.
53
Impact of currency fluctuations on available for sale debt
securities held in currencies other than the functional
currency
The Group determined that Emerging Issues Task Force (EITF)
Issue No. 96-15 Accounting for the Effects of Changes
in Foreign Currency Exchange Rates on
Foreign-Currency-Denominated Available-for-Sale Debt
Securities was not properly applied in its previously
issued consolidated U.S. GAAP financial statements.
EITF 96-15 requires the entire change in the fair value of
foreign-currency denominated available-for-sale debt securities
to be reported in accumulated other comprehensive income. The
Group previously included the portion of the change in fair
value related to currency fluctuations in its statement of
operations. Accordingly, the Group has restated its prior
U.S. GAAP consolidated financial statements.
The effects of the restatement on the prior years
U.S. GAAP consolidated financial statements are as follows:
Increase (decrease) in accumulated other comprehensive income:
|
|
|
|
|
January 1, 2002
|
|
|
|
|
December 31, 2002
|
|
|
|
|
December 31, 2003
|
|
|
EUR (14) million |
|
Increase (decrease) in retained earnings:
|
|
|
|
|
January 1, 2002
|
|
|
|
|
December 31, 2002
|
|
|
|
|
December 31, 2003
|
|
|
EUR 14 million |
|
Increase (decrease) in other comprehensive income: unrealized
depreciation on investments net
|
|
|
|
|
Year ended December 31, 2002
|
|
|
|
|
Year ended December 31, 2003
|
|
|
EUR (14) million |
|
Increase (decrease) in foreign exchange gain, net:
|
|
|
|
|
Year ended December 31, 2002
|
|
|
|
|
Year ended December 31, 2003
|
|
|
EUR 14 million |
|
Accounting for transactions in foreign currencies
The Group determined that certain of its subsidiaries did not
properly apply FAS 52 Foreign Currency
Translation for the conversion their foreign currency
transactions into the subsidiaries functional currency.
FAS 52 requires that, at each balance sheet date, recorded
balances that are denominated in a currency other than the
functional currency of the entity be translated to the
functional currency using the exchange rate at the time of the
transaction. FAS 52 also requires that any adjustments
resulting from this procedure be made to income currently. In
prior years, the amounts relating to the revaluation of foreign
currency balances of certain subsidiaries were recorded as a
component of other comprehensive income rather than being
included in the statement of operations. Accordingly, the Group
has restated its prior U.S. GAAP consolidated financial
statements.
The effects of the restatement on the prior years
U.S. GAAP consolidated financial statements are as follows:
Increase (decrease) in accumulated other comprehensive income:
|
|
|
|
|
January 1, 2002
|
|
|
EUR 5 million |
|
December 31, 2002
|
|
|
EUR (51) million |
|
December 31, 2003
|
|
|
EUR (75) million |
|
54
Increase (decrease) in retained earnings:
|
|
|
|
|
January 1, 2002
|
|
|
EUR (5) million |
|
December 31, 2002
|
|
|
EUR 51 million |
|
December 31, 2003
|
|
|
EUR 75 million |
|
Increase (decrease) in other comprehensive income:
|
|
|
|
|
Year ended December 31, 2002
|
|
|
EUR (56) million |
|
Year ended December 31, 2003
|
|
|
EUR (24) million |
|
Increase in foreign exchange gain, net:
|
|
|
|
|
Year ended December 31, 2002
|
|
|
EUR 56 million |
|
Year ended December 31, 2003
|
|
|
EUR 24 million |
|
The total effects on U.S. GAAP consolidated net loss and
stockholders equity are given in the summary table above.
Accounting for employee post retirement benefits
In connection with its review of pension and retirement plans
the Group determined that certain defined benefit plans
primarily related to its non-U.S. entities had not been
consistently accounted for in accordance with FAS 87,
Employers Accounting for Pensions,
FAS 88, Employers Accounting for Settlements
and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, FAS 106, Employers
Accounting for Postretirement Benefits Other Than
Pensions, or APB 12, Omnibus
Opinion 1967, as applicable. Several small
plans had either not been included for purposes of
U.S. GAAP accounting and disclosure or not properly valued
in accordance with U.S. rules.
Accordingly, the Group restated its prior year U.S. GAAP
consolidated financial statements to record additional
liabilities related to employee benefits on the balance sheet as
well as the related charge in each period concerned.
The effects on the U.S. GAAP consolidated net loss and
shareholders equity are given in the summary table above.
Other adjustments
Other than temporary impairments of investments
U.S. GAAP requires that securities accounted for in
accordance with FAS 115, Accounting for Certain
Investments in Debt and Equity Securities, be evaluated
for impairment whenever the fair value of a security is less
than its amortized cost basis. Whenever a decline in the fair
value of a security below its amortized cost basis is deemed
other than temporary (which is not the same as permanent
impairment), the security is deemed to be impaired and it is
written down to its fair value with the amount of the write-down
included in earnings.
In prior years, the Group determined its impairment on debt and
equity securities for U.S. GAAP consistent with the
determination made for French GAAP. Under French GAAP,
impairments are generally recognized when the book value of an
investment is in excess of its estimated recovery value, which
could include factors such as strategic value and longer-term
value, and thus may be a less restrictive and longer-term
concept than that used under U.S. GAAP.
The Group restated its prior U.S. GAAP consolidated
financial statements for such securities to record additional
impairment losses on equity securities available for sale.
The effects on the U.S. GAAP consolidated net loss and
shareholders equity are given in the summary table above.
55
Horizon special purpose vehicle
Horizon is an entity that was set up in 2002 as a mean to pass
some of the Groups exposure to its past credit reinsurance
activities to the capital markets. Horizon issued credit-linked
notes and entered into two swaps with a bank, with the Group
entering into mirroring swaps with the same bank that passed
along certain credit risks ultimately to the credit-linked
noteholders.
Since inception, the Group has consolidated Horizon. When
evaluating Horizon as part of their adoption of FIN 46(R),
Consolidation of Variable Entities, an interpretation of
ARB No. 51, the Group determined that two types of
accounting errors were made in the past when consolidating
Horizon into SCORs consolidated financial statements.
|
|
|
|
|
The derivative contracts between the Group and the bank were not
carried at fair value in the consolidated financial statements
with fluctuations in fair value recognized in earnings. |
|
|
|
Remeasurement of foreign currency-denominated credit linked
notes and investments in bonds (both denominated in Euros) had
not been done into Horizons U.S. dollar functional
currency, with foreign currency transaction gains and losses
reported in earnings. |
The effects on the U.S. GAAP consolidated net loss and
total shareholders equity are given in the summary table
above.
Costs incurred in connection with the creation of the SCOR
Vie subsidiary
The life company SCOR Vie was incorporated in 2003. Costs
associated with its incorporation and initial expenses totaling
EUR 3 million were recorded directly as a reduction of
equity rather than being expensed as required under
U.S. GAAP. This does not have any effect on ending total
U.S. GAAP consolidated shareholders equity at
December 31, 2004 or 2003, nor does it have any effect on
U.S. GAAP consolidated cash flows. However, restatement of
the year 2003 for this item increases the net loss by EUR
3 million. The net effect on income tax expense is 0 as a
valuation allowance was immediately recorded on the related
deferred tax asset.
The effects on the U.S. GAAP consolidated net income and
shareholders equity are given in the summary table above.
Miscellaneous adjustments
Upon determining that a restatement of prior period
U.S. GAAP consolidated financial statements was necessary,
the Group also decided to record certain unadjusted differences
previously considered immaterial by the Group.
The effects on the U.S. GAAP consolidated net loss and
shareholders equity are given in the summary table above.
Reclassifications
Certain reclassifications have been made to balances previously
reported to conform to the current presentation.
The Company has not amended, and does not intend to amend, its
previously filed Annual Reports on Form 20-F for the years
affected by the restatements that ended prior to
December 31, 2004. For this reason, those prior Annual
Reports and the consolidated financial statements,
auditors reports and related financial information for the
affected years contained in such reports should no longer be
relied upon.
Overview
In recent years, SCOR, along with many other insurance and
reinsurance companies suffered a series of unprecedented
setbacks both with respect to their assets and their
liabilities. Leaving aside the direct economic cost of at least
USD 40 billion to the worlds insurers and reinsurers,
the September 11, 2001 terrorist attacks deeply affected the
industry in terms of capacity and the cost of insurance
coverage. Other disasters, such as the floods in central Europe
in the summer of 2002 and typhoons in Asia and hurricanes and
tornadoes in the US and the Caribbean in 2004, have also had a
serious impact on the industry. In addition, insurers
under-estimated risks
56
taken on in the late-1990s, which is demonstrated by the low
prices at which risks were underwritten at the time. As a
consequence, in 2002, many insurers were required to set aside
additional reserves to cover prior-year writings.
At the same time, companies assets and surplus were
adversely impacted by the stock market crisis in 2001 and 2002,
as the worlds major stock markets lost between 40% and 60%
of their value and interest rates continued to fall.
Historically, financial and underwriting cycles have been
asynchronous, with investment income offsetting technical
losses, and vice versa. In recent years, however, insurance and
reinsurance companies liabilities have increased
significantly, but their assets have decreased simultaneously.
As a result of these developments, major insurance companies
have revised their underwriting policies and developed measures
to improve risk analysis and selection, and adjust rates. They
have also refocused their investment portfolio in light of
falling equity markets and interest rates.
The unprecedented loss that hit the industry over prior years
led to pricing adjustments that were needed and expected by
reinsurers. Although Non Life rates did not reach the level
of 2002, they remained hard in 2003 and 2004. This was true for
the business overall, and more particularly for some Casualty
lines which, due to persistent poor developments over recent
years, were first in need of pricing reevaluations. The Life and
Accident and Health markets continued to develop, offering
reinsurance opportunities to respond to new needs of new
operational structures.
As the performance of financial markets and reinsurers improves
and reinsurance capacity increases, however, ceding companies
are more inclined to ask for price reductions in the most
profitable lines of business and underwriting quality tends to
decline. After three years of strong premium rate increases, the
reinsurance industry has been experiencing a plateau in most
lines of business in 2004, except general liability, and a
moderate decrease in the reinsurance market is expected in 2005,
notwithstanding the effect of a number of large catastrophes in
the second half of 2004 which may reduce the downward trend in
some countries. See Item 3.D. Risk
Factors The insurance and reinsurance sectors are
cyclical, which may impact our results.
Exchange Rate Fluctuations
The following table sets forth the value of one euro in our
subsidiaries main functional currencies, used in the
preparation of the Groups consolidated financial
statements for balance sheet items (year-end exchange rates) and
income statement items (average yearly rates) as published by
Natexis bank at each month end.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of one euro in each currency | |
|
|
| |
|
|
Year-end exchange rates | |
|
Average annual exchange rates for | |
|
|
as of December 31, | |
|
the year ended December 31, | |
|
|
| |
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
U.S. Dollar
|
|
|
1.042 |
|
|
|
1.263 |
|
|
|
1.3604 |
|
|
|
0.950 |
|
|
|
1.141 |
|
|
|
1.244 |
|
Canadian Dollar
|
|
|
1.638 |
|
|
|
1.623 |
|
|
|
1.648 |
|
|
|
1.487 |
|
|
|
1.587 |
|
|
|
1.619 |
|
British Pound
|
|
|
0.650 |
|
|
|
0.705 |
|
|
|
0.709 |
|
|
|
0.629 |
|
|
|
0.693 |
|
|
|
0.679 |
|
Singapore Dollar
|
|
|
1.809 |
|
|
|
2.145 |
|
|
|
2.228 |
|
|
|
1.693 |
|
|
|
1.986 |
|
|
|
2.010 |
|
SCOR books its operations in approximately 100 local
currencies. All these currencies are then converted into euro.
The fluctuation of the main transaction currencies of the Group
in comparison to the euro has an important impact on income
statement items and balance sheet items. In particular, when a
currency is not matched (i.e. there is a surplus in assets or
liabilities in one currency), the variation of exchange rate
from one period to another has a direct impact on the foreign
exchange result. See Item 3.D. Risk
Factors We are exposed to the risk of changes in
foreign exchange rates.
Business Segments
Our operations are organized into the following two business
segments: Non Life and Life/ Accident & Health. Non Life is
further organized into four sub-segments: Property-Casualty
Treaty; Large Corporate Accounts written on a facultative basis
by SCOR Business Solutions; Credit, Surety & Political
Risks; and Alternative
57
Reinsurance. The Non Life and Life segments discussed below
differ from the Non Life and Life/ Accident & Health
segments contained in our financial statements included
elsewhere herein because on a statutory basis the Accident and
Health reinsurance business are classified in the Non Life
category. Within each segment, we write various classes of
business. Responsibilities and reporting within the Group are
established based on this structure and our reported financial
segments reflect the activities of each segment.
Credit, Surety and Political Risks relates to reinsurance
treaties, either proportional or non-proportional, with
companies specialized in credit insurance, such as COFACE,
Euler-Hermès and NCM. In 2004, SCOR merged its Credit,
Surety and Political Risks business into a sub segment of its
Non Life segment in its financial statements since it was a
relatively small treaty business and, accordingly, its Credit,
Surety and Political Risks business is no longer treated as a
separate business segment in its financial statements. The
presentation contained herein has been revised for prior years
to reflect such reclassification.
SCORs Alternative Reinsurance Treaty business has been
limited to underwriting within its Bermudan subsidiary,
Commercial Risk Partners, which has been in run-off since
January 2003. Therefore, in 2004, SCOR merged its ART business
into a sub segment of its Non Life segment in its financial
statements since SCOR is no longer active in this business. The
presentation contained herein has been revised for prior years
to reflect such reclassification.
Consolidated Results of Operations
We recorded a net profit of EUR 247 million for the
year ended December 31, 2004 compared to a net loss of EUR
512 million in 2003 and a net loss of EUR 493 million
in 2002. The following discussion addresses the principal
components of our revenues, expenses and results of operations
in each of those years.
Premiums
Gross premiums written
The following table sets forth the Groups gross premiums
written for the years ended December 31, 2002, 2003 and
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(Restated) | |
|
(Restated) | |
|
|
|
|
(EUR, in millions) | |
Gross premiums written
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treaty Property-Casualty
|
|
|
2,176 |
|
|
|
1,690 |
|
|
|
1,064 |
|
|
|
Credit, Surety & Political Risks
|
|
|
123 |
|
|
|
65 |
|
|
|
38 |
|
|
|
Large Corporate accounts
|
|
|
930 |
|
|
|
569 |
|
|
|
261 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative Reinsurance
|
|
|
467 |
|
|
|
(1 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non-life
|
|
|
3,696 |
|
|
|
2,323 |
|
|
|
1,365 |
|
|
Life/Accident & Health
|
|
|
1,218 |
|
|
|
983 |
|
|
|
880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,914 |
|
|
|
3,306 |
|
|
|
2,245 |
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written decreased by 32% in 2004 from
EUR 3,306 million in 2003 to
EUR 2,245 million in 2004. In 2003, gross premiums
decreased by 33% from EUR 4,914 million in 2002 to
EUR 3,306 million in 2003. The one-third reduction in
the volume of gross written premiums in each of 2004 and 2003
resulted primarily from the combination of the following two
constraining factors: the implementation of the Back on
Track plan, the lowering of the Groups financial
strength ratings and, in 2003, the negative impact of the
fluctuations in exchange rates.
In 2004, the NonLife segment represented 61% of our
overall gross premiums written, compared to 70% in 2003 and 75%
in 2002. Within the Non Life segment, Property-Casualty
Treaty accounted for 78% of overall
58
gross premiums written in 2004, compared to 73% in 2003 and 59%
in 2002, while Large Corporate accounts represented 19% of
overall gross premiums written in 2004, compared to 24% in 2003
and 25% in 2002. Credit, Surety and Political Risks share
represented 3% of Non Life overall gross premiums written
in 2004, 2003 and 2002, while Alternative Reinsurance decreased
from 13% of Non Life overall gross premiums written in 2002
to 0% in 2003 and 2004 following the Groups decision to
cease business underwritten by CRP.
