20-F
As filed with the Securities and Exchange Commission on
June 29, 2006
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, 2005 |
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OR |
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o
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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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968,769,070 Ordinary Shares, including 25,340,999 American
Depositary Shares (as evidenced by American Depositary
Receipts), each representing one Ordinary Share. |
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Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
x Yes o
No
If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
o Yes x
No
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Note Checking the box above will not relieve any
registrant required to file reports pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 from their
obligation under those Sections. |
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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 requirements for the past 90 days.
x Yes o
No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act.
(Check one)
x Large
accelerated
filer o Accelerated
filer o
Non-accelerated filer
Indicate by check mark which financial statement item the
registrant has elected to follow.
o ITEM 17 x
ITEM 18
If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
o Yes x
No
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 SCOR 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 classes 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 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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changes in laws, regulations and case law; |
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political, regulatory and industry initiatives; |
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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 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, or
documents furnished to, 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.
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 1.18
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, 2005, 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.
3
Table of Contents
4
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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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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2005
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1.35 |
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1.17 |
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1.24 |
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1.18 |
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2006 (through June 23)
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1.30 |
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1.19 |
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1.23 |
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1.25 |
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January 2006
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1.23 |
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1.20 |
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1.21 |
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1.22 |
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February 2006
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1.21 |
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1.19 |
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1.19 |
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1.19 |
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March 2006
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1.22 |
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1.19 |
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1.20 |
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1.21 |
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April 2006
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1.26 |
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1.21 |
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1.23 |
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1.26 |
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May 2006
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1.29 |
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1.26 |
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1.28 |
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1.28 |
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June 2006 (through June 23, 2006)
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1.30 |
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1.25 |
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1.27 |
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1.25 |
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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 June 23, 2006 was USD 1.25 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 on 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.A. Operating Results Exchange Rate
Fluctuations for information regarding the effects of
currency fluctuations on the Groups results and
Item 11. Quantitative and Qualitative Disclosures
About Market Risk.
5
Selected U.S. GAAP Consolidated Financial Data
The following selected consolidated financial data are derived
from the consolidated financial statements of SCOR.
The consolidated financial data 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 International Financial Reporting Standards
as adopted by the European Union, or IFRS-EU, which differ in
certain respects from U.S. GAAP.
The euro amounts presented in the table below as at and for the
year ended December 31, 2005 have been translated into
dollars solely for your convenience at the Noon Buying Rate of
USD 1.18 per EUR 1.00 on December 31, 2005, 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.
6
SELECTED U.S. GAAP CONSOLIDATED FINANCIAL DATA
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As of and for the years ended December 31, | |
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2001 | |
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2002 | |
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2003 | |
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2004 | |
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2005 | |
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2005 | |
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(Translated) | |
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(unaudited) | |
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(EUR) | |
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(EUR) | |
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(EUR) | |
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(USD) | |
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(millions, except share and per share amounts) | |
Income statement
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Operating revenues
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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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2,387 |
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2,823 |
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Total revenues
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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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2,486 |
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2,940 |
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Income (loss) before cumulative effect of change in accounting
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(434 |
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(493 |
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(512 |
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243 |
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165 |
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195 |
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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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Net income (loss)
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(392 |
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(493 |
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(512 |
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247 |
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165 |
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195 |
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Net income (loss) per Ordinary Share, basic
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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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0.18 |
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0.21 |
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Net income (loss) per Ordinary Share, diluted
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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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0.17 |
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0.20 |
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Balance sheet data (as at end of year)
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Total assets
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16,917 |
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16,002 |
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13,605 |
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13,400 |
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13,829 |
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16,354 |
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Shareholders equity
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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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1,702 |
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2,013 |
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Convertible debentures, long-term debt and capital leases
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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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955 |
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1,129 |
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Dividend declared per Ordinary Share
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0.30 |
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0.03 |
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0.04 |
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Number of Ordinary Shares, in thousands
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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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968,769 |
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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, 2004 and 2005 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,
EUR 12 million before tax and EUR 8 million
after tax, and EUR 9 million before tax and
EUR 6 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 3.9 to the consolidated financial
statements included in Item 18. Financial
Statements. |
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
7
economic conditions. The supply of reinsurance is related to
prevailing prices, the levels of insured losses, levels 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 significant underwriting capacity and periods
when shortages of underwriting capacity permit favorable premium
levels.
We may therefore 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 effect on our revenues, net income,
results of operations and financial condition in future periods.
We are exposed to losses from catastrophic events.
Like all 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, severe winter weather
conditions, fires and explosions.
In 2004 and 2005, SCOR, like most other reinsurers, although to
a lesser degree because of its underwriting policy, was affected
by the unusually high frequency of natural catastrophes,
particularly the major hurricanes in the United States, Mexico
and the Caribbean in 2004 and 2005 and numerous typhoons in
Japan in 2004. The Groups most significant exposure to
natural catastrophes mainly relates to earthquake risks,
particularly in Japan, Taiwan, Canada, Portugal, Israel, Chile,
Italy and Turkey, and storms and other weather-related phenomena
in Europe, Asia and, to a lesser extent, in the United States.
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, which can have a large impact on our profitability and
financial situation. 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. We may be forced to fund these
obligations by liquidating investments in unfavorable market
conditions, or raising funds at unfavorable costs. These factors
could have a significant impact on our financial condition.
We have managed our exposure to catastrophic losses through
selective underwriting practices, particularly by limiting our
exposure to certain events which are now frequent in the Gulf of
Mexico, by monitoring risk accumulations on a geographic basis,
and by retroceding a portion of those risks to other reinsurers
(retrocessionaires) selectively chosen based on their solid
financial solvency margin. There can be no assurance, however,
that these underwriting practices, including the management of
risks on a geographical basis, or retrocessions, will be
sufficient to protect us against material catastrophic losses,
or that retrocession will continue to be available in the future
at commercially reasonable rates. Although we attempt to limit
our exposure to acceptable levels, it is possible that multiple
catastrophic events could have a material adverse effect on our
assets, results of operations and financial position. To obtain
a better understanding of our possible exposure, we strengthened
the modeling of our exposure to natural catastrophes by adopting
the Eqecat model in 2005.
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 (WTC) initially resulted in the
Group establishing reserves as a reinsurer on the basis that
such attack was one single
8
occurrence and not two occurrences under the terms of the
applicable insurance coverage issued to the lessors of the WTC
and others. On December 6, 2004, a jury determined that the
attack on the WTC made SCORs ceding company liable for two
distinct occurrences on the basis of the policy wording it had
issued. However, the jury verdict did not determine the amount
of indemnification due from the insurers. A separate
court-supervised appraisal procedure is underway in order to
determine the amount of indemnification due by the insurers
resulting from the destruction of the WTC towers. Pending the
final determination of the appraisal process, which is expected
in late 2006 or early 2007, the Group felt that it would be
prudent to increase its reserves based on the replacement value
estimated by the experts appointed by insurers including our
ceding company. The gross amount of reserves was accordingly
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. Those amounts did not change
significantly in 2005. The jury verdict that the attack on the
WTC constituted two occurrences and not one single occurrence
under the terms of our ceding companys insurance policy
has been appealed in the U.S. Court of Appeals for the
Second Circuit and a decision is expected in 2006. 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
underwriting rules 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
until their expiry date or renewal. 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 certain countries such as France (GAREAT), Germany
(Extremus) and the Netherlands (NHT), which allows us to have
limited and known commitments. Although the U.S. Congress
passed the Terrorism Risk Insurance Act (TRIA) in
November 2002 and extended it in 2005, which established a
federal assistance program, initially 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. SCOR has significantly reduced its exposure to the
U.S. market by declining to underwrite reinsurance
agreements with large national insurers. In addition to the
commitments described above, the Group does reinsure, from time
to time, terrorist risks, usually limiting by event and by
period as well as geographically 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 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 not precise enough, 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 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 2005, we increased the level of reserves for
asbestos-related risks by EUR 13 million and reduced
our reserves for environmental risks by EUR 15 million
following commutations of old contracts issued in Europe. We
believe our reserves at December 31, 2005, are sufficient
to cover our estimated liabilities relating to environmental and
asbestos claims and correspond to approximately eleven years of
payments.