Life and Accident & Health represented 39% of overall gross
premiums written in 2004, compared to 30% in 2003 and 25% in
2002.
Conclusion of the Back on Track plan and
implementation of the Moving Forward plan.
SCORs Back on Track plan was implemented in
2002 and was effective for both 2004 and 2003 renewals. Pursuant
to the Back on Track plan, SCOR has shifted its
underwriting towards:
|
|
|
|
|
short-tail business, which allows a clearer view of
prospective business and which does not carry the same level of
risk for future results and the inherent difficulties in
calculating necessary reserves that are associated with
long-tail business as a result of the long term
nature of the litigation and inflation of claims; and |
|
|
|
non-proportional business, where SCOR underwriters and actuaries
are better able to establish prices that are less susceptible to
the adverse effects of the ceding companies underwriting
and pricing. |
This restructuring plan refocused underwriting activities on
profitable businesses such as Life & Accident
reinsurance, Large Corporate Accounts and Property &
Casualty reinsurance. The plan also refocused on profitable
regions. The Back on Track plan included the exit of
a number of unprofitable lines of business in the U.S. as well
as the discontinuation of alternative risk transfer and credit
derivatives underwriting.
In 2004, the plan had met its four major objectives, including:
|
|
|
|
|
strengthening the Groups reserves; |
|
|
|
replenishing the Groups capital base through two capital
increases; |
|
|
|
right-sizing the Group by reducing premium underwriting and
implementing the Groups new underwriting policy, focusing
on short tail, non-proportional treaties and
large business underwriting in Non Life, either primary or
through large facultatives, when capacity and pricing are
adequate; and |
|
|
|
restructuring the Group, particularly by putting in place a new
board of directors, new management and new procedures. |
In the second half of 2004, the board of directors adopted a new
strategic plan for 2005 through 2007, entitled Moving
Forward. The Moving Forward plan is a business
model designed to achieve SCORs objectives through a
profitability-focused underwriting plan and an optimal
allocation of the capital base throughout the different stages
of the business cycle. As part of the Moving Forward
plan, SCOR has also reassessed its capital allocation plan along
the Groups lines of business and by market. The plan seeks
to maintain SCORs client base in Europe, Asia, North
America and emerging countries and regaining shares in treaties
where premium rates, terms and conditions meet the Groups
return on equity requisites.
Impact of changes in the Group financial strength
rating. The downgrading of SCORs financial strength
ratings in 2003 affected SCORs business development during
2004 and 2003. In 2003, Standard & Poors downgraded
SCORs financial strength rating from A- to BBB+. On
November 6, 2003, A.M. Best Co. changed the under review
status of SCORs financial strength rating of B++ (Very
Good) to negative from developing and on December 1, 2004
A.M. Best Co. affirmed the financial strength rating of B++
(Very Good) of SCOR (Paris) and its core subsidiaries. On
November 19, 2003, Fitch Ratings downgraded SCOR
Groups major reinsurance entities Insurer Financial
Strength (IFS) rating to BB+ from BBB.
In November 2004, Standard & Poors Rating Services
revised its outlook on SCOR and guaranteed subsidiaries rating
to positive from stable. At the same time, SCORs BBB+
ratings for insurer financial strength and senior debt were
affirmed. In December 2004, A.M. Best affirmed the financial
strength rating of B++ (Very Good) of SCOR (Paris) and its core
subsidiaries and assigned an issuer credit rating of bbb+ to
these companies. The rating
59
on SCORs commercial paper program has been affirmed. The
outlook for all these ratings has been changed to positive from
stable. In December 2004, Moodys Investors Service
announced that it had upgraded SCORs Insurance Financial
Strength Rating to Baa2 from Baa3, Senior Debt Rating to Baa3
from Ba2 and Subordinated Debt Rating to Ba2 from Ba3. These
ratings all have a positive outlook.
Fluctuations in exchange rates. In 2003, the fluctuations
in exchanges rates used to translate foreign currencies into
Euro, and particularly the depreciation of the US dollar against
the EUR by 17% have had an adverse impact of 7% on the
development of premium income year over year. On a constant
exchange rate basis, the Groups gross written premiums
decreased by 23% in 2003 compared to 2002. In 2004, the
fluctuation of exchanges rates was limited, with the
Groups gross written premiums decreasing by 31% in 2004
compared to 2003 on a constant exchange rate basis as compared
to 32% at current exchanges rates.
Net premiums written
The following table sets forth the Groups net premiums
written for the years ended December 31, 2002, 2003 and
2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(Restated) | |
|
(Restated) | |
|
|
|
|
(EUR, in millions) | |
Net premiums written
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treaty Property-Casualty
|
|
|
1,982 |
|
|
|
1,580 |
|
|
|
1,014 |
|
|
|
Credit, Surety & Political Risks
|
|
|
108 |
|
|
|
63 |
|
|
|
38 |
|
|
|
Large Corporate accounts
|
|
|
757 |
|
|
|
461 |
|
|
|
227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative Reinsurance
|
|
|
466 |
|
|
|
(1 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non life
|
|
|
3,313 |
|
|
|
2,103 |
|
|
|
1,282 |
|
|
Life/Accident & Health
|
|
|
1,045 |
|
|
|
885 |
|
|
|
844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,358 |
|
|
|
2,988 |
|
|
|
2,126 |
|
|
|
|
|
|
|
|
|
|
|
Net premiums written constitute gross premiums written during
the financial year, net of retrocession, including unearned
premiums. Net premiums written decreased by 29% in 2004 from
EUR 2,988 million in 2003 to
EUR 2,126 million in 2004, reflecting primarily the
decrease in gross premiums written, partially offset by an
increase in our retention level. During 2003, net premiums
written decreased by 31% from EUR 4,358 million in
2002 to EUR 2,988 million in 2003, reflecting the
decrease in gross premiums written.
The premiums retroceded decreased 63% in 2004 and 43% in 2003
from EUR 557 million in 2002 to
EUR 318 million in 2003 and EUR 118 million
in 2004 due to lower costs for retrocession agreements and the
lower need for retrocession contracts as a result of the
decrease in gross written premiums. Our overall retention level
was 95% in 2004, compared to 90% in 2003 and 89% in 2002. Our
retention level for premiums is computed as net premiums divided
by gross premiums.
Revenues
Our consolidated total revenues decreased by 32% to
EUR 2,551 million in 2004 compared to
EUR 3,767 million in 2003 due primarily to a 34%
decrease in net premiums earned and, to a lesser extent, a 13%
decrease in net investment income and a 64% decrease in net
realized gain on investments.
In 2003, our consolidated total revenues decreased by 17% from
EUR 4,562 million in 2002 to
EUR 3,767 million in 2003 due primarily to a 20%
decrease in net premiums earned and to a 11% decrease in net
investment income, which was partially offset by a significant
increase in net realized gain on investments of
EUR 117 million in 2003 compared to
EUR 42 million in 2002.
60
Net premiums earned
The following table sets forth the Groups net premiums
earned for the years ended December 31, 2002, 2003 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(Restated) | |
|
(Restated) | |
|
|
|
|
(EUR, in millions) | |
Net premiums earned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treaty Property-Casualty
|
|
|
2,016 |
|
|
|
1,670 |
|
|
|
1,120 |
|
|
|
Credit, Surety & Political Risks
|
|
|
153 |
|
|
|
122 |
|
|
|
51 |
|
|
|
Large Corporate accounts
|
|
|
559 |
|
|
|
504 |
|
|
|
253 |
|
|
|
Alternative Reinsurance
|
|
|
524 |
|
|
|
159 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Non life
|
|
|
3,252 |
|
|
|
2,455 |
|
|
|
1,427 |
|
|
|
|
|
|
|
|
|
|
|
|
Life/Accident & Health
|
|
|
901 |
|
|
|
869 |
|
|
|
800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,153 |
|
|
|
3,324 |
|
|
|
2,227 |
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned decreased by 33% in 2004 from
EUR 3,324 million in 2003 to
EUR 2,227 million in 2004 and represented 90% of our
consolidated total revenues in 2004 compared to 89% in 2003. The
overall decrease in net premiums earned resulted primarily from
decreases of 33% in Treaty Property-Casualty, 50% in Large
Corporate Accounts, 58% in Credit, Surety & Political Risks,
98% in Alternative Reinsurance and 8% in Life-Accident &
Health. The decreases in net premiums earned were due to a 32%
decrease in gross written premiums in 2004 and a 33% decrease in
gross written premiums in 2003.
Net premiums earned decreased by 20% in 2003 from EUR
4,153 million in 2002 to EUR 3,324 million in 2003 and
represented 88% of our consolidated total revenues in 2003
compared to 93% in 2002. The overall decrease in net premiums
earned resulted primarily from decreases of 17% in Treaty
Property-Casualty, 10% in Large Corporate Accounts, 20% in
Credit, Surety & Political Risks, 70% in Alternative
Reinsurance and 4% in Life-Accident & Health. The decreases
in net premiums earned were primarily due to a 33% decrease in
gross written premiums in 2003.
Net Income from investments
Net income from investment is comprised of investment income,
investment expenses and realized capital gains and losses.
Investment income decreased from EUR 415 million in
2003 to EUR 365 million in 2004 primarily due to a
decrease in revenue from fixed-maturity securities from
EUR 265 million in 2003 to EUR 244 million in 2004 and
from trading equity securities from EUR 47 million in 2003
to EUR 3 million in 2004. Approximately 79% of invested
assets were invested in fixed-maturity securities in 2004,
compared to approximately 82% in 2003. Invested assets increased
by 5% from EUR 6,295 million in 2003 to
EUR 6,637 million in 2004. Investment income decreased
by 11% in 2003 from EUR 468 million in 2002 to
EUR 415 million in 2003 due to a decrease in revenue
from fixed-maturity securities from EUR 318 million in 2002
to EUR 265 million in 2003, which was partially offset by
an increase in revenue from trading in equity securities from
EUR 39 million in 2002 to EUR 47 million in 2003.
Investment expenses, mainly comprised of financial expenses,
decreased from EUR 89 million in 2003 to
EUR 83 million in 2004.
Investment expenses decreased from EUR 101 million in
2002 to EUR 89 million in 2003 mainly due to the
decrease in financial charges on commercial paper.
Realized capital gains on investments decreased from
EUR 117 million in 2003 to EUR 42 million in
2004 primarily due to the sale of fixed-maturity securities at
lower prices due to higher interest rates in 2004. In 2004,
61
realized capital gains on investment amounted to
EUR 42 million and consisted of
EUR 27 million from the sale of fixed-maturity
securities, EUR 17 million from the sale of equity
securities and a loss of EUR 2 million on short term
investments.
Realized capital gains on investments increased from
EUR 42 million in 2002 to EUR 117 million in
2003 primarily due to increases in the sale of equity securities
and increases in trading equity securities, which were
EUR (123) million and EUR 14 million in 2002
and 2003, respectively, as a result of higher equity markets in
2003. In 2003, realized capital gains on investment amounted to
EUR 117 million and consisted of
EUR 93 million from the sale of fixed-maturity
securities, EUR 14 million from the sale of equity
securities and EUR 10 million from the sale of real
estate.
The realized capital gain on the sale of SCOR head office that
took place in December 2003 for EUR 69 million is not
included in the realized capital gain recorded in the fiscal
years 2003 and 2004. Under FASB 13, 66 and 98, because SCOR has
a continuing involvement in the property, the sale-leaseback
transaction has not been treated as a sale. Therefore the sale
is not currently recognized and the asset remains on SCORs
books. In addition, the sale proceeds are considered as
financing and part of SCORs debt as of December 31,
2003 and 2004. Under the financing method, lease payments
(EUR 10,3 million per year over 9 years) will
reduce the debt over the lease and property will be amortized.
Sale will be recognized at the end of the lease at the latest.
Expenses
In 2004, the Groups consolidated total expenses decreased
by 41% to EUR 2,356 million, compared to
EUR 3,967 million in 2003, or 9% more than the
reduction in total revenues. In 2003, the Groups
consolidated total expenses decreased by 21% to EUR
3,967 million, compared to EUR 4,995 million in 2002,
or 4% more than the reduction in total revenues.
Total incurred claims decreased by 49% in 2004, while the volume
of premiums earned decreased by 33% primarily due to increases
in reserves in 2003. Total incurred claims decreased by 19% in
2003, notwithstanding the reserve increases noted below, while
the volume of premiums decreased by 20%.
Non-life claims decreased by 57% in 2004 to EUR
1,176 million, resulting in a loss ratio of 69% in 2004
(98% in 2003), compared to a decline in non-life earned premium
volumes of 39%. This decrease resulted from a combination of a
better loss ratio in 2004 and the impact of EUR 272 million
re-reserving in 2003 on US Treaties. Losses were impacted in
2004 by hurricanes in the US and Caribbean, typhoons in Asia and
additional World Trade Center reserves, all of which amounted to
EUR 96 million, net of retrocession, in 2004.
Non Life claims decreased by 21% in 2003, resulting in a
loss ratio of 98% in 2003 compared to 97% in 2002, as premium
volumes also declined. Losses were also impacted in 2003 by the
US portfolio reserve strengthening in an amount equal to EUR
272 million and storms in the Midwest of America, typhoon
Maemi in South Korea and floods in Italy and in the Southwestern
France for a total of EUR 72 million, net of retrocession.
Life claims increased by 7% to EUR 451 million in 2004
compared to EUR 421 million in 2003 primarily due to a 2%
increase in Life premiums earned in 2004. Life claims decreased
by 8% to EUR 421 million in 2003 compared to EUR
459 million in 2002. This decrease was 3 percentage
points lower than the reduction in Life earned premiums in 2003.
Policy acquisition costs and commissions decreased by 23% to EUR
568 million in 2004, compared to EUR 742 million in
2003. This decrease is 10 percentage points less than the
reduction in earned premiums primarily due to the relative
increase in the percentage of Proportional business in Treaty
which had higher average commission rates in 2004 than in 2003.
Underwriting and administration expenses decreased by 15% in
2004 to EUR 135 million compared to EUR 160 million in
2003 mainly due to a reduction of salary expenses.
Policy acquisition costs and commissions decreased by 18% to EUR
742 million in 2003, compared to EUR 909 million in
2002. This decrease is in line with the decrease of 20% in
earned premiums. Underwriting and administration expenses
decreased by 22% in 2003 to EUR 160 million compared to EUR
204 million in 2002.
Foreign exchange gain of EUR 37 million in 2004 compared to
a gain of EUR 147 million in 2003 was primarily due to
better matching by the Company of the currencies of assets and
liabilities denominated in foreign
62
currency. As a result, the depreciation of the dollar against
the EUR did not have as a large of a positive effect on the
Company in 2004 compared to prior years. Foreign exchange gain
increased by 34% to EUR 147 million in 2003 compared to a
gain of EUR 110 million in 2002 primarily due to the
strengthening of the EUR against the US Dollar of 16.8%
between 2002 and 2003, based on average annual exchange rates as
reported by Natexis bank at each end of month.
No impairment of goodwill occurred in 2004 and 2003. In 2002, an
impairment of EUR 17 million was made with respect to CRP,
which had been fully depreciated by year end 2002.
Interest expenses were EUR 49 million in 2004 compared
to EUR 33 million in 2003 and EUR 34 million
in 2002. In 2004, the increase in interest expenses from
EUR 34 million in 2003 to EUR 49 million in
2004 was primarily due to the issuance of OCEANEs bonds in July
2004 which contributed EUR 3 million, and to the total
lease payments of the SCOR head office, which amounted
EUR 10.3 million in 2004. On January 1, 2005,
SCOR reimbursed its OCEANEs bonds issued in June 1999 with the
proceeds from the 2004 OCEANEs bond issuance, together with
available cash.
In 2003, interest expenses was EUR 33 million, a 4%
decrease over the EUR 34 million recorded in 2002,
mainly due to a decrease in the Eurolibor and U.S. Libor rates
and a significant reduction of our short-term debt securities
due to the issuance of EUR 200 million 5-year senior
notes in May 2002.
Other operating expenses were EUR 14 million in 2004
compared to other operating expenses of EUR 19 million
in 2003 and EUR 20 million in 2002. Other operating
expenses were comprised mainly of provisions for risks and
charges, depreciation on bad debt and amortization of fixed
assets.
In 2004, the ratio of underwriting and administration expenses
to gross premiums written was 6 % compared to 4.8% in 2003 and
4.1% in 2002. This increase is due to the reduction of the gross
premiums income of 32% when underwriting and administration
expenses decreased of 16% in 2004.
Income taxes
The total rate of income tax on French corporations applied on
taxable income in 2004, 2003 and 2002 was 35.43%. The total rate
of income tax on French corporations to be applied on taxable
income is scheduled to decrease to 34.93% in 2005 and 34.43% in
2006. In 2003, French tax law changed and thus authorizing
unlimited carry forward of tax losses compared to 5 years
previously.
In 2004, the Group recorded a net income tax gain of
EUR 73 million compared to an income tax loss equal to
EUR 287 million in 2003 and EUR 51 million
in 2002.
The 2004 net income tax benefit consisted of tax benefit
computed at the statutory rate equal to
EUR 49 million, net of the change in valuation
allowance on deferred tax assets resulting from tax loss carry
forwards. The 2004 net income tax benefit was partially offset
by certain tax-exempt expenses equal to EUR 14 million, the
reduction in French corporate tax rates for 2004, which amounted
to EUR 12 million, and by an increase in the tax on
capitalisation reserve and other items amounting to
EUR 2 million.
In 2004, the Company recorded a EUR 133 million
reduction to the valuation allowance on French net operating
losses, mainly due to improvements in the profitability in 2004
and actions taken by management to sustain profitability in the
future.
At December 31, 2003, the most significant factor affecting
net income tax expense was a tax loss resulting from an
additional valuation allowance on deferred tax assets in
accordance with SFAS 109 due to a net loss of SCOR U.S. and SCOR
on a consolidated basis for three consecutive years. The net
impact of this additional valuation allowance on income tax is
EUR 353 million. The 2003 net income tax expense
consisted of a tax loss computed at the statutory rate equal to
EUR 282 million, including the write off of deferred
tax assets resulting from tax loss carry forwards. This net
income tax loss was also due to certain tax-exempt expenses
(EUR 9 million), the reduction in French Corporate tax
rates for 2003 (EUR (4) million), and on a tax on a
capitalisation reserve and other items for
EUR 10 million.
63
Minority interests
Minority interests were EUR 24 million in 2004
compared to 26 million in 2003 and EUR 13 million
in 2002. The increase in 2003 was due to increased earnings at
IRP and the increase in SCORs stake in IRP to 53.35% as of
December 31, 2003. The decrease in 2004 is due to the
decrease of IRP business.
Income from investments accounted for under the equity
method
Income from investments accounted for under the equity method
totaled EUR (1) million in 2004, 1 million in
2003 and EUR 4 million in 2002.
On June 1, 2004 we sold our 50% stake in Unistrat, which
was the only remaining company accounted for under the equity
method and thus is no longer included in our accounts. The
result of this transaction was recorded in the first half of
2004. On March 29, 2002, we sold our 35.26% stake in
Coface, which is no longer included in our accounts, and the
capital gain realized in this transaction was recorded in the
first half of 2002. Cofaces contribution to our net income
was EUR 1 million in 2002.
Changes in accounting standards
In July 2003, the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 03-1, Accounting
and Reporting by Insurance Enterprises for Certain
Nontraditional Long-Duration Contracts and for Separate
Accounts. SOP 03-1 provides a conceptual framework
that facilitates the determination of the proper accounting for
various life and annuity products. SOP 03-1 requires
(1) the classification and valuation of certain
nontraditional long-duration contract liabilities, (2) the
reporting and measurement of separate account assets and
liabilities as general account assets and liabilities when
specified criteria are not met, and (3) the capitalization
of sales inducements that meet specified criteria and amortizing
such amounts over the life of the contracts using the same
methodology as used for amortizing deferred acquisition costs,
but immediately expensing sales inducements accrued or credited
if such criteria are not met.
SOP 03-1 was effective for financial statements for fiscal years
beginning after December 15, 2003 and was adopted by the
Group on January 1, 2004. The adoption resulted in a
one-time cumulative accounting gain of approximately
EUR 5 million before taxes, or EUR 4 million
after taxes, reported as a Cumulative effect of accounting
change, net of taxes in the results of operations for the
year ended December 31, 2004. This gain reflects the impact
of reducing reserves for future policy benefits for certain
annuity contracts in the U.S., offset by additional reserves for
certain annuitization benefits and net of the related impact on
amortization of PVFP.
Underwriting Results
Non Life
The Non Life segment is divided into four operational
sub-segments: Property-Casualty Treaty, including the
proportional and non-proportional treaty classes of property;
casualty; marine; aviation and transportation; and construction
reinsurance; Facultatives and Large Corporate Accounts, or SCOR
Business Solutions, including the Groups large
facultatives business; Credit, Surety and Political Risks; and
Alternative Reinsurance (ART).
64
The following table sets forth premium, loss and expense data,
and related ratios, for our Non Life segment for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(Restated) | |
|
(Restated) | |
|
|
|
|
(EUR, in millions) | |
Gross premiums written
|
|
|
3,696 |
|
|
|
2,323 |
|
|
|
1,365 |
|
Net premiums written
|
|
|
3,313 |
|
|
|
2,103 |
|
|
|
1,282 |
|
Net premiums earned
|
|
|
3,252 |
|
|
|
2,455 |
|
|
|
1,427 |
|
Net loss and LAE
|
|
|
3,258 |
|
|
|
2,507 |
|
|
|
999 |
|
Net commissions and
expenses(1)
|
|
|
830 |
|
|
|
613 |
|
|
|
461 |
|
Underwriting (loss)
|
|
|
(834 |
) |
|
|
(673 |
) |
|
|
(17 |
) |
Loss ratio
|
|
|
100 |
% |
|
|
102 |
% |
|
|
70 |
% |
Expense
ratio(1)
|
|
|
26 |
% |
|
|
25 |
% |
|
|
32 |
% |
Combined ratio
|
|
|
126 |
% |
|
|
127 |
% |
|
|
102 |
% |
|
|
(1) |
Expenses include direct charges of each business segment and
indirect charges allocated by business segment pro rata
according to direct expenses. |
Gross Non-life premiums written decreased by 41% in 2004
compared to 2003 and by 37% in 2003 compared to 2002. This
decrease reflected the implementation of the Back on Track plan
announced in November 2002 and completed in 2004, that aimed to
apply a strict and selective underwriting policy to return to
profitability and resulted in the Groups underwriters
taking significant actions in 2003 to cancel unprofitable or
non-core businesses and, when necessary, adjusting pricing or
improving terms and conditions. In 2004 and 2003, favorable
premium rates and renewal terms and conditions remained on the
whole in line with expectations and SCOR continued to focus on
profitable activities, particularly on short to medium tail
business.
In 2004, Property-Casualty Treaty gross premiums decreased 37%,
Large Corporate Accounts gross premiums decreased 54% and
Credit, Surety and Political Risks gross premiums decreased 42%.
The Property Casualty business, Large Corporate Accounts and
Credit and Surety businesses represented 78%, 19% and 3% of the
Non-Life segment, respectively, in 2004 compared to 73%, 24% and
3%, respectively, in 2003. Net premium earned showed a 42%
decrease in 2004 compared to 2003, reflecting premiums earned in
2004 from 2003, while gross and net written premiums decreased
by 41% and 39%, respectively.
In 2003, the percentage of Property Treaty premiums increased by
7 points to 44%, while Casualty Treaty business and Large
Corporate Accounts decreased by 3 points and 5 points,
respectively, to represent 31 % and 25 % of the Non Life
segment, respectively. Net premium earned showed a 16% decrease
in 2003 compared to 2002, reflecting premiums earned in 2003
from 2002, while gross and net written premiums decreased by 27%
and 25%, respectively.
The retention level of the Non Life segment increased by
3 percentage points to 94% in 2004 and by 3 percentage
points to 91% in 2003. The 2004 combined ratio of the
Non Life segment was 102% compared 127% in 2003. This
improvement, that represented a decrease of 32 points of the
loss ratio in 2004 compared to 2003, was primarily due to
significant re-reserving in 2003 and 2002. The combined ratio of
the Non Life segment was 127% in 2003 compared to 126% in
2002.
Our credit and surety business consists primarily of our surety
business outside of the United States, including insuring
commitments of financial institutions against the risk of
default of their borrowers. The Group stopped the underwriting
of its credit derivatives business in November 2001.
In 2004, 2003 and 2002, the Group significantly reduced its
Credit, Surety & Political Risk gross premium income.
Credit, Surety & Political Risk gross written premiums were
reduced by 42% in 2004, 47% in 2003 and by 30% in 2002. These
reductions mainly reflected share reductions in existing
portfolios as well as the continuing impact of the reduction of
the Groups surety business in the United States. Credit,
Surety & Political Risk earned premiums decreased 58% in
2004 compared to 2003 and 20% in 2003 compared to 2002 due to
the continuing spread out of the credit derivatives premiums. On
December 1, 2003, SCOR removed its credit
65
derivative exposures by entering into an agreement with Goldman
Sachs to hedge the Group entirely against all credit events that
occur on or subsequent to that date, representing a maximum loss
amount of USD 2.5 billion. The overall cost for SCOR, including
a related commutation transaction that took place at the
beginning of the fourth quarter of 2003, amounted to
EUR 45 million.
Commercial Risk Partners, the ART Bermuda-based subsidiary of
SCOR, ceased writing business in January 2003. During the first
quarter of 2003, SCOR began Commercial Risk Partners sales
negotiations and started commutation negotiations with its
largest ceding companies. By year-end, the sale of CRP was no
longer pursued, but SCOR had succeeded in commuting
approximately 60% of its alternative risk transfer portfolio.
Due to the termination of activity, Commercial Risk Partners had
no gross premiums written in 2003 and 2004. Commercial Risk
Partners net premiums earned from the run-off operations
was EUR 0 million in 2004 compared to
EUR 159 million in 2003 and EUR 524 million in
2002, reflecting its run-off status.
The loss ratio decreased to 70% despite the fact that the claims
related to natural catastrophes represented a net cost of
EUR 76 million in 2004 for the Non Life segment
compared to EUR 72 million in 2003. Following a second
phase verdict returned on December 6, 2004 by a New-York
jury regarding the WTC tower losses, SCOR decided to book an
additional, net of retrocession, reserve of
EUR 20 million in the fourth quarter of 2004. In 2004,
SCOR, like most other reinsurers, was affected by the unusually
high frequency of events, including four hurricanes in the
United States and Caribbean and a number of typhoons in Asia.
The decrease of the reserves in 2004 reflects the evolution of
the exchange rate, particularly the weakening of the US Dollar,
which accounted for approximately EUR 350 million, a
large commutation in July 2004, which accounted for
approximately EUR 70 million, and the run-off of ART,
which accounted for approximately EUR 102 million.
In 2003, the increase in our loss reserves, based on a
comprehensive review of our claims reserves at best estimate in
September 2003, amounted to EUR 233 million and
contributed 11 percentage points to our Non Life loss
ratio of 102% in 2003. The amount of claims related to natural
catastrophes represented a net charge of
EUR 72 million in 2003, including
EUR 31 million for storms in the Midwest of America,
EUR 31 million, EUR 18 million for typhoon
Maemi in South Korea, EUR 12 million for floods in
Italy and EUR 11 million for floods in Southwest
France, compared to a net charge of EUR 94 million in
2002 for floods in Central Europe.
Non Life commissions and expenses ratio increased from 25%
in 2003 to 32% in 2004 primarily due to the increase in the
percentage of proportional treaties, which have higher
commission rates, to SCORs total business mix as a result
of a 54% decrease in Large Corporate account premiums in 2004.
Life/ Accident & Health
The following table sets forth premium, loss and expense data,
and related ratios, for the Groups Life/ Accident &
Health segment for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(Restated) | |
|
(Restated) | |
|
|
|
|
(EUR, in millions) | |
Gross premiums written
|
|
|
1,218 |
|
|
|
983 |
|
|
|
880 |
|
Net premiums written
|
|
|
1,045 |
|
|
|
885 |
|
|
|
844 |
|
Net premiums earned
|
|
|
901 |
|
|
|
869 |
|
|
|
800 |
|
Net loss and LAE
|
|
|
663 |
|
|
|
653 |
|
|
|
627 |
|
Net commissions and
expenses(1)
|
|
|
312 |
|
|
|
319 |
|
|
|
266 |
|
Underwriting (loss)
|
|
|
(74 |
) |
|
|
(104 |
) |
|
|
(93 |
) |
Loss ratio
|
|
|
73 |
% |
|
|
75 |
% |
|
|
78 |
% |
Expense
ratio(1)
|
|
|
35 |
% |
|
|
37 |
% |
|
|
33 |
% |
Combined ratio
|
|
|
108 |
% |
|
|
112 |
% |
|
|
111 |
% |
|
|
(1) |
Expenses include direct charges of each business segment and
indirect charges allocated by business segment pro rata
according to direct expenses. |
66
The Life and Accident & Health gross written premiums
decreased by 11% in 2004 compared to 2003 mainly from the
Accident & Health segment in which Accident and Medical
Care decreased.
In 2003, the gross written premiums decreased by 19% compared to
2002. This reduction, which impacted the Accident & Heath
segment resulted primarily from a significant withdrawal from
the French medical welfare business initiated by the Group in
the last quarter of 2002.
In 2004, net premiums written decreased by 5% compared to 2003.
As a result, the retention level for 2004 increased to 96% from
90% in 2003. This 6% percentage point increase in the overall
retention level of this segment was principally due to an
increase of the retention on the Life/ Death class of business.
In 2003, net premiums written decreased by 16% compared to 2002.
As a result, the retention level for 2003 increased to 90% from
86% in 2002. This 4 percentage points increase in the overall
retention level of the Life and Accident & Health segment
was principally due to the withdrawal from the French medical
welfare business on which we had a low retention level in 2002.
The 8% decrease in net premiums earned in 2004 compared to 2003
was more pronounced than the decrease in net written premiums in
the same period due to the acquisition of the premiums on Long
Term Care contracts, which have a larger acquisition period. The
4% decrease in net earned premium in 2003 compared to 2002 was
less pronounced than the decrease in net written premiums in the
same period, due to the writing of a contract in the last
quarter of 2002 that generated strong retained earned premiums
in 2003.
In 2004, commissions and expenses decreased by 17% from 2003 due
to new regulation SOP 03 01 which accelerated the amortization
of the value of business acquired on the SCOR Life Re portfolio,
when net premiums earned decreased 8%.
In 2003, commissions and expenses were relatively stable,
increasing 2% from 2002 to 2003.
In 2004, loss and LAE decreased by 4% compared to 2003, 4 points
less than premiums earned due to run-off of prior years. In
2003, loss and LAE decreased by 2% compared to 2002 in line with
the decrease of premiums earned.
B. LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
The following table sets forth the Groups summarized cash
flows statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(Restated) | |
|
(Restated) | |
|
|
|
|
(EUR, in millions) | |
Net cash flows provided by (used in) operating activities
|
|
|
264 |
|
|
|
(98 |
) |
|
|
(229 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) investing activities
|
|
|
(614 |
) |
|
|
258 |
|
|
|
(450 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by financing activities
|
|
|
395 |
|
|
|
50 |
|
|
|
846 |
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
(49 |
) |
|
|
21 |
|
|
|
(135 |
) |
Cash and cash equivalents at beginning of year
|
|
|
1,927 |
|
|
|
1,788 |
|
|
|
1,824 |
|
Effect of changes in exchange rates on cash beginning
|
|
|
(135 |
) |
|
|
(195 |
) |
|
|
(58 |
) |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
|
1,788 |
|
|
|
1,824 |
|
|
|
1,798 |
|
|
|
|
|
|
|
|
|
|
|
In the insurance and reinsurance industries, liquidity generally
relates to the ability of a company or a group to generate
adequate amounts of cash from its normal operations, including
from its investment portfolio, in order to meet its financial
commitments, which are principally obligations under its
insurance or reinsurance contracts. Future catastrophe claims,
the timing and amount of which are inherently unpredictable, may
create increased liquidity requirements for the Group.