9
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. Evaluation of these risks is all the more
difficult as 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. 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 significantly
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
an 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 both on the basis of information that we receive
from insurance companies, particularly their own reserving
levels, as well as on the basis of our knowledge of the risks,
the studies we conduct and the trends we observe on a regular
basis. 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 in our subscriptions 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 to claims of this nature.
We annually review the methods for establishing reserves and the
amount of our reserves and perform, if necessary, audits of our
portfolios. 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 condition. We strengthened
our reserves on several occasions in 2002 and 2003 following
internal and external actuarial reviews. The most recent
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, such as buffer
layers and program
10
business, or which have been significantly reduced such as
workers compensation. If we are required to increase our
reserves in the future, it could materially affect our results
and our financial position.
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.
To reduce this risk, we conduct risk audits and regularly visit
our ceding companies, and carry out portfolio audits of our
business.
Our results may be affected 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 risk
by writing business on a funds withheld basis. Thus, the
inability of our reinsurers (retrocessionaires) to meet their
financial commitments could negatively affect our operating
result and our financial position. 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. For
accounts receivable for which a probable loss is expected we
book an allowance in our accounts. 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.
To reduce these risks, we maintain a prudent policy for the
selection of our retrocessionnaires. Moreover, a portion of the
accounts receivable due from our retrocessionaires is guaranteed
by letters of credit or deposits of our retrocessionnaires.
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 total 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 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 by 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. From 2003 to
mid-2005, our rating
had a significant impact on our competitive position. When
S&P upgraded our rating on August 1, 2005, it improved
our competitive position in our principal markets. However, the
fact that we have not obtained an A rating from the AM Best
rating agency is currently adversely affecting our operations
and our competitive position in the United States, primarily in
Life Reinsurance, although we cannot quantify the impact. See
Item 3.D. Risk factors Ratings are
important to our business.
11
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 insurance 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 fixed 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.
Interest rate risk is managed within the Group primarily at two
levels. At the level of each entity, we take into account the
asset-liabilities matching policy and the rules of congruence,
and local regulatory, accounting and tax constraints. At the
central level, we conduct operations to consolidate all
portfolios in order to identify the overall risk and return
level.
Accordingly, the Group has analytic tools that guide both its
strategic allocation and local distribution of assets.
The sensitivity to changes in interest rates is analyzed on a
monthly basis. The Group analyzes the impact of a major change
in interest rates on all the portfolios and at the global level.
In such a case, the Group identifies the unrealized capital loss
that would result from a rise in interest rates and then decides
whether a hedging policy should be implemented. We measure the
instantaneous unrealized loss due to a uniform increase of 100
basis points in rates or in the case of a distortion of the
structures by interest rate terms. The primary risk measurement
used is sensitivity or duration. An analysis of the impact on
the portfolio may lead to decisions for reallocation or hedging.
Interest rate risk is monitored continuously by the Group.
Because of our primarily medium-term investment activity that is
tied to the duration of liabilities, portfolio rotation is
moderate. Thus, average duration at the Group level is
relatively stable, which allows for rapid risk assessment.
For maturities and interest rates on financial assets and
liabilities, and for an analysis of interest rate sensitivity,
see Note 4 to the consolidated financial statements
included in Item 18. Financial Statements and
Item 11. Quantitative and Qualitative Disclosures
About Market Risk.
12
We face risks related to our equity-based investments.
We are exposed to equity price risk. Stocks of publicly traded
companies represented approximately 9% of our investments as of
December 31, 2005. The stock markets posted overall gains
in 2005, generating capital gains on our equity investments.
Conversely, a general and sustained decline in the equity
markets would result in a depreciation of our equity portfolio.
Such depreciation could affect our operating results and
financial condition.
Stock investments represent both traditional and strategic
assets for the Group. The goal is to develop and manage a
quality and diversified portfolio of stocks that will appreciate
over the medium term (generally greater than 2 years). We
also seek stocks that offer high dividend pay-outs. Thus, the
valuation methods we use are mainly based on fundamental
criteria.
Our exposure to the stock market results both from direct stock
purchases and from purchases of shares in mutual funds.
Because stocks are more volatile than bonds, this asset class is
continually tracked. All stock positions (directly held or held
in mutual funds) are aggregated and valued on a daily basis.
This approach allows us to monitor changes in the portfolio and
to identify the investments with higher than average volatility
as soon as possible through use of alert signals. It also
facilitates portfolio arbitrage or reallocation decisions.
The stock risk is controlled and measured. It is controlled at
the level of the Groups exposure, which is decided by
management and regularly reviewed by the Investment Committee
(generally once a month). It is also controlled by defining
maximum exposures by stock or by mutual fund, which is reviewed
on a regular basis (the exposure in large cap stocks
will generally be greater than exposure in
mid-cap stocks). The
control ratios on mutual funds are also reviewed regularly.
To measure the risk, a stock beta of 1 is generally
used. This assumption consists of considering that the whole
portfolio varies homogeneously and with the same magnitude as
the stock market, which is true on average. Therefore, the Group
has a daily measurement of the change in the unrealized value of
the stock portfolio for an instantaneous change of plus or minus
10% in the stock market.
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 S&P raised our rating from BBB+ to A- on
August 1, 2005, we have not yet received an A rating from
AM Best, which affects our competitiveness, primarily in the
United States.
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 rating in 2004 made it difficult
to renew certain contracts and certain treaties with existing
clients and to obtain new clients, particularly in the Life and
large Facultatives business and in our direct underwriting
segments. In addition, these ratings also led to a reduction by
certain ceding companies of their shares in treaties or
contracts in 2004. Finally, some of our reinsurance treaties
contain termination clauses triggered by ratings.
The timing of any changes to our credit ratings is also very
important to our business since contracts or treaties in our
Life and large Facultives businesses are renewed at various
times throughout the year. In the United States, our contracts
and treaties are generally renewed on January 1 and
July 1. If our rating from AM Best does not improve before
these renewal dates, it could have an adverse effect on our
revenues in 2006 and 2007.
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 ratings downgrade, our
financial situation and results could be significantly affected.
13
A significant portion of our treaties contain provisions
relating to financial strength, which could have an adverse
effect on our financial condition.
Some of our reinsurance treaties, in particular in the
Scandinavian countries, the United Kingdom and the
United States, 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, but unquantifiable effect on our financial
condition.
In addition, our main credit facilities contain financial
undertakings and provisions with respect to our financial
position, 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,
which could, in certain circumstances, have an adverse effect on
our 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 always
allowed us to meet the cash demands entailed by our operating
activities.