67
The principal sources of funds for the Groups reinsurance
operations are premiums, net investment income and realized
capital gains, while the major uses of these funds are to pay
claims and related expenses, and other operating costs. The
Group generates cash flow from operations as a result of most
premiums being received in advance of the time when claim
payments are required. These positive operating cash flows,
along with that portion of the investment portfolio that is held
in cash and highly liquid securities, have historically met the
liquidity requirements of the Groups operations. Despite
the level of cash generated by SCORs ordinary activities,
we may be required to seek full or partial external debt or
equity financing in order to meet some or all of SCORs
obligations. See Item 3.D. Risk
Factors We face a number of significant liquidity
requirements in the short to medium-term.
The Groups liquidity requirements are met on both a short
and long-term basis by funds provided by reinsurance premiums
collected, investment income and collected retrocessional
reinsurance receivable balances, and from the sale and maturity
of investments. The Group also has access to the financial
markets, commercial paper, medium-term note and other credit
facilities described below as additional sources of liquidity.
In the reinsurance business, operating cash flow is primarily
provided by premiums written and cash is primarily used by the
subsequent payment of claims. In an increasing or stable
business environment, premiums received are ordinarily higher
than the claims paid on prior years and the current year and
generate a positive operating cash-flow. In a decreasing
business environment, premiums received decrease while at the
same time claims paid relating to prior years ordinarily
increases, generating, as a consequence, a negative operating
cash-flow.
The Groups balance of cash and cash equivalents was
EUR 1,798 million at December 31, 2004 compared
to EUR 1,824 million at December 31, 2003 and EUR
1,788 million at December 31, 2002.
Net cash used by operations was EUR 229 million in
2004 compared to EUR 98 million in 2003 and net cash
provided of EUR 264 million in 2002. The significant
increase in cash flow used in operating activities in 2004 was
primarily due to the combination of the reduction of premiums
written and the payment of claims on run-off portfolio.
In 2004, the non-life technical provisions decrease for claims
(EUR (662) million) and unearned premiums
(EUR (167) million) was a result of the decrease in
our activities in accordance with the Back on Track
plan which was completed at the end of the 2004 financial year.
The decrease of reserves in 2004 is primarily due to the impact
of exchange rate fluctuations, principally the weakening of the
US Dollar, which accounted for approximately EUR 350
million, a large commutation in July 2004, which accounted for
approximately EUR 70 million and the run-off of our
Bermudan subsidiary CRP, which accounted for approximately EUR
102 million.
In 2003, the non-life technical provisions decrease for claims
(EUR (230) million) and unearned premiums
(EUR (375) million) was a result of the decrease in
our activities in accordance with the Back on Track
plan which we started during the fourth quarter of 2002. In
2003, net cash used in operating activities was primarily due to
an increase in our reserves related to certain reinsurance
contracts in the United States prior to 2002 by
EUR 272 million and the commutation of business
underwritten by our Bermudan subsidiary CRP.
In 2002, the operating cash-flow provided is due to the
developments in our activities. As a consequence, the technical
provisions increased for claims (EUR 501 million) and
unearned premiums (EUR 192 million). In particular,
the higher increase in losses and LAE reserves than in unearned
premium reserves was due to the high loss ratios in Alternative
Reinsurance and in Credit, Surety and Political Risks. We
readjusted our reserves related to certain reinsurance contracts
in the United States prior to 2001. Likewise, we readjusted our
reserves, due particularly to an increase in claims related to
certain credit derivatives reinsurance contracts largely caused
by the worsening of the condition of certain debtors, to certain
events related to the Program Business of SCOR U.S. and to the
high claims rate of certain contracts covering workers
compensation in the United States underwritten by our Bermudan
subsidiary CRP.
Changes in assets and liabilities resulted in net cash used of
EUR 72 million in 2004 compared to net cash provided
of EUR 125 million in 2003. This cash used in 2004 was
mainly due to an increase of the cash deposits of EUR 266
million partly compensated by a decrease of the balance
receivable of EUR (205) million due to the 29% reduction in
premiums.
68
Changes in assets and liabilities created net cash provided of
EUR 140 million in 2003 compared to net cash used of
EUR 116 million in 2002. This cash provided in 2003
was mainly due the decrease of the balance recoverable of
EUR (232) million due to the 31% reduction in premiums.
In 2002, changes in assets and liabilities created net cash used
of EUR 116 million. This was due to a strong increase
(EUR 275 million) in deposits with ceding companies
(mainly due to Life deposits and a stronger need of guarantees
from the cedent due to the downgrade of our ratings) and in
receivable on sundry debtors and creditors
(EUR 102 million), compensated by a decrease in
accrued reinsurance balance payable (EUR 409 million)
due to a decrease of our estimates taking into consideration the
ceding accounts receipt.
Net cash used by investing activities was
EUR 450 million in 2004 compared to cash provided by
investing activities of EUR 258 million in 2003 and
net cash used in investing activities of
EUR 614 million in 2002. For 2004, our investing
activities consisted primarily of a net purchase of fixed
maturity securities amounting to EUR 257 million and
equity securities amounting to EUR 189 million.
For 2003, our investing activities consisted of a net sale of
fixed maturity securities amounting to EUR 33 million
and short-term investments amounting to
EUR 169 million.
For 2002, our investing activities consisted of a net purchase
of fixed maturity securities amounting to
EUR 1,227 million and a net sale of equity securities
amounting to EUR 253 million and short-term
investments amounting to EUR 174 million and a net
sale of reinsurance companies (COFACE) amounting to
EUR 275 million.
Net cash provided by the Groups financing activities was
EUR 846 million in 2004 compared to
EUR 50 million in 2003 and EUR 395 million
in 2002. Net cash provided by financing activities in 2004 was
primarily due to the issuance of 682,724,225 shares at a
subscription price of EUR 1.10 on January 7, 2004,
resulting in a capital increase of EUR 708 million,
and the issuance of a new OCEANEs bond issuance on July 2,
2004 for EUR 200 million.
Net cash provided by financing activities in 2003 was due
primarily to a proceed of long-term borrowings of
EUR 209 million, and was partially offset by
repayments of borrowings for EUR 114 million and our
acquisition of minority interests in IRP for
EUR 40 million.
Net cash provided by financing activities in 2002 was due
primarily to the issuance of new shares in the Companys
December 2002 capital increase, which contributed
EUR 363 million. As part of its short and medium term
debt management strategy, SCOR finalized the placement of a
5-year, 5.25% senior notes issue in June 2002 for a total amount
of EUR 200 million. This offering lengthened the
average duration of SCORs outstanding debt. Following the
lower of SCORs ratings in 2003, the interest was increased
to 7.75%.
The issue was used entirely to consolidate part of SCORs
existing commercial paper program and did not alter the
Groups overall debt ratio.
On April 17, 2002, SCOR issued USD 112 million
index-linked securitization of liabilities designed to lower its
risk profile in Credit Reinsurance. This securitization was
fully backed by Aaa rated assets. The coverage was linked to
Moodys A and Baa ratings indices, which comprise weighted
credit risk populations rated between A1 and Baa3. The indices
were picked for their match with the credit exposures SCOR is
seeking to protect in terms of quality, geographic diversity and
range of sectors.
At December 31, 2004, the Group had approximately EUR
44 million available in unused short and long-term credit
lines, compared to approximately EUR 50 million at
December 31, 2003 and approximately
EUR 100 million at December 31, 2002. For
additional information, see below under Off
Balance Sheet Transaction. As of December 31, 2004,
SCOR believes that its working capital is sufficient for its
present requirements.
69
During the year ended December 31, 2004, the Group had a
credit line of EUR 50 million EUR 44 million
of which was outstanding on December 31, 2004 and had
letters of credit outstanding with a face amount of
EUR 867 million on December 31, 2004, as follows:
EUR 50 million short term credit line
On November 5, 2003, the Board of Directors of the Company
authorized the extension and amendment of a contract signed on
December 11, 2002 concerning the opening of a
EUR 100 million short-term credit line between SCOR
and a syndicate of banks. Pursuant to a December 8, 2003
amendment, the global commitment under the short-term credit
line was reduced to EUR 50 million and one bank left
the syndicate. The credit line was terminated by SCOR on
February 24, 2004. Interest on amounts outstanding under
the credit line accrued at a rate equal to EURIBOR plus a margin
of 1% to 1.5%, depending on SCORs credit rating. The
facility agreement provided for payment of an annual commitment
fee of 0.75%, a fronting fee of 0.20% and a contract extension
fee of 0.20% of the EUR 50 million credit line provided.
SCOR stand-by letters of credit facility
On December 26, 2002, SCOR entered into a facility
agreement with a banking syndicate relating to the issuance of
letters of credit in favor of third party beneficiaries
designated by SCOR. The purpose of this facility agreement is to
secure SCORs obligations with respect to ceding companies.
The initial maximum commitment of the participating banks
amounted to USD 900 million. The facility agreement was
amended on November 13, 2003 for an amended aggregate
amount of up to USD 842 million. This maximum amount
was subsequently reduced by a series of partial cancellations by
SCOR, the most recent occurring in November 2004, to
USD 115 million. In addition to other customary
covenants, the facility agreement requires SCOR to notify the
participating banks in the event of any sale by SCOR of
substantial assets exceeding EUR 50 million, or any
sale by SCORs significant subsidiaries of assets exceeding
EUR 75 million, and of the occurrence of any damages
or litigation involving an amount higher than
EUR 50 million. The facility contains a negative
pledge with a basket of EUR 250 million for security
interests and EUR 125 million for guarantees. Any
disposal of SCORs controlling interest in SCOR Vie
requires the consent of a majority of the participating banks.
Events of default include (i) the failure by SCOR to pay
amounts due under the facility; (ii) a breach of
representation or the failure by SCOR to comply with its other
obligations under the agreement; (iii) a default or
acceleration of payment obligations under the SCOR Vie
stand-by letters of credit facility described below;
(iv) an event of default in relation to any financial debt
of more than EUR 50 million of the Company or any
company of the Group or the Company or any company of the Group
fails to pay when due any other debt exceeding
EUR 50 million; (v) the occurrence of any
insolvency event or proceeding, or any other similar event or
proceeding, with respect to the Company or any company of the
Group; (vi) the occurrence of a material adverse event (as
defined in the facility agreement) or an event which the
majority of the syndicate (67%) deems to be a material adverse
event; (vii) a decrease of SCORs consolidated net
worth below EUR 1 billion; (viii) the auditors of
the Company or a company of the Group refusing to certify
statutory financial statements, or certifying only with
significant reservations; and (ix) attachments on assets
with value in excess of EUR 30 million. The
outstanding amount of the letters of credit is collateralized by
French Government OAT Bonds in an amount equal to 105% of such
outstanding amount. The facility agreement provides for a number
of fees, including a utilization fee of 0.15% per year, a
contract extension fee of 0.045% and a fronting fee of 0.10%,
each based on the outstanding amount of the letters of credit,
and a non-utilization fee of 0.06% per year, based on the
non-used portion of the facility. The facility agreement expires
on December 31, 2005. It shall automatically be renewed for
an additional period of twelve months unless SCOR or the banking
syndicate delivers a termination notice to the other party no
later than 3 months prior to the maturity date.
SCOR Vie stand-by letters of credit facility
On November 14, 2003, in the context of the contribution of
the Life business of SCOR to SCOR Vie, SCOR Vie entered into a
stand-by letter of credit facility agreement with the banking
syndicate referred to above. The purpose of this facility
agreement is also to secure SCOR Vies obligations with
respect to ceding companies. The initial amount of the facility
was USD 110 million and was subsequently reduced by
amendment to
70
USD 85 million. As in the case of the SCOR credit
facility, this credit facility requires the payment of similar
banking fees and provides for similar covenants and events of
default. The outstanding amount of the letters of credit is also
secured by collateral given to the banking syndicate in the form
of French Government OAT Bonds for an aggregate amount equal to
105% of such amount.
Stand-by letter of credit facility
On October 11, 2004, the Company and SCOR Vie each entered
into a separate stand-by letters of credit facility with
Deutsche Bank AG in amounts up to an aggregate of
USD 200 million. The letters of credit facilities were
issued to secure their respective reinsurance activities and
related contracts and expire on December 31, 2005 unless
earlier terminated as a result of an event of default. Interest
on amounts drawn under the letters of credit accrues at the
prime rate. An annual commitment fee of 0.05% of the undrawn
portion of the facility is due to the bank. The facility
agreements include the same type of events of default as those
provided in the above stand-by letters of credit facilities. The
collateral securing the amounts drawn and outstanding is
comprised of U.S. Treasury bills with a percentage of
overcollateralization depending on the term of such notes.
C. OFF-BALANCE SHEET TRANSACTIONS
We enter into off-balance-sheet arrangements in the ordinary
course of business both on our own behalf and on behalf of our
customers. Off-balance-sheet arrangements we enter into for our
own behalf generally consist of OTC and other derivative
instruments, and are described in Note 13 to the
Consolidated Financial Statements.
Off-balance-sheet arrangements we enter into for our clients
consist of letter of credit (LOC) transactions where we
provide LOC coverage for all or part of our reinsurance
obligations to ceding companies, or where similar coverage is
provided to us by our retrocessionaires. These transactions are
entered into in the ordinary course to comply with ceding
companies credit or regulatory requirements. We also
pledge some securities as collateral in order to guarantee the
payment of cedants reserves. The following table sets
forth our off-balance-sheet engagements at December 31,
2002, 2003 and 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Commitments received
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unused credit lines
|
|
|
100 |
|
|
|
50 |
|
|
|
44 |
|
|
Endorsements and sureties
|
|
|
1 |
|
|
|
68 |
|
|
|
47 |
|
|
Letters of Credit
|
|
|
1,262 |
|
|
|
1,285 |
|
|
|
867 |
|
|
Other commitments
|
|
|
1 |
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,364 |
|
|
|
1,403 |
|
|
|
971 |
|
|
|
|
|
|
|
|
|
|
|
Commitments given
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Endorsements and sureties
|
|
|
1 |
|
|
|
90 |
|
|
|
47 |
|
|
Leases
|
|
|
28 |
|
|
|
17 |
|
|
|
10 |
|
|
Letters of Credit
|
|
|
1,085 |
|
|
|
594 |
|
|
|
656 |
|
|
Collateralized securities
|
|
|
2,583 |
|
|
|
3,226 |
|
|
|
1,885 |
|
|
Other commitments
|
|
|
23 |
|
|
|
139 |
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,720 |
|
|
|
4,066 |
|
|
|
2,698 |
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2004, SCOR was not aware of factors
relating to the foregoing off-balance-sheet arrangements that
are reasonably likely to adversely affect liquidity trends or
the availability of or requirements for capital resources. As of
December 31, 2004, there were no material additional
financial commitments required from Group companies in respect
of such arrangements.
71
Guarantees
In connection with a leasing arrangement accounted for as a
capital lease by the Company related to a building, the Company
guaranteed the lessor against realized losses that may be
incurred on the ultimate sale of the building. Under the terms
of the lease, if the Company, as lessee, does not elect to
exercise the bargain purchase option contained within the lease
agreement, and the building is sold at a realized loss, the
Group is obligated to fund this guarantee. In doing so, the
Group would be required to pay the lessor to the extent that the
residual value exceeds the sale price of the building. The
maximum potential amount of future payments the Group could be
required to fund under the guarantee is contractually limited to
EUR 18 million. The guarantee expires in 2012. As of
December 31, 2004, the Group has not been required to make
any payments under this guarantee.
In connection with the sale of the Groups interest in an
insurance entity, the Group guaranteed the purchasers against
adverse developments related to insurance and reinsurance
contracts written by the entity. There is no expiration date for
this guarantee. The Group believes that there is no maximum
potential loss from this guarantee. As of December 31,
2004, there has been no material adverse development in the
reserves concerned. Accordingly, the Group has not been required
to make any payments under this guarantee as of
December 31, 2004.
Pursuant to agreements dated December 28, 2001 entered into
in connection with the formation of IRP Holdings, the minority
shareholders of IRP Holdings have an agreed set of exit rights
exercisable during the first half of 2005 and in any event
require an exit no later than May 31, 2006. SCOR may
acquire the shares held by the minority shareholders either with
existing or newly-issued SCOR shares, with cash, or with a
combination of shares and cash. SCOR may, depending on
conditions at the time of the exit, decide to acquire all or
part of these shares in 2005.
D. CONTRACTUAL OBLIGATIONS
The following table sets forth the schedule of repayments of
SCORs debt as of December 31, 2004.
|
|
|
|
|
|
Year |
|
Payment | |
|
|
| |
|
|
(EUR, in millions) | |
2005
|
|
|
266 |
|
2006
|
|
|
78 |
|
2007
|
|
|
232 |
|
2008
|
|
|
16 |
|
2009
|
|
|
205 |
|
Thereafter
|
|
|
295 |
|
|
|
|
|
|
Total long-term debt
|
|
|
1,092 |
(1) |
|
|
|
|
|
|
(1) |
Excluding EUR 147 million related to the sale of the SCOR
building. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment due by period | |
|
|
| |
|
|
|
|
Less than | |
|
|
|
More than | |
Contractual obligations |
|
Total | |
|
1 year | |
|
1-3 years | |
|
3-5 years | |
|
5 years | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Long term debt
|
|
|
995 |
|
|
|
262 |
|
|
|
300 |
|
|
|
211 |
|
|
|
222 |
|
Capital lease
|
|
|
97 |
|
|
|
4 |
|
|
|
10 |
|
|
|
10 |
|
|
|
73 |
|
Operating lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long term liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(1)
|
|
|
1,092 |
|
|
|
266 |
|
|
|
310 |
|
|
|
221 |
|
|
|
295 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Excluding EUR 147 million related to the sale of the SCOR
building. |
For more information, see Note 9 to the financial
statements. See Item 3.D. Key Information
Risk Factors SCOR faces a number of significant
liquidity requirements in the short to medium-term.
72
E. RESEARCH AND DEVELOPMENT, PATENTS, LICENSES
See Item 4.B. Business overview
Information Technology.
F. TREND INFORMATION
See Item 4.B. Business overview and
Item 5.A. Operating results.
G. CRITICAL ACCOUNTING POLICIES
SCORs consolidated financial statements included in this
annual report have been prepared in accordance with
U.S. GAAP. The preparation of financial statements in
conformity with U.S. GAAP requires management to make estimates
and assumptions. The following presents those accounting
policies that management believes are the most critical to its
operations and those policies that require significant judgment
on the part of management. These critical accounting policies
are those which involve the most complex or subjective decisions
or assessments, and relate to the recognition of premium income,
the establishment of technical insurance reserves, the recording
of deferred acquisition costs, goodwill, deferred taxes and the
determination of the fair value of financial assets. In each
case, the determination of these items is fundamental to our
financial condition and results of operations, and requires
management to make complex judgments based on information and
financial data that may change in future periods. As a result,
determinations regarding these matters necessarily involve the
use of assumptions and subjective judgments as to future events
and are subject to change, as the use of different assumptions
or data could produce materially different results.
Technical Reserves.
Our insurance provisions, or technical reserves, represent
estimates of future payouts that we will make in respect of our
Property-Casualty and Life reinsurance claims, including
expenses relating to such claims. Such estimates are made on a
case-by-case basis, based on the facts known to us at the time
provisions are established, and are periodically adjusted to
recognize the estimated ultimate cost of a claim. As a
reinsurance company, our reserve estimates are largely based on
information received from our ceding companies, which are in
turn dependent on information received from their underlying
insured, with the result that a significant amount of time can
lapse between the assumption of risk on our part, and the
ultimate payment of a claim on a covered loss event. In
addition, we establish IBNR reserves in our
Property-Casualty business to recognize the estimated cost of
losses that have occurred but about which we do not yet have
notice. The establishment of our technical reserves is an
inherently uncertain process, involving assumptions as to
factors such as court decisions, changes in laws, social,
economic and demographic trends, inflation and other factors
affecting claim costs. Reserves are calculated on the basis of
their ultimate cost undiscounted, except for workmens
compensation which is discounted. In our Life reinsurance
business, the technical reserves for life benefits that we
establish are based on information received from our ceding
companies, together with actuarial estimates concerning
mortality and morbidity trends. See also Note 3.16 to the
consolidated financial statements.
Premiums.
Management must make judgments about the ultimate premiums
written by the Group. Due to lags in the reporting of premium
data by our ceding company clients, our reported premiums
written are based on reports received from ceding companies,
supplemented by our own estimates of premiums written for which
ceding company reports have not been received. Property-Casualty
and Life premiums recorded in the year correspond to the
estimated premiums anticipated at the time of writing the
contract. This is regularly reviewed in the course of the year
to adjust for possible modifications in premiums paid under the
contract. An unearned premium reserve is calculated, either on a
time apportioned contract-by-contract basis, or using a
statistical method when this yields as a result close to that
obtained via the contract-by-contract method. See also
Note 3.9 to the consolidated financial statements.
Amortization of Deferred Policy Acquisition Costs.
We amortize our deferred policy acquisition costs (DAC) for life
business based on a percentage of our expected gross profits
(EGPs) over the life of the policies. Our estimated EGPs are
computed based on assumptions related to the underlying policies
written, including the lives of the underlying policies, and, if
applicable, growth rate of
73
the assets supporting the liabilities. We amortize deferred
policy acquisition costs by estimating the present value of the
EGPs over the lives of the insurance policies and then
calculate a percentage of the policy acquisition cost deferred
as compared to the present value of the EGPs. That percentage is
used to amortize the deferred policy acquisition cost such that
the amount amortized over the life of the policies results in a
constant percentage of amortization when related to the actual
and future gross profits.
Because the EGPs are only estimates of the profits we expect to
recognize from these policies, the EGPs are adjusted at each
balance sheet date to take into consideration the actual gross
profits to date and any changes in the remaining expected future
gross profits. When EGPs are adjusted, we also adjust the
amortization of the DAC amount, if applicable, to maintain a
constant amortization percentage over the entire life of the
policies, or to take into account the absence of future profits.
For 2004, we have not materially changed the weighted average
expected life of the policies. The present value of the future
profits acquired in the context of the purchase of SCOR Life Re
US is determined in a similar manner. See Note 3.10 to the
consolidated financial statements.
In our Property-Casualty business, deferred acquisition costs
represent the portion of commissions pertaining to contracts in
force at year-end over the period for which premiums are not yet
earned, and are written down over the residual duration of the
contacts in question.
Fair Values.
Fair value determinations for financial assets are based
generally on listed market prices or broker or dealer price
quotations. If prices are not readily determinable, fair value
is based on either internal valuation models or
managements estimate of amounts that could be realized
under normal market conditions, assuming an orderly liquidation
over a reasonable period of time. Certain financial instruments,
including OTC derivative instruments, are valued using pricing
models that consider, among other factors, contractual and
market prices, correlations, time value, credit, yield curve
volatility factors and/or prepayment rates of the underlying
positions. The use of different pricing models and assumptions
could produce materially different estimates of fair value.
Goodwill.
The excess of purchase price over the fair value of the net
assets acquired of a company restated to fair value at the date
of purchase, is recorded as goodwill. Under FASB 142
(Goodwill and other intangible assets), goodwill is
not amortized but is subject to an assessment for impairment on
an annual basis, or more frequently if circumstances indicate
that a possible impairment has occurred. If the goodwill is
higher than its fair value, an impairment is recorded in the
statement of income. During 2002, Commercial Risk Partners
goodwill, which is included in the Alternative Risk Transfer
sub-segment, was determined to be fully impaired.
Deferred Tax.
The deferred tax assets and liabilities on the consolidated
balance sheets reflect timing differences between the carrying
amount of assets and liabilities for financial reporting and
income tax purposes. See Note 10 (Income Tax) to the
consolidated financial statements for significant components of
the Groups deferred tax assets and liabilities.
SFAS 109 requires the establishment of a valuation
allowance for deferred income tax benefits if, based on the
weight of available evidence, it is more likely than not that
some portion or all of the deferred tax assets will not be
realized.
In assessing the realizability of deferred tax assets, including
French net operating losses, management considers whether it is
more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future
taxable income during the periods in which those temporary
differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this
assessment.
74
Item 6. Directors, Senior Management and
Employees
A. DIRECTORS AND SENIOR MANAGEMENT
In accordance with French law governing a société
anonyme, the principal responsibility of our Board of Directors
is to determine the guiding principles of the Companys
business plan and strategy and to monitor their application. The
Chairman and Chief Executive Officer has full executive
authority to manage the affairs of the Company, subject to the
prior authorization of the Board of Directors or of the
Companys shareholders for certain decisions as required by
law.
Board of Directors
Under French law, our Board of Directors prepares and presents
the year-end accounts of the Company to the shareholders and
convenes shareholders meetings. In addition, the Board of
Directors reviews and monitors SCORs economic, financial
and technical strategies. French law provides that our Board of
Directors be composed of no fewer than three and no more than
eighteen members. The actual number of directors must be within
such limits and may be provided for in the statuts or
determined by the shareholders at the annual general meeting of
shareholders. The Board of Directors cannot increase the number
of members of the board.
On December 31, 2004, the Companys Board of Directors
consisted of fifteen voting members, including one elected
representative of the personnel of SCOR in France, known as the
employee director. Under the Companys statuts, each
director must own at least one share in the Company throughout
his entire term of office. Under French law, a director, other
than an employee director, may be an individual or a
corporation, but the Chairman must be an individual. Currently,
each of the Companys directors is an individual. The
employee director is currently elected for a three-year term by
the Companys and its French subsidiaries employees
and each voting director is elected for a six-year term.
Directors may not hold office after the age of 72 under the
Companys statuts. A director reaching the age of 72
while in office has to retire at the expiry of the term of his
or her office, as determined at the annual general meeting of
shareholders. Non-employee 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, which exist in
the Board of Directors, may, under certain conditions, be filled
by the Board of Directors, pending the next shareholders
meeting.
Directors are required to comply with applicable law and
SCORs statuts. Under French law, directors are
liable for violations of French legal or regulatory requirements
applicable to sociétés anonymes, violation of a
companys statuts or mismanagement. Directors may be
held liable for such actions both individually and jointly with
the other directors.
75
The following table sets forth the directors of the Company,
currently and as at December 31, 2004, unless otherwise
indicated, as appointed by the combined shareholders
meeting of May 15, 2003, their ages as of December 31,
2004 and positions with SCOR and their principal business
activities performed outside SCOR, the dates of their initial
appointment as directors and the expiration dates of their term
in office.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current principal position at SCOR |
|
Initially | |
|
Expiration | |
Name |
|
Age | |
|
and principal business activities outside SCOR |
|
appointed | |
|
of term | |
|
|
| |
|
|
|
| |
|
| |
Denis
Kessler(1)
|
|
|
52 |
|
|
Chairman and Chief Executive Officer; Member of the Board of
Directors of BNP Paribas SA; BOLLORE
Investissement SA; and DASSAULT Aviation |
|
|
11/4/02 |
|
|
|
2007 |
|
Carlo
Acutis(2)
|
|
|
66 |
|
|
Director; Vice-Chairman, La Vittoria Assicurazioni SpA
(Italy) |
|
|
5/15/03 |
|
|
|
2009 |
|
Michèle Aronvald
|
|
|
46 |
|
|
Employee elected Director |
|
|
8/30/01 |
|
|
|
2006 |
|
Antonio
Borges(2)(3)
|
|
|
55 |
|
|
Director; Vice-Chairman, Goldman Sachs International, Investment
Banker |
|
|
5/15/03 |
|
|
|
2007 |
|
Allan Chapin,
Esq.(1)(4)
|
|
|
63 |
|
|
Director; Partner, Compass Advisers LLP (New York, U.S.A.) |
|
|
5/12/97 |
|
|
|
2005 |
|
Daniel
Havis(2)
|
|
|
49 |
|
|
Director; Chairman and Chief Executive Officer, MATMUT (Mutuelle
Assurance de Travailleurs Mutualistes) (France) |
|
|
11/18/96 |
|
|
|
2005 |
|
Yvon
Lamontagne(2)
|
|
|
64 |
|
|
Director; Director of Hydro Québec (Montréal) |
|
|
5/15/03 |
|
|
|
2007 |
|
Daniel
Lebègue(1)(2)(3)
|
|
|
61 |
|
|
Director; Président of the French Institute of Directors
(Institut Français des Administrateurs IFA) |
|
|
5/15/03 |
|
|
|
2009 |
|
Helman Le Pas de
Sécheval(1)(2)(3)(5) |
|
|
38 |
|
|
Director; Group Chief Financial Officer, GROUPAMA S.A. |
|
|
11/3/04 |
|
|
|
2009 |
|
André
Lévy-Lang(1)(3)(4)
|
|
|
67 |
|
|
Director; Associate Professor at the Paris University of
Dauphine; former Chairman of the Management Board, Paribas |
|
|
5/15/03 |
|
|
|
2009 |
|
Herbert
Schimetschek(2)
|
|
|
66 |
|
|
Director; Chairman of the Management Board and Chief Executive
Officer, Austria Versicherungsverein auf Gegenseitigkeit
(holding) (Austria) |
|
|
5/15/03 |
|
|
|
2007 |
|
Jean-Claude
Seys(1)
|
|
|
66 |
|
|
Director; Chairman and Chief Executive Officer, MAAF Assurance
S.A.; Chairman and Chief Executive Officer, MMA |
|
|
5/15/03 |
|
|
|
2009 |
|
Jean
Simonnet(2)
|
|
|
68 |
|
|
Director; Chairman, MACIF and subsidiaries of MACIF (France) |
|
|
3/2/99 |
|
|
|
2005 |
|
Claude
Tendil(1)(2)
|
|
|
59 |
|
|
Director; Chairman and Chief Executive Officer, Generali
(France) and Chairman, Europ Assistance Group |
|
|
5/15/03 |
|
|
|
2007 |
|
Daniel
Valot(1)
|
|
|
60 |
|
|
Director; Chairman and Chief Executive Officer, Technip |
|
|
5/15/03 |
|
|
|
2007 |
|
|
|
(1) |
Member of the Strategic Committee. |
|
(2) |
Member of the Risks Committee. |
|
(3) |
Member of the Accounting and Audit Committee. |
|
(4) |
Member of the Compensation and Nominations Committee. |
|
(5) |
Appointed as a member of the Board of Directors in replacement
of Jean Baligand and as a member of the Strategic Committee on
November 3, 2004. He is also a member of the Risks
Committee and a non-voting member of the Accounting and Audit
Committee. |
76
Jean Baligand resigned from the Board of Directors and Strategic
Committee on August 18, 2004.
In addition, the following two non-voting directors were elected
for a two-year term commencing on May 15, 2003:
|
|
|
|
|
Georges Chodron de Courcel, 54, Chief Operating Officer,
BNP-Paribas, who was also appointed as member of the
Compensation and Nominations Committee and the Risks Committee. |
|
|
|
Helman Le Pas de Sécheval, 38, Group Chief Financial
Officer, Groupama was a non-voting director until
November 3, 2004. However, due to his appointment as a
member of the Board of Directors in replacement of Jean
Baligand, Helman Le Pas de Sécheval resigned as a
non-voting director on November 3, 2004 and has not been
replaced. |
As recommended in an evaluation carried out in January 2003, the
Board of Directors now comprises:
|
|
|
|
|
A majority of non-executive directors. The board considers
eleven of its fifteen members to be independent, namely
Messrs. Acutis, Borges, Chapin, Havis, Lamontagne,
Lebègue, Lévy-Lang, Schimetschek, Simonnet, Tendil and
Valot. This evaluation was based on the criteria laid down in
the 2002 Bouton Report in France; |
|
|
|
A greater diversity of expertise. In addition to experts drawn
from the insurance and reinsurance sectors, the Board of
Directors has more members representing the world of finance and
industry; |
|
|
|
A more international perspective, with directors from Italy,
Portugal, Austria, Canada and the United States, and directors
with extensive international experience. |
The age limit for directors is 72. The average age of
SCORs directors is currently 58.