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In 2002, we issued EUR 200 million of unsubordinated
notes repayable on June 21, 2007. |
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In June 2004, we issued EUR 200 million of OCEANE
bonds at par value, which are bonds convertible or exchangeable
for new or existing shares. The OCEANE bonds will be fully
redeemed in 2010. We used the proceeds from the OCEANE bond
issuance, together with available cash, to repay our 1999 OCEANE
bonds that matured on January 1, 2005 for an aggregate
amount of approximately EUR 235 million. |
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 in life reinsurance 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 amount to
EUR 2,080 million and restrict our capacity to
increase cash by means of asset disposals. The credit agreements
were renewed in 2005. 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 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 on 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.
14
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.
For the year ended December 31, 2005, the Groups
foreign exchange loss was EUR 81 million, compared
with a gain of EUR 37 million for the year ended
December 31, 2004.
In addition, the shareholders equity of some entities of
our Group 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 movements 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. However, during
2005, the appreciation of the dollar generated a positive
translation adjustment of EUR 110 million in the
Groups equity. These changes in the value of the equity of
our subsidiaries are not currently hedged by the Group.
For the consolidated net position of assets and liabilities by
currency, and for an analysis of sensitivity to exchange rates,
see Item 11. Quantitative and Qualitative Disclosures
About Market Risk.
Our Non Life subsidiaries in the United States have been
facing financial difficulties.
The operations of our Non Life subsidiaries in the
U.S. include on-going business and businesses in run-off.
Such businesses in run-off have deteriorated, principally
because of increases in claims for the underwriting years 1997
to 2001, the impact of the terrorist attack of
September 11, 2001 and the claims experience of the
workers compensation and credit surety business lines.
Based on U.S. risk-based capital requirements, we
recapitalized our U.S. subsidiaries in 2003, 2004 and 2005
through share capital increases, for a total amount of
approximately USD 402 million or through granting
loans.
As a result of these share capital increases, active management
of businesses in run-off, a reduction in the volume of premiums
underwritten in 2005 and careful cost management, the level of
assets and solvency margin of our U.S. subsidiaries were
substantially larger than U.S. regulatory requirements as
of December 31, 2005.
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
where their headquarters are located.
We face risks due to changes in government regulations and
legal proceedings and developments.
As of this date, we are subject to detailed, comprehensive
regulation and supervision by insurance and reinsurance
authorities 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 controlling insurance and
reinsurance activities 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. The diverse regulations governing our industry would
be reduced after the transposition of Directive 2005/68/EC of
November 16, 2005 (the Directive) which confers
control of a European Community reinsurance company exclusively
to the regulatory authority in the country in which the company
is headquartered. Moreover, under this Directive, a regulation
governing technical reserves, solvency margins and guarantee
funds would apply to European reinsurers as of December 10,
2007 or, if national lawmakers use the option granted by the
Directive to provide an additional 12-month period to allow
reinsurers already established to comply with new prudential
requirements, as of December 10, 2008. The Directive
defines the minimum conditions common to all member States of
the European Community, and gives national legislators the
option to set more stringent requirements. The national
provisions adopted for the transposition of this Directive, as
well as other legislative or regulatory changes, could increase
the harmonization of regulations governing reinsurers with the
regulations governing insurers. These new regulations and
statutes may over time restrict our ability to write new
contracts or treaties. Moreover, we are involved in legal and
arbitration proceedings in certain jurisdictions, particularly
in Europe and the United States. See Item 8.A.
Consolidated Statements and Other Financial
Information Legal Proceedings. Negative
changes in laws or
15
regulations or an adverse outcome of these proceedings could
have a material adverse affect on our business, cash position,
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 new regulations
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. We cannot predict the future
impact of changing political, judicial, legal or social
developments on our operations and any changes could have a
material adverse effect on our financial condition, results of
operations or cash position.
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, the accounting treatment for finite reinsurance
or other non-traditional or loss mitigation insurance and
reinsurance products. At this time, it is not possible 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 the reinsurance
sector.
In addition, public authorities in both the U.S. and
worldwide are carefully examining the potential risks posed by
the reinsurance industry as a whole, and their consequences on
commercial and financial systems in general. While these
inquiries have not identified meaningful new risks that the
reinsurance industry poses to the financial system or to
policyholders, and while the exact nature, timing or scope of
possible public initiatives cannot be predicted, it is likely
there could be increased regulation of the reinsurance business
in the future.
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 and in Bermuda.
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 management and 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,
2005, dropped by approximately 55% over the period. However,
there cannot be any assurance that the remaining commutations
will be achieved within a foreseeable time, as this depends
largely on the cooperation of the ceding companies.
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.
16
The amount of goodwill we carry in our consolidated accounts may
also be impacted by business and market conditions. As of
December 31, 2005, we carried EUR 228 million of
goodwill as a result of acquisitions, primarily of South
Barrington in 1996 and Sorema S.A. and Sorema N.A. in 2001.
In order to evaluate any potential impairment of goodwill, an
impairment test of goodwill is performed every year according to
FAS 142 on the same date and more frequently if an unfavorable
event occurs between two annual tests. Impairment is recognized
when the net book value is greater than the fair value. The
result of the test performed justifies the goodwill recognized
in our accounts.
As of December 31, 2005, we had a total amount of
EUR 158 million in net deferred tax assets, net of
valuation allowance. The recognition of deferred tax assets is
based on the applicable tax legislation and accounting methods
and also depends on the expected performance of each unit, which
determines the recoverability of these deferred tax assets in
the future. At each annual financial statement closing, we are
required to assess the need for a valuation allowance on our
deferred tax assets. Because of the losses suffered, we were
required in 2003 to provide a 100% valuation allowance on all
deferred tax assets of SCOR U.S. In 2005, SCOR
U.S. recorded a loss, however, a 100% valuation allowance
was applied for the deferred tax assets arising as a result of
the current year net operating loss. The recoverability test
also led us to fully depreciate the deffered tax assets of our
Bermudian subsidiary, CRP. As regards the French companies of
the Group, the recoverability test led us to a booking of a
valuation allowance of EUR 132 million at year end
2004, and, reflecting the expected improvement in future
performance, the booking of a valuation allowance of
EUR 21 million at year end 2005. No valuation
allowance has been recorded on the deferred taxes of the other
companies of the Group. Nevertheless, the occurrence of other
events could lead to the loss of other deferred tax assets, such
as changes in tax legislation or accounting methods, operational
earnings lower than currently projected or losses continuing
over a longer period than originally planned. All of these
developments or each of them separately could have a significant
negative impact on our financial position and our results of
operation.
Acquisition costs, including commissions and underwriting costs,
are recognized as assets up to a maximum of the profitability of
the contracts. They are amortized on the basis of the residual
term of the contracts in Non-Life, and on the basis of the
recognition of future margins for Life contracts. As a result,
the assumptions considered concerning the recoverable nature of
the deferred acquisition costs are affected by factors such as
operating results and market conditions. If the assumptions for
recoverability of deferred acquisition costs are incorrect, it
would then be necessary to accelerate amortization, which could
have a substantial negative effect on our financial position.
We have identified material weaknesses in our internal
controls, and these material weaknesses or the identification of
any material weaknesses or significant deficiencies in our
internal controls in the future could affect our ability to
ensure timely and reliable financial reports and could have a
significant and adverse effect on our business and
reputation.