In 2004, the Board of Directors met six times, on
February 25, March 31, May 18, June 21,
August 25, and November 3.
The following sets forth the business experience of the voting
and non-voting members of SCORs Board of Directors:
Denis Kessler
After seven years in the insurance field as Chairman of the
Fédération Française des Sociétés
dAssurance (FFSA), and subsequently Senior Executive Vice
President and member of the Executive Committee of AXA, Denis
Kessler worked for the MEDEF (French Business Confederation),
where he was First Executive Vice-Chairman from 1999 to 2002
while continuing to serve as Chairman of the FFSA. He then
joined SCOR as Chairman and Chief Executive Officer of the Group
on November 4, 2002 and serves on the boards of numerous
SCOR subsidiaries. Denis Kessler is also a director of BNP
Paribas SA, Bolloré Investissement SA, Dassault Aviation,
AMVESCAP Plc (UK), Dexia SA (Bruxelles), COGEDIM S.A.S., General
Security National Insurance Company, Investors Insurance
Corporation and Investors Marketing Group. Mr. Kessler is a
graduate of HEC business school (Ecole des Hautes Etudes
Commerciales) and holds a PhD in economics and an advanced
degree in social sciences.
Carlo Acutis
The principal position of Carlo Acutis is as Vice Chairman of
Vittoria Assicurazioni S.p.A. He also serves on the boards of
directors for a number of companies, including Yura
International Holdings, B.V., Banca Passadore S.p.A., Ergo
Italia S.p.A., Inbco B.V and Vittoria Capital N.V.
Michèle Aronvald
Michèle Aronvald has been employed with SCOR for
twenty-five years in the Finance Department. Mrs. Aronvald
has served as an employee-elected director on SCORs Board
of Directors since 2001.
77
Antonio Borges
Antonio Borges is currently Vice Chairman of Goldman Sachs
International in London. Among other positions, he is a member
of the Supervisory Board of CNP Assurances and a member of the
Fiscal Committee of Banco Santander de Negocios Portugal. He
also serves on the boards of directors for Jérónimo
Martins, SONEAcom, Caixa Seguros and Heidrick & Struggles.
Mr. Borges previously served as Dean of the INSEAD business
school.
Allan Chapin, Esq.
After being a partner at Sullivan & Cromwell and Lazard
Frères, New York, for a number of years, Allan Chapin has
been a partner at Compass Partners International LLP, New York,
since June 2002. He also serves on the boards of directors for
Pinault Printemps Redoute Group, InBev (Belgium), SCOR
Reinsurance Company and certain of its subsidiaries, the General
Security National Insurance Company and the French-American
Foundation.
Daniel Havis
The principal position of Daniel Havis is as Chairman and Chief
Executive Officer of the Mutuelle Assurance de Travailleurs
Mutualistes (MATMUT). Among other appointments, Mr. Havis
is also Chairman of SMAC (Mutuelle Accidents Corporels) and PMA.
He holds non-executive positions in certain OFIVALMO (Omnium
Financier de Valeurs Mobilières) entities, in finance
companies, including OFIVALMO Gestion and OFIVM and insurance
companies, including IMA (Inter Mutuelle Assistance).
Yvon Lamontagne
Yvon Lamontagne served as Chairman and Chief of Management of
Boreal Assurances (now AXA). Mr. Lamontagne lives in
Québec and holds various non-executive positions in local
companies, notably in Canadian branches of insurance/
reinsurance companies, including SCOR and AXA. He also serves as
Director of Hydro-Québec.
Daniel Lebègue
From 1988 to 2002, Daniel Lebègue was Chief Operating
Officer of la Caisse des Dépôts et Consignations,
Chairman of the Supervisory Board of CDC IXIS and Chairman of
Eulia. He currently serves on the boards of directors for
various companies, including Alcatel, Technip, SCOR Vie and
Crédit Agricole S.A. He has also been named Chairman of,
among others, the French Institute of Directors (IFA), the
Political Science Institute of Lyon, the Confederation of
European Associations of Directors and Eurofi.
Helman Le Pas de Sécheval
From 1998 to 2001, Helman Le Pas de Sécheval directed the
financial information and operations department at the COB
(Commission des opérations de bourse, now Autorité des
Marchés Financiers, or AMF), before being appointed Group
Chief Financial Officer of Groupama in November 2001. He holds
various non-executive positions for GAN Insurance in France and
abroad as well as for other financial companies, including as
Chairman of Compagnie Financière Parisienne and Banque
Finama.
André Lévy-Lang
André Lévy-Lang was Chairman of the Management Board
of Paribas from 1990 to 1999 and is now Director of various
companies, notably Assurances Générales de France
(AGF), Schlumberger (U.S.) and Dexia (Bruxelles). He is
currently an associate professor emeritus at the Paris
University of Dauphine.
Herbert Schimetschek
From 1997 to 2000, Herbert Schimetschek was Chairman of the
Conseil Européen des Assureurs, then until June 2000, Vice
Chairman of the Austrian Insurance Companies Association and
from 1999 to 2001, Chairman of the Management Board and Chief
Operating Officer of UNIQA Versicherung S.A. He currently has
numerous non-
78
executive positions in insurance and bank companies in Austria,
including the Austrian Central Bank, Bank Gutmann S.A. and
Ludwig Boltzmann Gesellschaft.
Jean-Claude Seys
Jean-Claude Seys has worked mainly in the banking and insurance
field. He was appointed Chairman and Chief Executive Officer of
MAAF Assurance S.A. in 1992, Chief Executive Officer of MaaF-MMA
in 1998 and Chief Executive Officer of COVEA in June 2003.
Mr. Seys currently holds numerous non-executive positions
in France and abroad, including OFIVALMO, DAS, Azur-GMF and
Eurapco.
In connection with the Crédit Lyonnais/ Executive Life
matter, Jean-Claude Seys was sentenced in January 2004 in U.S.
federal court to five years of probation, during which time he
is barred from entering the United States. Insurance regulatory
authorities in the United States have been informed of the
foregoing.
Jean Simonnet
Over the last five years, Jean Simonnet has been Chairman of a
number of companies, including MACIF (Société
dAssurance Mutuelle), SOCRAM (Société de
Crédit) and SMIP (Mutuelle Complémentaire Santé),
OFIMA MIDCAP (SICAV dOFIVALMO). He is currently a director
of or represents MACIF on the Board of various insurance and
real estate companies, including IMA, OFIVALMO, MACIF (Mutuelle
Assistance des Commerçants et Industriels de France),
Foncière de Lutèce, FORINTER and Mutavie S.A.
Claude Tendil
Claude Tendil started his career at UAP in 1972, worked for the
Drouot group from 1980 and for AXA from 1989 to 2002, where he
became Vice Chairman of the Management Board in 2001. He has
been Chairman and CEO of Generali group in France since April
2002 and Chairman of the Europ Assistance group since April
2003. He also serves as chairman or director of La
Fédération Continentale Europ Assistance Holding and
Unibail.
Daniel Valot
From 1995 to 1999, Daniel Valot was Chief Operating Officer of
Total Exploration Production, then worked for Technip, where he
was appointed Chairman and Chief Executive Officer in July 2003.
His other director positions are mainly in the industrial field
in France and abroad, including Compagnie Générale de
Géophysique, the French Oil Institute (Institut
Français du Pétrole) and SCOR Vie.
Georges Chodron de Courcel
Georges Chodron de Courcel is Chief Operating Officer of BNP
Paribas in Paris and holds non-executive positions for the BNP
Paribas Group in some of their foreign subsidiaries. He is a
director of Bouygues, Alstom, Nexans, BNP Paribas (Suisse) and
the Société Foncière Financière et de
Participations (FFP) since April 14, 2005. He has been
appointed Chairman of Erbé S.A. and is a member of the
supervisory board of Lagardère and Sagem. He is president
of BNP Paribas Emergis SAS, Compagnie dInvestissement de
Paris SAS and Financière BNP Paribas SAS. He is a
non-voting director of SCOR Vie.
Executive Officers
Under French law and the Companys statuts and
pursuant to a decision of the Board of Directors, the Chairman
and Chief Executive Officer has full executive authority to
manage the affairs of the Company, subject to the prior
authorization of the Board of Directors or of the Companys
shareholders for certain decisions as required by law. The
Chairman and Chief Executive Officer has authority to act on
behalf of SCOR and to represent SCOR in dealings with third
parties, subject only to those powers expressly reserved by law
to the Board of Directors or the shareholders. The Chairman and
Chief Executive Officer determines, and is responsible for the
implementation of the goals, strategies and budgets of SCOR,
which are reviewed and monitored by the Board of Directors. The
Board of Directors has the power to appoint and remove, at any
time and with or without cause, the Chairman and Chief Executive
Officer, as well as to appoint separate persons to hold the
positions of
79
Chairman and Chief Executive Officer. Upon a proposal made by
the Chairman and Chief Executive Officer, the Board of Directors
may also appoint a Chief Operating Officer to assist the
Chairman and Chief Executive Officer in managing the
Companys affairs.
The following table sets forth the Companys executive
officers who comprise the Executive Committee at
December 31, 2004 and as of the date hereof, their ages as
of December 31, 2004, their positions with SCOR and the
first dates as of which they served as executive officers of
SCOR.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive | |
Name |
|
Age | |
|
Current Position |
|
Officer Since | |
|
|
| |
|
|
|
| |
Denis Kessler
|
|
|
52 |
|
|
Chairman and Chief Executive Officer |
|
|
2002 |
|
Patrick Thourot
|
|
|
56 |
|
|
Chief Operating Officer |
|
|
2003 |
|
Marcel Kahn
|
|
|
48 |
|
|
Chief Financial Officer |
|
|
2004 |
|
Jean-Luc Besson
|
|
|
58 |
|
|
Chief Risk Officer |
|
|
2003 |
|
Yvan Besnard
|
|
|
50 |
|
|
Director for Non Life Treaties, Europe |
|
|
2004 |
|
Romain Durand
|
|
|
47 |
|
|
Chief Executive Officer and Director of SCOR VIE |
|
|
1997 |
|
Victor Peignet
|
|
|
47 |
|
|
Managing Director, Business Solutions |
|
|
2004 |
|
Henry Klecan Jr.
|
|
|
53 |
|
|
Division President & CEO of SCOR U.S. and SCOR Canada |
|
|
2003 |
|
Arnaud Chneiweiss served as Secretary to the Executive Committee
and the Board of Directors until September 10, 2004 and
Emmanuelle Rousseau has served in such position since that date.
The following sets forth the business experience of SCORs
executive officers:
Denis Kessler
See above under Board of Directors.
Patrick Thourot
Patrick Thourot is a graduate of the Ecole Nationale
dAdministration and worked for ten years with the French
Ministry of Finance, before spending most of his career in
insurance companies or professional organizations since 1983,
including COFACE, FFSA, PFA IARD and AXA, where he was Executive
Vice President of the Group, Group Technical Director and a
member of the Executive Committee. He then served as Chief
Executive Officer of Zürich France before being appointed
Chief Operating Officer of the Company in January 2003. Patrick
Thourot serves as Chairman of Eurofinimo, Finimofrance and
Fergascor as well as a number of SCOR entities. He also serves
as director of Asefa (Spain) and as vice president of the
supervisory board of Mutre.
Marcel Kahn
Marcel Kahn, actuary, chartered accountant and MBA from the
ESSEC business school, spent several years as an external
auditor and chartered accountant before joining the Axa group in
1988 as Group Controller. From 1991 to 2001, he was successively
Chief Financial Officer (CFO) of Axa France, International
Director for Europe, the Axa Groups Director for Strategy
and Development, Deputy Managing Director of Axiva (Life
insurance), and Director of Procurement for Axa France. In 2001,
he was appointed Chief Financial Officer of PartnerRe Global and
Managing Director for PartnerRe France. In 2004, Marcel Kahn was
appointed Chief Financial Officer of the SCOR Group and a member
of the Group Executive Committee. He currently serves as
Chairman of several SCOR subsidiaries.
Jean-Luc Besson
Jean-Luc Besson, an actuary holding a PhD in mathematics, joined
the FFSA in 1985 and was since July 2001 Senior Vice President,
Research, Statistics and Information Systems at the FFSA. He is
the head of the French Institute of Actuaries and is a member of
the International Actuarial Association. Mr. Besson was
appointed as
80
Chief Reserving Actuary of SCOR Group in January, 2003 and was
appointed as Chief Risk Officer of the SCOR Group on
July 1, 2004.
Yvan Besnard
Yvan Besnard graduated from the ESSEC Business School, CHEA
(Centre des Hautes Etudes de lAssurance) and holds the
DECS (Diplôme dEtudes Comptables
Supérieures, an advanced accounting degree). He joined
the AGF Group in 1978 as Financial Controller of AGF Re, then
became Manager of the Technical and Marketing Department of the
Health Insurance Division. He joined SCOR Group in 1991 as Head
of Management Analysis. In 1993, he became Financial Controller
of SCOR Réassurance. In 1995 he joined SCOR UK, where he
was appointed Managing Director in 1997. In July 2000, he was
appointed Head of Development for the SCOR Group. He has been
since 2003 Chief Internal Auditor for the Group. Yvan Besnard
was named, in July 2004, Director for Non Life Treaties for
Europe. He also serves as a director for a number of SCOR
entities and serves as SCORs permanent representative on
the boards of Assuratome, Tricast SA and Assurpol.
Romain Durand
Romain Durand is a graduate of HEC business school (Ecole des
Hautes Etudes Commerciales) and Sciences Po (Political
Sciences faculty in Paris). Romain Durand joined SCOR in January
1997, after spending several years in the international
insurance industry, and became a member of the Group Executive
Committee. He was named Chief Operating Officer of the SCOR Life
Division in April 1998 and is currently Chief Executive Officer
and Director of SCOR Vie. He currently serves as Chairman of
Solareh SA and as a director of SGF, Investors Insurance
Corporation and several SCOR entities.
Victor Peignet
Victor Peignet, marine and offshore engineer, joined SCORs
Facultative Department in 1984 from the offshore contracting
industry. He has 15 years of underwriting and managing
experience in Energy and Marine insurance with SCOR. He has been
the head of the Corporate Business Division of the Group, SCOR
Business Solutions, since its formation in 2000 and as Executive
Vice President and Managing Director since April 2004. He is a
director of SCOR UK Co., SCOR Channel Ltd and Arisis Ltd.
Henry Klecan Jr.
Henry Klecan Jr., holds a B.A. in philosophy from Sir
George Williams University and a law degree from University of
Montreal. He is a member of the Quebec Law Society and has been
active in the insurance industry for over 20 years in
various senior executive positions. Until 1989, Henry
Klecan Jr. held executive positions in Canadas
leading specialty lines insurance companies and insurance
brokerage operations. From 1989 to 1998 he was Senior Vice
President and co-founder of London Guarantee Insurance Company.
From 1999 to 2000 he was Senior Vice President of Citadel
Assurance Company. Henry Klecan Jr. has been President and
Chief Executive Officer of SCOR Canada since July 2000 and was
appointed President and Chief Executive Officer of SCOR U.S. on
November 18, 2003.
B. COMPENSATION
Directors attendance fees
The Ordinary General Meeting of Shareholders on May 18,
2002 increased the aggregate annual amount payable to members of
the Board of Directors for attendance fees to EUR 600,000 with
effect from fiscal 2002. At its May 15, 2003 meeting, the
Board of Directors decided to allocate these fees among the
directors, split equally between an equivalent fixed portion and
a variable portion depending on the attendance of each director
of meetings (the fixed portion amounting to EUR 20,000 and
the variable portion amounting to EUR 1,700 for each
meeting attended). The non-voting directors receive a share of
the attendance fees according to the same procedure. In
addition, an amount of EUR 1,700 is paid for each attendance at
a meeting of a board committee. However, no attendance fee is
paid to the Chairman and Chief Executive Officer or to the Chief
Operating Officer. These fees are paid at the end of each
quarter. The amount of compensation paid, and benefits in kind
81
granted to, all of SCORs voting and non-voting directors
during and for the year ended December 31, 2004 is set
forth below.
The Company paid an aggregate of EUR 8,285 to the French
government for pension benefits on behalf of its employee
director, Michele Aronvald. No other amounts were paid for
pension, retirement or similar benefits for the Companys
directors in 2004.
Attendance fees for 2004 were paid as listed below (In euro):
|
|
|
|
|
Mr. Carlo
Acutis(1)
|
|
|
20,100 |
|
Mrs. Michèle
Aronvald(2)
|
|
|
28,500 |
|
Mr. Jean
Baligand(3)
|
|
|
15,800 |
|
Mr. Antonio
Borges(4)
|
|
|
27,750 |
|
Mr. Allan
Chapin(5)
|
|
|
26,475 |
|
Mr. Georges Chodron de Courcel
|
|
|
31,900 |
|
Mr. Daniel Havis
|
|
|
28,500 |
|
Mr. Yvon
Lamontagne(6)
|
|
|
21,375 |
|
Mr. Daniel Lebègue
|
|
|
43,800 |
|
Mr. Helman le Pas de
Sécheval(7)
|
|
|
35,300 |
|
Mr. André Lévy Lang
|
|
|
47,200 |
|
Mr. Herbert
Schimetschek(8)
|
|
|
17,550 |
|
Mr. Jean-Claude Seys
|
|
|
31,900 |
|
Mr. Jean Simonnet
|
|
|
26,800 |
|
Mr. Claude Tendil
|
|
|
30,200 |
|
Mr. Daniel Valot
|
|
|
28,500 |
|
|
|
(1) |
The amount allocated to Carlo Acutis was initially
EUR 26,800 which takes into account an initial tax of 25%
(i.e., EUR 6,700) pursuant to articles 117 bis, 119
bis 2 and 187 of the French Tax Code. |
|
(2) |
Employee-elected Director |
|
(3) |
Jean Baligand resigned on August 18, 2004. |
|
(4) |
The amount allocated to Antonio Borges was initially
EUR 37,000 which takes into account an initial tax of 25%
(i.e., EUR 9,250) pursuant to articles 117 bis, 119
bis 2 and 187 of the French Tax Code. |
|
(5) |
The amount allocated to Allan Chapin was initially
EUR 35,300 which takes into account an initial tax of 25%
(i.e., EUR 8,825) pursuant to articles 117 bis, 119
bis 2 and 187 of the French Tax Code. |
|
(6) |
The amount allocated to Yvon Lamontagne was initially
EUR 28,500 which takes into account an initial tax of 25%
(i.e., EUR 7,125) pursuant to articles 117 bis, 119 bis 2
and 187 of the French Tax Code. |
|
(7) |
Helman Le Pas de Sécheval was elected to replace Jean
Baligand on November 3, 2004. |
|
(8) |
The amount allocated to Herbert Schimetschek was initially
EUR 23,400 which takes into account an initial tax of 25%
(i.e., EUR 5,580) pursuant to articles 117 bis, 119 bis 2
and 187 of the French Tax Code. |
In addition, some directors of SCOR attend or attended meetings
of the boards of directors of some of the Groups
subsidiaries and consequently received related attendance fees
for 2004 as follows:
SCOR U.S.:
Mr. Chapin: 27,000 USD
Mr. Lebègue: 14,700 USD
SCOR Canada:
Mr. Lamontagne: 40,000 CAD
82
2004 Compensation for Members of the Executive Committee
The aggregate amount of compensation of all members of
SCORs Executive Committee (8 persons) during and for
the year ended December 31, 2004 amounted to
EUR 2,830,367 including fixed compensation for 2004 and
variable compensation relating to 2003 paid during the
first-half of 2004.
There is no employment contract between Mr. Kessler and
SCOR. The terms and conditions of his appointment are described
in the minutes of the meeting of the Board of Directors held on
December 19, 2002. The Compensation and Nominations
Committee decided that the compensation of the Chairman and
Chief Executive Officer be made up as follows:
|
|
|
|
|
a fixed sum of EUR 500,000, |
|
|
|
a variable portion for a maximum amount of EUR 500,000;
including a portion of 2.75 per thousand of the
consolidated net result for SCOR, up to EUR 350,000, and an
amount up to EUR 150,000 determined by the Board of
Directors being linked to the achievement of objectives decided
for each year. |
In addition, SCOR paid part of the cost of Denis Kesslers
rent for his apartment through September 30, 2004 totalling
EUR 39,617 for 2004. Mr. Kessler is entitled to two years
severance in the event of his termination and three years
severance in the event of a material change in the shareholder
structure of the Group.
There is no employment contract between Mr. Thourot and
SCOR. The terms and conditions of his appointment are described
in the minutes of the meetings of Directors held on
January 22, 2003, as follows:
|
|
|
|
|
a fixed amount of EUR 410,000, |
|
|
|
a variable portion for a maximum amount of EUR 410,000,
including a portion of 1.50 per thousand of the
consolidated net result for SCOR, up to EUR 287,000, and an
amount up to EUR 123,000 determined by the Board of
Directors being linked to the achievement of objectives decided
for each year by the Chairman and Chief Executive Officer. |
In addition, in the event Mr. Kessler resigns as CEO for any
reason, Mr. Thourot is required to resign as Chief Operating
Officer upon the appointment of a new Chief Executive Officer.
Mr. Thourot is entitled to two years compensation in the event
the Company terminates his mandate, subject to certain
conditions and to three years compensation if
Mr. Thourot resigns from his position, subject to certain
conditions.
The following table sets forth 2004 and 2003 compensation
information for Messrs. Kessler, Thourot and Osouf.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed compensation | |
|
Variable compensation | |
|
Total compensation | |
|
Total compensation | |
|
|
for 2004 in EUR | |
|
for 2004 in EUR | |
|
for 2004 in EUR | |
|
paid in 2003 in EUR | |
|
|
| |
|
| |
|
| |
|
| |
Mr. Denis Kessler
|
|
|
500,000 |
|
|
|
150,000 |
|
|
|
650,000 |
|
|
|
650,000 |
|
Mr. Patrick Thourot
|
|
|
410,000 |
|
|
|
123,000 |
|
|
|
533,000 |
|
|
|
383,000 |
(1) |
Mr. Serge
Osouf(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,917 |
|
|
|
(1) |
M. Thourot joined the Group on January 27, 2003 |
|
(2) |
Serge Osoufs term of office ended on January 22, 2003
before his retirement on November 1, 2003. |
83
The Compensation and Nominations Committee determines the
variable compensation attributed to the other members of the
Executive Committee on proposal of the Chairman. The variable
portion of the compensation presented in the following table
depends, on one hand, on the achievement of individual
objectives and, on the other hand, on the achievement of the
Groups results objectives which are based on return on
equity.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed compensation | |
|
Variable compensation | |
|
Total compensation | |
|
|
for 2004 in EUR | |
|
for 2004 in EUR | |
|
for 2004 in EUR | |
|
|
| |
|
| |
|
| |
Mr. Marcel
Kahn(1)
|
|
|
195,152 |
|
|
|
|
|
|
|
195,152 |
|
Mr. Jean-Luc Besson
|
|
|
209,000 |
|
|
|
50,460 |
|
|
|
259,460 |
|
Mr. Romain Durand
|
|
|
255,000 |
|
|
|
79,635 |
|
|
|
334,635 |
|
Mr. Victor
Peignet(2)
|
|
|
203,000 |
|
|
|
109,078 |
|
|
|
312,078 |
|
Mr. Henry Klecan
Jr.(3)(4)
|
|
|
226,743 |
|
|
|
25,481 |
|
|
|
252,224 |
|
Mr. Yvan
Besnard(5)
|
|
|
157,000 |
|
|
|
11,700 |
|
|
|
168,700 |
|
Mr. François
Terren(6)
|
|
|
80,110 |
|
|
|
|
|
|
|
80,110 |
|
Mr. Renaud de
Pressigny(7)
|
|
|
45,000 |
|
|
|
|
|
|
|
45,000 |
|
|
|
(1) |
Marcel Kahn joined SCOR on April 14, 2004 as Chief
Financial Officer |
|
(2) |
Victor Peignet was appointed on April 1, 2004 as Managing
Director, Business Solution Division |
|
(3) |
Henry Klecan Jr. has been appointed on January 1,
2004 as Chairman & Chief Executive Officer of SCOR
U.S., he is also Chairman & Chief Executive Officer of SCOR
Canada. |
|
(4) |
Change rate at 31.12.04 1 EUR = 1.3604 USD/1.6483
CAD |
|
(5) |
Yvan Besnard has been appointed on July 2, 2004 as Director
for Non Life Treaties, Europe |
|
(6) |
François Terren left the Company on April 14, 2004 |
|
(7) |
Renaud de Pressigny left the Company on May 1, 2004 |
Like all Group senior executives, members of the Group Executive
Committee are entitled to a guaranteed capped pension plan
conditioned on a 10-year length of service in the Group, the
payment of which is based on their average compensation over the
last five years at SCOR. They also benefit from the use of a
vehicle for professional transportation. The aggregate amounts
set aside or accrued by the Group to provide pension, retirement
or similar benefits for senior executives in 2004
was EUR 267,881.
The members of the Executive Committee do not receive
directors fees in respect of their directorships of
companies in which SCOR holds more than 20% of the capital. They
are, however, reimbursed for justified business expenses.
C. BOARD PRACTICES
Board Committees
At its meeting on May 15, 2003, the Board of Directors of
SCOR set up four advisory committees to prepare the Boards
proceedings and make recommendations to it on specific subjects.
|
|
|
|
|
The Strategic Committee is comprised of Denis Kessler,
Chairman; Allan
Chapin(1);
Daniel
Lebègue(1);
Helman Le Pas de
Sécheval(2);
André
Lévy-Lang(1);
Jean-Claude Seys; Claude
Tendil(1);
and Daniel
Valot(1). |
Its mission is to scrutinize the Groups development
strategies and to make recommendations on major Group
acquisition and disposal plans.
In the course of its three meetings in 2004, the Strategic
Committee has in particular reviewed the three year strategic
plan of the Group called the Moving Forward plan
adopted in August 2004.
|
|
(1) |
Independent director. |
|
|
(2) |
Appointed as member of Strategic Committee on November 3,
2004 in replacement of Jean Baligand who resigned on
August 18, 2004. |
84
|
|
|
|
|
The Accounts and Audit Committee is comprised of Daniel
Lebègue(1),
Chairman; André
Lévy-Lang(1);
Antonio
Borges(1);
and Helman le Pas de
Sécheval(3) |
|
|
|
|
|
Its mission is to scrutinize the fairness of the Groups
financial statements and compliance with internal procedures,
and the controls and inspections carried out by the statutory
auditors and by the internal audit division. |
The Accounts and Audit Committee met eight times in 2004 and
discussed the following matters:
|
|
|
|
|
Analysis of the audited accounts for 2003 and non-audited
quarterly accounts for the first three quarters of 2004; |
|
|
|
Refinancing of the OCEANEs bond issuance described in
Item 9.A. The Offer and Listing
Details; |
|
|
|
Preparation of the transition to the IFRS rules; |
|
|
|
Relations with rating agencies; |
|
|
|
Remuneration of the statutory auditors and analysis of their
missions; |
|
|
|
Setting up and monitoring of procedures to fight against fraud
and money laundering; |
|
|
|
Internal control procedures and introduction within the group of
management letters; |
|
|
|
Analysis of SCOR procedures in relation to the Sarbanes-Oxley
Act; |
|
|
|
Procedures for provisional accounts; |
The Accounts and Audit Committee has established standing rules
that emphasize two essential missions:
|
|
|
|
|
accounting missions, notably comprising scrutiny of periodic
financial documents, review of the appropriateness of choices
and proper application of accounting methods, review of the
accounting treatment of all significant transactions, review of
off-balance sheet liabilities, management of the selection,
remuneration, independence and scope of the engagement of the
statutory auditors, control of all accounting and financial
disclosure documents and related press releases prior to their
release to the public; and |
|
|
|
ethical and internal control missions. The Accounts and Audit
Committee has a duty to ensure that internal procedures for the
gathering and verification of data guarantee the quality and
reliability of SCORs financial statements. Further, it is
the duty of the Accounts and Audit Committee to review
related-party transactions, to analyze and reply to
employees questions with respect to internal controls,
preparation of the financial statements, and the treatment of
accounting entries. |
The rules of the Accounts and Audit Committee were approved by
the Accounts and Audit Committee on March 18, 2005.
|
|
|
|
|
The Compensation and Nominations Committee is comprised
of Allan
Chapin(1),
Chairman; André
Lévy-Lang(1);
and Georges Chodron de
Courcel(2). |
Its missions are to make recommendations on the compensation of
Group directors and officers and of senior executives, pension
plans and stock options, and to make proposals regarding the
membership and organization of the Board of Directors and its
committees.
|
|
(3) |
Non-voting member of the Accounts and Audit Committee. |
85
The Compensation and Nominations Committee met three times in
2004 and has made recommendations on the implementation of a
stock award plan, a stock options plan and on the bonus to be
allocated to the senior executives of SCOR.
|
|
|
|
|
The Risks Committee is comprised of Carlo
Acutis(1);
Antonio
Borges(1);
Daniel
Havis(1);
Yvon
Lamontagne(1);
Daniel
Lebègue(1);
Herbert
Schimetschek(1);
Jean
Simonnet(1);
Claude
Tendil(1);
Georges Chodron de
Courcel(2);
and Helman le Pas de
Sécheval(1). |
Its mission is to identify the major risks to which the Group
is exposed on both the assets and liabilities sides, and to
ensure that means are in place to monitor and manage these
risks. It scrutinizes the main technical and financial risks to
which the Group is exposed. The Risks Committee did not meet in
2004 because all of the matters it would have acted upon were
acted upon by the full board or the Audit and Accounts
Committee. As a result, on March 23, 2005, the board
determined to disband the Risks Committee going forward.
D. EMPLOYEES
As of December 31, 2004, the Group employed 1,038 people,
including 605 at its headquarters in Paris, 227 in North
America, 50 in the Asia-Pacific region, 136 in other European
countries, and 20 in other regions. In addition to the
provisions of the French labor code, SCORs employees in
France are covered by various collective bargaining agreements
relating to working conditions that are negotiated periodically
with the employees representatives. SCOR considers its
employee relations to be good.
The number of employees overall decreased by 10.7% from 1,162 as
of December 31, 2003 to 1,038 as of December 31, 2004.
The primary decrease took place in North America and in the
Property-Casualty Reinsurance and the Business Solutions areas.