In connection with the filing of our 2004 20-F, we restated our
U.S. GAAP financial statements as a result of a number of errors
that we identified. 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
material weaknesses in our controls over U.S. GAAP financial
reporting. Our failure to significantly improve our U.S. GAAP
financial statement closing process led our auditors to
determine, in connection with their audit of our 2005 fiscal
year financial statements, that the material weakness with
respect to their audit of the 2004 fiscal year continues to
exist, and accordingly notified us that they had identified
matters involving internal control and its operation that they
consider to be a material weakness under standards established
by the United States Public Company Accounting Oversight Board.
See Item 15. Controls and Procedures. While we
intend to take certain actions to address the identified
material weaknesses, these measures may not be sufficient to
address the issues identified or to ensure that our internal
controls are effective. If any material weaknesses in our
internal control are identified in the future, unless we are
able to correct such deficiencies in a timely manner, our
ability to record, process, summarize and report financial
information within the time periods specified in the rules and
forms of the SEC will be adversely affected which could, in
turn, materially and adversely impact our business, financial
condition and the market value of our securities.
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In addition, the management certification and auditor
attestation requirements of Section 404 of the US
Sarbanes-Oxley Act of 2002 will initially apply to SCOR for its
Annual Report on Form 20-F for the year ended
December 31, 2006. 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.
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 fundamental 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. The potential impact of these risks is
considered from a qualitative and not a quantitative standpoint.
We believe appropriate controls and mitigation actions are in
place to prevent significant risk of defect in our information
technology and application systems, or are in the process of
being formalized and implemented. If this turned out not to be
the case, 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 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. HISTORY AND DEVELOPMENT OF THE COMPANY
General
The Company is a French société anonyme with
its corporate headquarters 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
19
http://www.scor.com. Information contained on SCORs
website is not part of this Annual Report. The Company is
registered with the Nanterre registry of commerce and companies
under number B562033357.
SCOR provides treaty and facultative reinsurance on a worldwide
basis to Property-Casualty and Life insurers. In 2005, the Group
had net written premiums of EUR 2,121 million, which
management believes make it one of the 15 largest European
reinsurers, based on managements estimate of the 2005 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.
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 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 by the end of 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. |
In the second half of 2004, the Board of Directors adopted a new
strategic plan for 2005 through 2007, entitled SCOR Moving
Forward. The SCOR 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. 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.
As part of the SCOR Moving Forward plan, SCOR has
reassessed its capital allocation plan along the Groups
lines of business and by market. Under this plan, the Group is
attempting to anticipate and manage its activity based on the
various phases of the premium rate cycle in reinsurance. On the
basis of this modeling of the underwriting policy in 2005/2007,
the Groups objective is to reach a trend in profitability
that corresponds to 6 basis points above the risk free rate.
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 decrease of
premiums in the Non-Life line of business in the United States
and Large Corporate Accounts line of business, as a consequence
of the implementation of the Back on Track plan,
which imposed more rigorous underwriting standards, as well as
SCORs lower financial strength ratings in 2004. 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. Revenues for the year ended December 31, 2005
were EUR 2,258 million, nearly unchanged from revenues of
EUR 2,245 million for the year ended December 31, 2004
due to the maintenance of underwriting rules in a weak market
and renewal of the Non-Life treaties in January and April 2005
being affected by a financial rating of BBB+ (S&P) and B++
(AM Best), which were relatively unfavorable compared with our
principal competitors.
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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, or bylaws,
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 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
Since the closure of the 2005 Accounts, SCOR has renewed
insurance contracts and treaties on approximately 80% of its
Treaty portfolio in Non-Life and Credit & Surety
Reinsurance, and on 30% of its Large Corporate Accounts business.
The renewal of treaties and facultatives up for renewal on
January 1 took place in a market that is still very
competitive, but stable or slightly rising. SCOR has
successfully pursued its strategy of regaining co-reinsurance
shares on treaties with traditional cedants, and regaining
business with clients who had broken off commercial relations
with SCOR over the past two years, for reasons linked to
Standard & Poors rating of the Group. The upgrade of
this rating has enabled SCOR to renew relations with
120 cedant insurance companies and to regain many lead
underwriting positions.
Moreover, SCOR has benefited from EUR 61 million in
premiums underwritten when it acquired the underwriting of the
European company ALEA, the underwriting rights of which the
Company bought at the end of 2005. This acquisition enables SCOR
to anticipate a sustainable premium income, as well as access to
new clients, particularly in Central and Northern Europe.
With regard to major claims, SCOR is aware of only one serious
loss since the beginning of 2006: fire in a propylene plant in
Texas (U.S.), for an estimated cost of USD 20 million.
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The Group is nevertheless very closely following the development
of claims registered with regard to the major climatic events
that took place in the second half of 2005. SCOR is in
particular following the demands for compensation on a case by
case basis. At this stage, and incorporating adjustments
relating to exchange rates, the amounts declared have increased
only slightly (around EUR 5 million), which could suggest
that the gross cost of these claims is stabilizing.
The Group is actively pursuing its commutations policy, notably
in the United States and as part of the run-off of its Bermudan
subsidiary, CRP. No significant new commutations were carried
out during the first two months of 2006.
The Group has conducted an in-depth review of its retrocession
cover plan, notably in order to face the very significant
increase in retrocession prices and the development of
cedants capacity requirements in natural catastrophe
cover. The Group has in particular improved its coverage of
storms in Europe, along with facultatives in the United States,
taking into account catastrophe simulation models and the way in
which these have developed since the serious events of 2005.
This improvement of the retrocession cover plan should lead to a
substantial increase in retrocession costs.
Finally, SCOR has acquired the EQECAT cost simulation model for
natural catastrophes. This market model replaces the SERN model
which SCOR has developed independently until now.
SCOR is implementing a number of major Group organization and
structural projects.
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In connection with Project New SCOR announced in June 2005, SCOR
has transferred its Non-Life reinsurance activities in Europe,
comprising Treaty underwriting and management business, Large
Corporate Accounts, Credit & Surety and Construction
reinsurance, to a wholly-owned subsidiary of SCOR registered in
France called SCOR Global P&C (formerly Société
Putéolienne de Participations). Such transfer was approved
by the shareholders meeting held on May 16, 2006 and
is effective as of January 1, 2006. |
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This reorganization represents an important step in the strategy
of SCOR and has been carried out with a view to simplifying the
legal structure of the Group by streamlining the Group into two
subsidiaries dedicated to Life and Non-Life business,
respectively. SCOR SA will remain the holding company and owner
of the US, Canadian and Asian Non-Life subsidiaries (although
these entities will report to SCOR Global P&C for their
operational activity). SCOR SA will benefit from the
retrocession of its Life and Non-Life reinsurance subsidiaries,
and will be responsible for the allocation of capital and
resources within the Group, based on the underwriting needs and
the determined capacities of each entity. |
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The Group is continuing its efforts to improve the control of
its business. |
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The Chief Risk Officer has developed and updated the
underwriting rules and allocated the capacity defined as part of
the recently instituted Catastrophe Committee, in
accordance with the annual underwriting policy. |
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The Group is continuing to conform its internal procedures to
the provisions of the new Rating Agency requirements for
Enterprise Risk Management, as well as the new obligations
following the application in France and Europe of the Directive
2005/68/EC of the European Parliament and of the Council of
16 November 2005 on reinsurance (OJ L 323, 12.9.2005, p.
1) on Reinsurance Monitoring. |
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In order to meet the restrictions resulting from this Directive,
as well as from the European Union Commissions
Solvency II project, SCOR has acquired one of the
best solvency modeling tools on the market (Dynamic Financial
Analysis). |
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The annual underwriting plan is now monitored in the quarterly
reporting structures, which should enable the Group to improve
the underwriting control management charts over the next few
months. |
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The Group is implementing the Matrix pricing
project, which constitutes a major element in the unification
and monitoring of the underwriting, risk selection and pricing
policy. |
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The Group has decided to invest in the upgrade of the accounting
tool used to consolidate its accounts, and has begun a project
to this effect. |
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Finally, in view of the development of structures in Europe,
SCOR is developing an electronic document management system for
all of its Non-Life business. |
In the context of the second phase of Project New SCOR, SCOR is
currently working on the possible creation of three Societas
Europaea at the level of SCOR, SCOR Vie (both by way of
conversion) and SCOR Global P&C (by way of merger pursuant
to which SCOR Global P&C would absorb SCOR Deutschland and
SCOR Italia). After the effectiveness of the merger, SCOR Global
P&C SE will carry out its business in Germany and in Italy
via branch offices which are in the process of being created.
All of these operations are in line with the Moving
Forward plan, which sets out the restructuring of the
Group until 2007, with a view to achieving a controlled increase
in premium income, substantially improving technical results and
profitability (i.e. creating value for the shareholder) and
restructuring the capital base, with the aim of enabling SCOR to
achieve an A level of solvency.
Lastly, Christian Mounis, Deputy Chief Executive Officer of SCOR
Vie, was appointed to the SCOR Executive Committee in March
2006. Christian Mounis, 52, a graduate of Frances ESSEC
business school, joined SCOR in 1977 as a treaty underwriter. He
opened the SCOR Tokyo office in 1983, before running SCORs
Regional Operations in Asia from 1989 to 1995. Christian Mounis
has been Deputy Chief Executive Officer of the Groups Life
business since 1998.
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B. BUSINESS OVERVIEW
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. 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.
Functions
Reinsurance provides three essential functions:
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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. |
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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. |
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Reinsurance makes substantial quantities of liquidity available
to insurers in the event of major loss events. |
In addition, reinsurers also:
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help ceding companies define their reinsurance needs and devise
the most effective reinsurance program, to better plan for their
capital adequacy and solvency margins; |
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supply a wide array of support services, particularly in terms
of technical training, organization, accounting and information
technology; |
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provide expertise in certain highly specialized areas such as
the analysis of complex risks and risk pricing; |
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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.
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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 is normally purchased by
ceding companies for individual risks not covered by their
reinsurance treaties, for amounts in excess of the monetary
limits of their reinsurance treaties and 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.
25
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 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 practices.
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,
and a year of price stabilization in 2005, the reinsurance
industry saw the first signs of a downturn in the market in most
of the business lines, with the exception of general liability.
The high number and substantial cost of the natural disasters
that occurred in the second half of 2005 will probably slow, or
even reverse, this downward trend in most markets.
26
PRODUCTS AND MARKETS
General
Our operations are organized into the following two business
segments: the Property-Casualty segment and the Life/ Accident
& Health segment. Property-Casualty is further organized
into two sub-segments: Property & Casualty and Large
Corporate Accounts contracts underwritten on a facultative
basis. For additional information on the contribution to SCOR
Global P&C made by certain reinsurance casualty segments of
SCOR in France and outside France, see Item 4.A.
History and Development of the Company Recent
Developments and Item 4.C. Organizational
Structure. 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.
The Credit, Surety and Political Risks sector covers
proportional or non-proportional reinsurance treaties with
companies specialized in credit and surety insurance. SCOR has
integrated its Credit, Surety and Political Risks business into
its Property-Casualty segment 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 Property-Casualty and Life/Accident & Health
segments differ from the
Non-Life and Life
segments included in the financial statements because, on a
statutory basis, the Accident & Health reinsurance
business is classified as Property-Casualty.
The following table sets forth our gross premiums written by
segment and class of business:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
EUR | |
|
% | |
|
EUR | |
|
% | |
|
EUR | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions, except percentages) | |
By segment of business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property-Casualty
|
|
|
2,323 |
|
|
|
70 |
|
|
|
1,365 |
|
|
|
61 |
|
|
|
1,383 |
|
|
|
61 |
|
Life/Accident & Health
|
|
|
983 |
|
|
|
30 |
|
|
|
880 |
|
|
|
39 |
|
|
|
875 |
|
|
|
39 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,306 |
|
|
|
100 |
|
|
|
2,245 |
|
|
|
100 |
|
|
|
2,258 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By class of business
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property-Casualty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property-Casualty Treaty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
|
972 |
|
|
|
58 |
|
|
|
608 |
|
|
|
57 |
|
|
|
549 |
|
|
|
55 |
|
|
Casualty
|
|
|
609 |
|
|
|
36 |
|
|
|
326 |
|
|
|
31 |
|
|
|
272 |
|
|
|
27 |
|
|
Marine, Aviation and Transportation
|
|
|
63 |
|
|
|
4 |
|
|
|
19 |
|
|
|
2 |
|
|
|
31 |
|
|
|
3 |
|
|
Construction
|
|
|
46 |
|
|
|
2 |
|
|
|
111 |
|
|
|
10 |
|
|
|
144 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Property-Casualty Treaty
|
|
|
1,690 |
|
|
|
100 |
|
|
|
1,064 |
|
|
|
100 |
|
|
|
996 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Facultatives and Large Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts (SBS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
|
|
|
329 |
|
|
|
58 |
|
|
|
161 |
|
|
|
62 |
|
|
|
185 |
|
|
|
55 |
|
|
Casualty
|
|
|
85 |
|
|
|
15 |
|
|
|
30 |
|
|
|
11 |
|
|
|
35 |
|
|
|
11 |
|
|
Marine, Aviation and Transportation
|
|
|
36 |
|
|
|
6 |
|
|
|
41 |
|
|
|
16 |
|
|
|
60 |
|
|
|
18 |
|
|
Construction
|
|
|
119 |
|
|
|
21 |
|
|
|
29 |
|
|
|
11 |
|
|
|
55 |
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Facultatives and Large Corporate Accounts
|
|
|
569 |
|
|
|
100 |
|
|
|
261 |
|
|
|
100 |
|
|
|
335 |
|
|
|
100 |
|
Credit, Surety & Political Risks
|
|
|
65 |
|
|
|
|
|
|
|
38 |
|
|
|
|
|
|
|
52 |
|
|
|
|
|
Alternative Reinsurance
|
|
|
(1 |
) |
|
|
|
|
|
|
2 |
|
|
|
|
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Property-Casualty
|
|
|
2,323 |
|
|
|
|
|
|
|
1,365 |
|
|
|
|
|
|
|
1,383 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
EUR | |
|
% | |
|
EUR | |
|
% | |
|
EUR | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions, except percentages) | |
Life/Accident & Health
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annuity-based
|
|
|
198 |
|
|
|
18 |
|
|
|
33 |
|
|
|
4 |
|
|
|
81 |
|
|
|
9 |
|
Individual & group life
|
|
|
384 |
|
|
|
46 |
|
|
|
511 |
|
|
|
58 |
|
|
|
462 |
|
|
|
53 |
|
Accident
|
|
|
132 |
|
|
|
12 |
|
|
|
97 |
|
|
|
11 |
|
|
|
82 |
|
|
|
9 |
|
Disability
|
|
|
50 |
|
|
|
4 |
|
|
|
39 |
|
|
|
5 |
|
|
|
94 |
|
|
|
11 |
|
Health
|
|
|
105 |
|
|
|
9 |
|
|
|
74 |
|
|
|
8 |
|
|
|
42 |
|
|
|
5 |
|
Unemployment
|
|
|
28 |
|
|
|
3 |
|
|
|
28 |
|
|
|
3 |
|
|
|
13 |
|
|
|
1 |
|
Long-term care
|
|
|
86 |
|
|
|
8 |
|
|
|
98 |
|
|
|
11 |
|
|
|
101 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Life/Accident & Health
|
|
|
983 |
|
|
|
100 |
|
|
|
880 |
|
|
|
100 |
|
|
|
875 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property-Casualty
The Property-Casualty segment is divided into two operational
sub-segments:
|
|
|
|
|
Property & Casualty Treaty; and |
|
|
|
Facultatives and Large Corporate Accounts. |
Property & Casualty Treaties
The Property & Casualty sub-segment includes damages to
property and personal injuries; marine, aviation and
transportation; and construction.