The following table sets forth the distribution of employee at
the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, | |
|
|
| |
|
|
2002 | |
|
2003 | |
|
2004 | |
|
|
| |
|
| |
|
| |
Number of employees
|
|
|
1,256 |
|
|
|
1,162 |
|
|
|
1,038 |
|
Breakdown by geographic location
|
|
|
|
|
|
|
|
|
|
|
|
|
France
|
|
|
653 |
|
|
|
639 |
|
|
|
605 |
|
Asia-Pacific region
|
|
|
70 |
|
|
|
58 |
|
|
|
50 |
|
Other European countries
|
|
|
168 |
|
|
|
159 |
|
|
|
136 |
|
North America
|
|
|
346 |
|
|
|
287 |
|
|
|
227 |
|
Other regions
|
|
|
19 |
|
|
|
19 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,256 |
|
|
|
1,162 |
|
|
|
1,038 |
|
Breakdown by main category of activity
|
|
|
|
|
|
|
|
|
|
|
|
|
Property-Casualty reinsurance
|
|
|
620 |
|
|
|
514 |
|
|
|
391 |
|
Life reinsurance
|
|
|
213 |
|
|
|
227 |
|
|
|
192 |
|
Credit, Surety & Political Risks
|
|
|
14 |
|
|
|
13 |
|
|
|
7 |
|
Commercial Risk Partners
|
|
|
38 |
|
|
|
11 |
|
|
|
7 |
|
Management, Investment and other
|
|
|
371 |
|
|
|
397 |
|
|
|
441 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,256 |
|
|
|
1,162 |
|
|
|
1,038 |
|
86
E. SHARE OWNERSHIP
Shares Held by Directors and Executive Officers
The following table indicates the number of Ordinary Shares held
by each director of the Company as of December 31, 2004,
representing approximately 0.05% of SCORs outstanding
capital stock on such date:
|
|
|
|
|
Directors
|
|
|
|
|
Mr. Carlo Acutis
|
|
|
60,000 |
|
Mrs. Michèle Aronvald
|
|
|
948 |
|
Mr. Antonio Borges
|
|
|
1 |
|
Mr. Allan Chapin
|
|
|
1,000 |
|
Mr. Daniel Havis
|
|
|
7,602 |
|
Mr. Denis Kessler
|
|
|
132,420 |
|
Mr. Yvon Lamontagne
|
|
|
4,460 |
|
Mr. Helman le Pas de Sécheval
|
|
|
500 |
|
Mr. Daniel Lebègue
|
|
|
100 |
|
Mr. André Lévy Lang
|
|
|
150,000 |
|
Mr. Herbert Schimetschek
|
|
|
6 |
|
Mr. Jean-Claude Seys
|
|
|
14,600 |
|
Mr. Jean Simonnet
|
|
|
2,736 |
|
Mr. Claude Tendil
|
|
|
1,506 |
|
Mr. Daniel Valot
|
|
|
100 |
|
|
|
|
|
Total
|
|
|
375,979 |
|
|
|
|
|
Non-Voting Directors
|
|
|
|
|
Mr. Georges Chodron de Courcel
|
|
|
17,837 |
|
|
|
|
|
Total
|
|
|
17,837 |
|
|
|
|
|
87
Stock Option Plans
The total number of share options outstanding as of
December 31, 2004 was 17,055,698.
As of December 31, 2004, unexercised share subscription
options, if exercised, would lead to the creation of
12,682,726 shares, representing approximately 1.97% of the
capital of the Company.
The following table sets forth certain information relating to
the various option plans as of December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
granted to | |
|
|
|
|
|
|
|
|
|
|
Total | |
|
Number | |
|
ten first | |
|
|
Date of Board | |
|
Date options |
|
|
|
|
|
Number | |
|
granted to | |
|
beneficiaries | |
|
|
of Directors | |
|
become |
|
|
|
Number of | |
|
of shares | |
|
the Groups | |
|
employed | |
OPTION PLAN | |
|
Resolution | |
|
exercisable |
|
Expiration date | |
|
beneficiaries | |
|
granted | |
|
executives | |
|
by SCOR | |
| |
|
| |
|
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
1992 |
|
|
|
September 28 |
|
|
Expired |
|
|
Expired |
|
|
|
76 |
|
|
|
318,800 |
|
|
|
42,000 |
|
|
|
54,000 |
|
|
1994 |
|
|
|
May 9 |
|
|
Expired |
|
|
Expired |
|
|
|
104 |
|
|
|
429,000 |
|
|
|
59,000 |
|
|
|
64,000 |
|
|
1995 |
|
|
|
May 15 |
|
|
May 15, 1996 (30%) May 15, 1997 (30%) May 15, 1998
(40%) |
|
|
May 14, 2005 |
|
|
|
99 |
|
|
|
430,000 |
|
|
|
82,000 |
|
|
|
68,000 |
|
|
1996 |
|
|
|
September 5 |
|
|
Sept. 5, 1997 (30%) Sept. 5, 1998 (30%) Sept. 5, 1999 (40%) |
|
|
Sept. 4, 2006 |
|
|
|
122 |
|
|
|
480,000 |
|
|
|
83,000 |
|
|
|
70,000 |
|
|
1997 |
|
|
|
September 4 |
|
|
September 4, 2002 |
|
|
Sept. 3, 2007 |
|
|
|
113 |
|
|
|
481,500 |
|
|
|
112,000 |
|
|
|
72,000 |
|
|
1998 |
|
|
|
September 3 |
|
|
September 4, 2003 |
|
|
Sept. 3, 2008 |
|
|
|
134 |
|
|
|
498,000 |
|
|
|
130,000 |
|
|
|
71,500 |
|
|
1999 |
|
|
|
September 2 |
|
|
September 3, 2004 |
|
|
Sept. 2, 2009 |
|
|
|
145 |
|
|
|
498,500 |
|
|
|
130,000 |
|
|
|
71,000 |
|
|
2000 |
|
|
|
May 4 |
|
|
May 5, 2004 |
|
|
May 3, 2010 |
|
|
|
1,116 |
|
|
|
111,600 |
|
|
|
600 |
|
|
|
1,000 |
|
|
2000 |
|
|
|
August 31 |
|
|
September 1, 2005 |
|
|
Aug. 30, 2010 |
|
|
|
137 |
|
|
|
406,500 |
|
|
|
110,000 |
|
|
|
63,000 |
|
|
2001 |
|
|
|
September 4 |
|
|
September 4, 2005 |
|
|
Sept. 3, 2011 |
|
|
|
162 |
|
|
|
560,000 |
|
|
|
150,000 |
|
|
|
77,000 |
|
|
2001 |
|
|
|
October 3 |
|
|
October 4, 2005 |
|
|
Oct. 2, 2011 |
|
|
|
1,330 |
|
|
|
262,000 |
|
|
|
1,200 |
|
|
|
2,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,475,900 |
|
|
|
899,800 |
|
|
|
613,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Readjusted total after the capital increase, at
December 31, 2002 |
|
|
|
|
|
|
7,615,337 |
|
|
|
1,530,928 |
|
|
|
1,043,814 |
|
|
2003 |
|
|
|
February 28 |
|
|
February 28, 2007 |
|
|
Feb. 27, 2013 |
|
|
|
65 |
|
|
|
986,000 |
|
|
|
450,000 |
|
|
|
170,000 |
|
|
2003 |
(1) |
|
|
June 3 |
|
|
June 3, 2007 |
|
|
June 2, 2013 |
|
|
|
1,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
|
|
|
|
Without any condition |
|
|
|
|
|
|
1,556,877 |
|
|
|
288,750 |
|
|
|
122,100 |
|
|
2003 |
|
|
|
|
|
|
With condition of 12% ROE 2004 |
|
|
|
|
|
|
778,439 |
|
|
|
144,375 |
|
|
|
61,050 |
|
Readjusted total after the capital increase, at
December 31, 2003 |
|
|
|
|
|
|
15,924,979 |
|
|
|
3,515,129 |
|
|
|
2,034,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
August 25 |
|
|
August 26, 2008 |
|
|
Aug. 25, 2014 |
|
|
|
171 |
|
|
|
5,990,000 |
|
|
|
1,335,000 |
|
|
|
920,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL at December 31, 2004 |
|
|
|
|
|
|
21,914,979 |
|
|
|
4,250,129 |
|
|
|
2,954,134 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Some of the options granted in June 2003 depended on the
Groups profitability being more than 10% and 12% greater
than the Groups average shareholders equity for 2003
and 2004 respectively. These conditions were unrealized so the
options were cancelled. For 2003, it was confirmed by the
validation of the accounts at the May 15, 2004 Shareholders
Meeting. |
Following the capital increase on December 31, 2002, the
Company has adjusted the price of the shares issuable upon the
exercise of options granted and the number of shares issuable
upon the exercise of options, pursuant to article L. 225-81 of
the French Commercial Code.
The exercise price of shares issuable upon the exercise of
options, as set prior to this capital increase, has been reduced
by an amount equal to the product of this price multiplied by
the ratio between (a) the value of the preferential
subscription right and (b) the value of the share prior to
removal of this right, i.e.:
|
|
|
|
|
|
|
Previous offer price × value of preferential subscription
right (average listed opening
price during the subscription period) |
|
|
|
|
|
|
|
|
|
Value of share after removal of preferential subscription right
(average listed opening
price during the subscription period)
+ value of preferential subscription right |
|
|
88
Because the initial value of the option is supposed to remain
constant, the new number of shares eligible for subscription is
equal to the initial value of the option divided by the new
offer price, i.e.:
|
|
|
|
|
|
|
Initial number of options × previous offer price |
|
|
|
|
|
|
|
|
|
New offer price as defined below |
|
|
These calculations have been performed individually and by plan,
and rounded up to the nearest share. The same calculations have
been applied after the capital increase of January 7, 2004.
The table below summarizes the status of the various option
plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Status at December 31, 2004 | |
| |
|
|
Exercise Price | |
|
Options outstanding | |
|
Number of | |
|
Options | |
|
|
|
|
after readjusting for | |
|
after the capital | |
|
options cancelled | |
|
outstanding at | |
|
Options | |
|
|
capital increases | |
|
increase of | |
|
at the end of | |
|
the end of | |
|
granted in | |
Option Plan | |
|
(in EUR) | |
|
January 7, 2004 | |
|
2004 | |
|
2004 | |
|
2004 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
1995 |
|
|
|
6.59 |
|
|
|
222,498 |
|
|
|
29,716 |
|
|
|
192,782 |
|
|
|
0 |
|
|
1996 |
|
|
|
11.7 |
|
|
|
743,406 |
|
|
|
39,621 |
|
|
|
703,785 |
|
|
|
0 |
|
|
1997 |
|
|
|
15.03 |
|
|
|
902,587 |
|
|
|
37,144 |
|
|
|
865,443 |
|
|
|
0 |
|
|
1998 |
|
|
|
22.72 |
|
|
|
979,358 |
|
|
|
42,098 |
|
|
|
937,260 |
|
|
|
0 |
|
|
1999 |
|
|
|
18.58 |
|
|
|
950,886 |
|
|
|
47,051 |
|
|
|
903,835 |
|
|
|
0 |
|
|
2000 |
|
|
|
19.39 |
|
|
|
208,164 |
|
|
|
20,916 |
|
|
|
187,248 |
|
|
|
0 |
|
|
2000 |
|
|
|
18.17 |
|
|
|
828,330 |
|
|
|
66,861 |
|
|
|
761,469 |
|
|
|
0 |
|
|
2001 |
|
|
|
19.39 |
|
|
|
1,230,713 |
|
|
|
92,865 |
|
|
|
1,137,848 |
|
|
|
0 |
|
|
2001 |
|
|
|
13.73 |
|
|
|
505,946 |
|
|
|
60,634 |
|
|
|
445,312 |
|
|
|
0 |
|
|
2003 |
|
|
|
2.86 |
|
|
|
1,392,042 |
|
|
|
116,489 |
|
|
|
1,275,553 |
|
|
|
0 |
|
|
2003 |
|
|
|
3.94 |
|
|
|
4,265,223 |
|
|
|
610,060 |
|
|
|
3,655,163 |
|
|
|
0 |
|
|
2004 |
|
|
|
1.14 |
|
|
|
0 |
|
|
|
0 |
|
|
|
5,990,000 |
(1) |
|
|
5,990,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
12,229,153 |
|
|
|
1,163,455 |
|
|
|
17,055,698 |
|
|
|
5,990,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
granted in December 2004 |
The option plans for the years 1994 to 1997 are share
subscription plans giving rise to an increase in capital.
Starting with the 1998 plan, all plans provide for the purchase
of existing shares.
There are no stock option plans providing for the purchase of or
subscription to shares in Group subsidiaries.
Following the authorization decided by the Shareholders
meeting on April 18 2002, the Board of Directors approved,
on February 28, 2003, a plan for senior officers providing
for a total of 986,000 options (1,435,725 options after the
capital increase of January 7, 2004), granted without
discount, at a price of EUR 4.16 per option (EUR 2.86 after
capital increase). Options can be exercised all at once or
separately but with a minimum of 100 shares each time, from
February 28, 2007 to February 27, 2013. After
February 27, 2013, any unexercised options are cancelled,
null and void.
SCORs Board of Directors decided on June 3, 2003, in
accordance with the delegation received from the extraordinary
shareholders meeting of May 15, 2003, to set up two
new stock subscription plans for (i) all the employees of
the SCOR Group and (ii) two officers, namely Mr. Denis
Kessler (Chairman and CEO of SCOR) and Mr. Patrick Thourot
(Vice-President of SCOR) and certain senior executives of the
Group. In both plans, the stock subscription price amounts to
EUR 5.74 per share (EUR 3.94 after capital increase of
January 7, 2004). The 3,113,754 options (4,534,061 after
the capital increase of January 7, 2004) may be exercised on one
or several occasions between June 3, 2007 and June 2,
2013.
Options are granted to officers and senior executives and may be
exercised according to the following procedure: (i) 50%
without condition; (ii) 25% at such time as the Group
consolidated net income for the 2003 fiscal year is greater than
10% of the average Group consolidated net equity (such average
being deemed to be net equity at the opening of the fiscal year
plus net equity at the end of the fiscal year divided by two);
and (iii) 25% at such time
89
as the Group consolidated net income for the 2004 fiscal year is
greater than 12% of the average Group consolidated net equity
(such average being deemed to be net equity at the opening of
the fiscal year plus net equity at the end of the fiscal year
divided by two).
Taking into account the loss recorded for 2003, 25% of
subscription options granted to the directors and officers in
2003 were cancelled.
SCORs Board of Directors approved on August 25, 2004,
a new subscription plan for certain senior and middle managers,
proposing a total of 5,990,000 options. The stock
subscription price amounts to EUR 1.14 per share. The options
may be exercised on one or several occasions (with a minimum of
1000 shares per exercise) from August 26, 2008 through
August 25, 2014. After August 25, 2014, any
unexercised options are cancelled, null and void.
The table below shows the outstanding options for members of the
Executive Committee, as at December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential Volume | |
|
|
|
|
Options | |
|
Options to | |
|
|
|
Price | |
|
of transaction | |
|
|
|
|
exercised | |
|
be exercised | |
|
Option Plan | |
|
(in EUR) | |
|
(in EUR) | |
|
Exercise Date | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Denis Kessler
|
|
|
0 |
|
|
|
364,019 |
|
|
|
02/28/2003 |
|
|
|
2.86 |
|
|
|
1,041,094 |
|
|
|
02/28/2007 - 02/28/2013 |
|
|
|
|
0 |
|
|
|
240,254 |
|
|
|
06/03/2003 |
|
|
|
3.94 |
|
|
|
946,601 |
|
|
|
06/03/2007 - 06/03/2013 |
|
|
|
|
0 |
|
|
|
375,000 |
|
|
|
08/25/2004 |
|
|
|
1.14 |
|
|
|
427,500 |
|
|
|
08/26/2008 - 08/25/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
979,273 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patrick Thourot
|
|
|
0 |
|
|
|
72,804 |
|
|
|
02/28/2003 |
|
|
|
2.86 |
|
|
|
208,219 |
|
|
|
02/28/2007 - 02/28/2013 |
|
|
|
|
0 |
|
|
|
90,096 |
|
|
|
06/03/2003 |
|
|
|
3.94 |
|
|
|
354,978 |
|
|
|
06/03/2007 - 06/03/2013 |
|
|
|
|
0 |
|
|
|
180,000 |
|
|
|
08/25/2004 |
|
|
|
1.14 |
|
|
|
205,200 |
|
|
|
08/26/2008 - 08/25/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
342,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Romain Durand
|
|
|
0 |
|
|
|
19,809 |
|
|
|
09/04/1997 |
|
|
|
15.03 |
|
|
|
297,729 |
|
|
|
09/04/2002 - 09/03/2007 |
|
|
|
|
0 |
|
|
|
29,713 |
|
|
|
09/03/1998 |
|
|
|
22.72 |
|
|
|
675,079 |
|
|
|
09/04/2003 - 09/03/2008 |
|
|
|
|
0 |
|
|
|
32,188 |
|
|
|
09/02/1999 |
|
|
|
18.58 |
|
|
|
598,053 |
|
|
|
09/03/2004 - 09/02/2009 |
|
|
|
|
0 |
|
|
|
249 |
|
|
|
05/04/2000 |
|
|
|
19.39 |
|
|
|
4,828 |
|
|
|
05/05/2004 - 05/03/2010 |
|
|
|
|
0 |
|
|
|
37,140 |
|
|
|
08/31/2000 |
|
|
|