Property. These proportional and non-proportional
treaties of the Group cover damages to the underlying assets or
operating losses caused by fire or other events in the housing,
automobile, industrial and commercial premises, product lines
and the damages caused by third parties under third-party
liability coverage.
Casualty. The Groups casualty treaties, both
proportional and non-proportional, cover personal injuries as
the result of accidents or those caused by third parties.
Accordingly, they include treaties covering auto liability and
general third-party liability. Auto liability reinsurance covers
bodily injuries and other risks arising from both private driver
and passenger and commercial fleet auto coverage.
Marine, Aviation and Transportation. The Groups
marine, aviation and transportation treaty business relates
primarily to shipping and onshore transport risks, as well as a
limited number of aeronautics and aviation policies.
Construction. The Groups construction treaty
business, primarily written on a proportional basis, includes
inherent defect insurance coverage, also known as ten-year
insurance. As required by French and Spanish law, ten-year
insurance covers major structural defects and collapse for ten
years after completion of construction of a building.
Credit, Surety & Political Risks are managed by teams
based in Europe. In credit insurance, the insurer covers the
risks of losses due to non-payment of trade accounts receivable,
while surety insurance is a contract under which a guarantor
undertakes with regard to a beneficiary to perform the
commitment of, to ensure payment by or to pay the debt of the
secured debtor. Political risk insurance covers the risk of
losses due to measures taken by a government or similar entity
that endangers the existence of a sales contract or commitment
made by a public or private citizen of the country in which the
covered operations are performed.
Facultatives and Large Corporate Accounts
The second sub-segment of the Property-Casualty segment is
Facultatives and Large Corporate Accounts, which is also known
as SCOR Business Solutions, or SBS. In addition to Facultative
Services to ceding companies, SBS is structured around four
industrial business sectors: Energy & Utilities, New
Technologies (including space risks), Finances &
Services and Industry, Construction & Major Projects;
it also includes the Ten-Year Liability
28
business. SBS consists primarily of facultative business, which
is underwritten by specialized teams and was reorganized in 2000
to cover the activities of corporate buyers seeking global risk
financing solutions that combine traditional risk coverage and
other alternative financing solutions. The risks shared with the
ceding companies are large-scale industrially or technically
complex risks, such as semiconductor plants, chemical
facilities, oil and gas exploration and production sites, energy
production facilities, and boiler and machinery installations.
The Large Corporate Accounts policies are primarily underwritten
in property, as well as, to a lesser degree, in third-party
liability, transportation and offshore, space and construction.
Underwriting facultatives in the space and offshore sectors
requires the application of sophisticated underwriting criteria
and risk analysis. 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 ceding
companies, 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 that cover their risks.
Life/Accident & Health
Life/Accident & Health segment includes life insurance
products, as well as casualty such as accidents, disability,
health, unemployment and the risk of long-term care.
Life. The Groups Life business, written primarily
in the form of proportional and non-proportional treaties,
includes individual or group Life reinsurance, reinsurance for
annuity-based products, and longevity reinsurance, to primary
life insurers and pension funds.
Accident, disability, health, unemployment and long-term
care. This business is primarily covered by proportional
treaties.
Competitive position of our Life and non life businesses.
The SCOR Group is the 12th largest reinsurer in the world
according to the Association of French Reinsurers (ARF), based
on gross premium income in 2004.
The business of SCOR VIE gives the SCOR Group the rank of
seventh in Life Reinsurance in the world in gross premiums in
2004, based on the most recent classification published by
Standard & Poors.
The top six reinsurers in the world in Life and the principal
competitors of SCOR VIE are the following: Swiss Re, Munich Re,
RGA, Hannover Re, Employers Re/GE Insurance Solutions and
General Re/Berkshire Hathaway Re.
In the Standard & Poors 2004 rankings based on gross
premiums, SCOR VIE is ahead of Revios, XL Re and Transamerica Re.
In the French market, according to the Argus de
lAssurances rankings published in October 2005
for 2004 based on gross premiums, SCOR VIE is the leading
reinsurer in volume of gross premiums, ahead of the following
(in descending order): Mut Ré, Hannover Re, Munich Re,
General Re, Prevoyance Re, CCR, Partner Re, Swiss Re, GE
Frankona Re, XL Re Life and Revios.
As reported in the same Argus de lAssurance
article, SCOR VIE is also the leading operator in the French
market in reinsuring long-term care risk, which gives the SCOR
Group a major competitive advantage in the
29
world markets for the development of this complex product. In
fact, France, along with the United States and Japan, is one of
the worlds three major markets for private long-term care
insurance.
For the Non-Life business, the figures from the 2004 rankings
published by the ARF (Association des Réassureurs
Français) place SCOR 12th in the rankings of the top
twenty Non-Life reinsurers for 2004.
Data published at the end of the renewals of January 1,
2006 by SCORs main competitors included in this
classification, and which operate similarly to SCOR with
non-Bermudan business models, i.e. Munich Re,
Swiss Re and Hannover Re, positioned SCOR as follows:
|
|
|
|
|
the European component in its portfolio is the most intense; |
|
|
|
the North American component is the lowest; |
|
|
|
the proportion of P&C premiums is the highest and, in
contrast, the proportion of Third-Party Liability premiums is
the lowest; |
|
|
|
the proportion of Special Risk premium is relatively high, which
reflects SCORs leadership in the Ten-Year Liability
business; |
|
|
|
the proportion of Credit-Surety premiums is in line with the
competition. |
Distribution by geographic area
As part of its strategic refocus in 2002, the Group continues to
re-balance its Non-Life business portfolio by geographic region,
particularly with a deliberate reduction of underwriting in the
United States. The strategic reorientation pursued since
September 2002 has allowed the Group to underwrite better
quality policies and treaties. As a result of its efforts, SCOR
has reduced the percentage of its Non-Life premium income in the
United States from 42% in 2002 to approximately 10% in 2005.
In 2005, SCOR generated approximately 59% of its gross premiums
written in Europe, with significant market positions in France,
Germany, Spain and Italy, 20% of its gross premiums written in
North America, including Bermuda and the Caribbean region and
21% of its gross premiums written in Asia and in the rest of the
world.
The following table shows the breakdown by gross volume of Life
and Non-Life premiums written by geographic area (1) based
on the country in which the ceding company operates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
EUR | |
|
% | |
|
EUR | |
|
% | |
|
EUR | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(EUR figures in millions) | |
Total Europe
|
|
|
1,925 |
|
|
|
58% |
|
|
|
1,355 |
|
|
|
60% |
|
|
|
1,341 |
|
|
|
59% |
|
|
France
|
|
|
720 |
|
|
|
22% |
|
|
|
480 |
|
|
|
21% |
|
|
|
521 |
|
|
|
23% |
|
|
Europe (Outside of France)
|
|
|
1,205 |
|
|
|
36% |
|
|
|
875 |
|
|
|
39% |
|
|
|
820 |
|
|
|
36% |
|
North America
|
|
|
822 |
|
|
|
25% |
|
|
|
430 |
|
|
|
19% |
|
|
|
440 |
|
|
|
20% |
|
Asia-Pacific and Other International
|
|
|
559 |
|
|
|
17% |
|
|
|
460 |
|
|
|
21% |
|
|
|
477 |
|
|
|
21% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,306 |
|
|
|
100% |
|
|
|
2,245 |
|
|
|
100% |
|
|
|
2,258 |
|
|
|
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. |
30
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 facultative and large corporate
accounts 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
August 1, 2005 |
|
A-
(stable outlook) |
|
A- |
|
BBB |
A.M. Best
November 8, 2005 |
|
B++
(positive outlook) |
|
bbb
(positive outlook) |
|
bbb-
(positive outlook) |
Moodys
October 7, 2005 |
|
Baa1
(positive outlook) |
|
Baa1
(positive outlook) |
|
Baa3
(positive outlook) |
On August 1, 2005, the ratings agency S&P raised
SCORs financial solvency rating from BBB+ to A-. The
rating for senior debt was also raised from BBB+ to A- and
subordinated debt from BBB- to BBB. The outlook for the rating
is stable.
On November 8, 2005, A.M. Best confirmed the financial
solvency of SCOR (Paris) and its principal subsidiaries to
B++ (Very Good). The outlook for the rating is
positive.
On October 7, 2005, Moodys Investors Service
announced that it had upgraded SCORs Insurance Financial
Strength Rating from Baa2 to Baa1, its Senior Debt from Baa3 to
Baa1, and its Subordinated Debt from Ba2 to Baa3. The outlook
for these ratings is positive.
31
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 SCOR 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 2005 by reducing the
percentage of Property-Casualty premium income in the
U.S. from 15% in 2003 to 10% in 2005. 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 Property-Casualty segment and
through its Life/ Accident & Health 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.
The underwriting policy and rules are validated every year by
the Chief Risk Officer (CRO).
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 Business Solutions
departments centralized in the Global P&C division, which
operates worldwide from five sites (Paris, London, Toronto, 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 coverage of
conventional risks. Small Property and Casualty facultative
underwriting is handled by the Property-Casualty Treaty
underwriting team.
The underwriting of Life/Accident & Health business within
the Group is under the worldwide responsibility of SCOR VIE. The
clients are life or accident and health insurance companies
worldwide. They are served by specialized treaty 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 treaty
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 treaty underwriters worldwide are supported by the Life
Treaty Underwriting Department, or LUD, which coordinates treaty
underwriting activities at the Group level and conducts audits
in the operating units, and by the Technical and Development
Department, or TDD, responsible for pricing, reserving, product
development, life underwriting (medical and non medical) and
retrocession. These two departments set the underwriting
guidelines, which are approved by the Business Underwriting
Committee, comprising SCOR VIE General Management, and
32
the heads of underwriting units LUD and TDD. This Committee
periodically reviews and updates the four levels of underwriting
authority delegated to each treaty 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, a flood 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 2005, like most other reinsurers, SCOR was affected by the
abnormally high frequency of natural disasters throughout the
world, particularly a storm in Europe, five hurricanes in the
United States and Mexico, and a number of large claims for
natural occurrences that were smaller in scope. Hurricanes
Katrina, Rita and Wilma generated a total claims expense
estimated before taxes and retrocession of EUR
177.6 million at the end of 2005. The storms Erwin/ Gudrun
generated a total claims expense estimated before taxes and
retrocession of EUR 21.5 million, while hurricanes
Stan and Emily, the floods in Europe and the Mumbai flood in
India generated a total claims expense estimated before taxes
and retrocession of EUR 40 million.
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 generated a total claims
expense estimated before taxes and retrocession at EUR
45 million at the end of 2005, compared with EUR
34 million reported at the end of 2004. Typhoon Songda in
Japan generated a claims expense estimated before taxes and
retrocession of EUR 49 million at December 31, 2005,
compared with an estimate of EUR 30 million at
December 31, 2004. Typhoons Rananim, Chaba and the tsunami
in December 2004 had an impact of approximately EUR
6 million on SCORs total claims expense at
December 31, 2005, compared with an estimate of EUR
12 million reported at December 31, 2004.
In 2003, SCOR experienced no major natural catastrophic losses,
the largest one being the storms in the Midwest of the
U.S. for a net cost of approximately EUR 20 million as
of December 31, 2004, which remained unchanged at the end
of 2005.
For all its property business, SCOR prudently evaluates the
accumulations generated by potential natural events and other
risks. This evaluation includes the risks underwritten by
corporate headquarters and by its subsidiaries in France and
elsewhere. Pursuant to the rules and procedures established by
General Management in Paris, each subsidiary monitors the
structure of its portfolio for each region or country and the
Group Risk Management department based in Paris consolidates
this data for the Group.
Depending on the region of the world and the risk in question,
SCOR uses a variety of techniques to evaluate and manage its
total exposure at the occurrence of natural disasters that
result in property damage in every region of the world. SCOR
quantifies this exposure in terms of a maximum commitment. SCOR
defines this maximum commitment, taking into account policy
limits, as its potential maximum loss caused by a single
catastrophe affecting a large contiguous geographic area, such
as a storm, hurricane or earthquake, and occurring within a
given return period. SCOR estimates that the Groups
current maximum risks for catastrophes, before retrocession,
come from earthquakes in Japan, Italy, Israel, Turkey, Taiwan,
Chile, and Portugal and other weather-related risks concentrated
primarily in Europe, Asia and North and Central America.
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 2005 |
|
|
|
(EUR, in millions) |
|
|
100 to 200
|
|
Canada, United States, Mexico, Israel, Italy, Turkey |
200 to 300
|
|
Chile, Portugal, Taiwan |
300 and over
|
|
Japan, Europe |
|
|
(1) |
Calculated on a potential maximum loss basis for a given return
period before retrocession. |
33
The results are based on proprietary software.
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, 2005, SERN can provide results
for earthquake exposure in Australia, Algeria, Canada, Chile,
Colombia, Greece, Indonesia, Israel, Jordan, Italy, Japan,
Mexico, New Zealand, Peru, the 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.
In a similar manner as with SERN, the potential accumulations
for hurricanes in the United States and in a growing number of
countries are analyzed using external simulation tools; the
principal tool used is World Cat Entreprise (WCE) developed by
Eqecat. The potential accumulation due to typhoons in Japan is
analyzed by combining (a) the arithmetic sum of the
commitments for non-proportional treaties and (b) a
scenario based on Mireille, a major typhoon in Japan in 1991,
for proportional treaties. The accumulations due to storms in
Europe, the principal European earthquakes and the earthquake in
Japan for the treaty portfolio are now evaluated using software
and outside simulation tools, primarily WCE. If necessary, SCOR
periodically completes these analyses with outside studies
covering either specific exposures or complete portfolios.
The following table sets forth certain data regarding the
Groups catastrophe loss experience in each of the three
years ended December 31, 2003, 2004 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Number of
catastrophes(1)
|
|
|
4 |
|
|
|
2 |
|
|
|
5 |
|
Incurred losses and LAE from catastrophes, gross
|
|
|
78 |
(2) |
|
|
40 |
(3) |
|
|
215 |
(4) |
Incurred losses and LAE from catastrophes, net of Retrocession
|
|
|
72 |
(2) |
|
|
40 |
(3) |
|
|
168 |
(4) |
Group loss
ratio(5)
|
|
|
99 |
% |
|
|
69 |
% |
|
|
74 |
% |
Group loss ratio excluding catastrophes
|
|
|
96 |
% |
|
|
67 |
% |
|
|
60 |
% |
|
|
(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) |
Floods in Italy and Southwestern France, storms in the
Midwestern United States and Typhoon Maemi in South Korea. |
|
(3) |
Typhoon Sondga plus Hurricane Ivan. |
|
(4) |
Hurricanes Katrina, Wilma, Rita, storm Gudrun and floods in
Eastern Europe. |
|
(5) |
Loss incurred prior to discount on workers compensation reserves
on North American operations expressed as a percentage of
premiums earned. |
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 subsidiaries
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.
34
When needed, recommendations are given to underwriters, local
claims adjusters and management of the subsidiaries and branches.
The main objectives of the Group Large Claims Committee, chaired
by the Chief Operating Officer (Directeur Général
Délégué), 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
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
retrocessionnaire 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 Property-Casualty 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 Limited was established in December 2001 to
reinsure (as a retrocessionnaire) certain of SCORs
Property-Casualty 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% under the quota share treaties among Irish Reinsurance
Partners Limited, SCOR and certain SCOR Group subsidiaries.
These quota share treaties were terminated, effective
December 31, 2004. All the liabilities, rights and
obligations of Irish Reinsurance Partners Limited under the
quota share treaties were transferred to SCOR in October 2005.
These substitutions were made under novation contracts dated
October 17, 2005 and October 26, 2005.
SCOR acquired the minority interests of IRP Holdings Limited for
EUR 183.1 million, corresponding to the share of the
Highfields Funds in the equity of IRP Holdings Limited at
December 31, 2004 established under U.S. accounting
rules. See Item 9.A. Offer and Listing
Details IRP.
35
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, and
future policy benefits, insurers and reinsurers establish
reserves, which are balance sheet liabilities representing
estimates of future amounts needed to be paid for known or
unknown claims, as well as the 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. Liabilities on contracts net of
retrocession were EUR 5,873 million for Non-Life and
EUR 2,344 million for Life at December 31, 2005.
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 incurred but not reported (IBNR)
reserves. Estimation of loss reserves is a difficult process,
however, especially in view of changes in the legal and tort
environment that may affect 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 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
36
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 its reserves, the Group uses
generally accepted actuarial reserving techniques that take into
account quantitative loss experience data, together with, where
appropriate, qualitative factors. The 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.
Changes in Historical Reserves
The table below shows changes in historical loss reserves, on a
U.S. GAAP basis, for the Groups Non-Life 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, 2005, it would cover
underlying policies with terms beginning on both January 1,
2005 and December 31, 2005. Losses incurred on underlying
policies beginning on January 1, 2005 could occur
37
as early as January 1, 2005 while losses incurred on
underlying policies beginning on December 31, 2005 could
occur as late as December 30, 2006.
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.
38
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 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 included in Item 18. Financial
Statements.
Ten-Year Loss Development Table Presented Net of
Reinsurance with Supplemental Gross Data
(U.S. GAAP)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1995 | |
|
1996 | |
|
1997 | |
|
1998 | |
|
1999 | |
|
2000 | |
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Initial gross reserves for unpaid loss
(4)
and LAE
|
|
|
2,600 |
|
|
|
3,361 |
|
|
|
3,723 |
|
|
|
3,942 |
|
|
|
4,774 |
|
|
|
5,575 |
|
|
|
8,365 |
|
|
|
7,966 |
|
|
|
7,004 |
|
|
|
6,119 |
|
|
|
6,030 |
|
Initial retroceded reserves
|
|
|
234 |
|
|
|
316 |
|
|
|
306 |
|
|
|
337 |
|
|
|
421 |
|
|
|
507 |
|
|
|
1,448 |
|
|
|
1,033 |
|
|
|
673 |
|
|
|
536 |
|
|
|
566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Initial net reserves
|
|
|
2,366 |
|
|
|
3,045 |
|
|
|
3,417 |
|
|
|
3,605 |
|
|
|
4,353 |
|
|
|
5,068 |
|
|
|
6,917 |
|
|
|
6,933 |
|
|
|
6,331 |
|
|
|
5,583 |
|
|
|
5,464 |
|
Paid (Cumulative) as
of:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year later
|
|
|
420 |
|
|
|
654 |
|
|
|
874 |
|
|
|
1,040 |
|
|
|
1,399 |
|
|
|
1,807 |
|
|
|
2,514 |
|
|
|
2,627 |
|
|
|
1,426 |
|
|
|
896 |
|
|
|
|
|
|
Two years later
|
|
|
901 |
|
|
|
1,136 |
|
|
|
1,440 |
|
|
|
1,570 |
|
|
|
2,294 |
|
|
|
3,163 |
|
|
|
3,614 |
|
|
|
3,736 |
|
|
|
2,119 |
|
|
|
|
|
|
|
|
|
|
Three years later
|
|
|
1,188 |
|
|
|
1,405 |
|
|
|
1,778 |
|
|
|
1,946 |
|
|
|
3,046 |
|
|
|
4,390 |
|
|
|
3,575 |
|
|
|
4,557 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Four years later
|
|
|
1,368 |
|
|
|
1,599 |
|
|
|
2,015 |
|
|
|
2,356 |
|
|
|
3,606 |
|
|
|
5,027 |
|
|
|
6,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five years later
|
|
|
1,505 |
|
|
|
1,731 |
|
|
|
2,306 |
|
|
|
2,626 |
|
|
|
4,028 |
|
|
|
5,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six years later
|
|
|
1,590 |
|
|
|
1,953 |
|
|
|
2,488 |
|
|
|
2,874 |
|
|
|
3,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seven years later
|
|
|
1,779 |
|
|
|
2,073 |
|
|
|
2,646 |
|
|
|
2,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight years later
|
|
|
1,871 |
|
|
|
2,176 |
|
|
|
2,790 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine years later
|
|
|
1,948 |
|
|
|
2,274 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ten years later
|
|
|
2,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eleven years later
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve re-estimated
as of:(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year later
|
|
|
2,630 |
|
|
|
3,458 |
|
|
|
3,690 |
|
|
|
4,057 |
|
|
|
4,996 |
|
|
|
5,938 |
|
|
|
8,030 |
|
|
|
8,344 |
|
|
|
6,466 |
|
|
|
5,916 |
|
|
|
|
|
|
Two years later
|
|
|
2,733 |
|
|
|
3,411 |
|
|
|
3,772 |
|
|
|
4,082 |
|
|
|
5,278 |
|
|
|
6,358 |
|
|
|
8,699 |
|
|
|
7,984 |
|
|
|
6,756 |
|
|
|
|
|
|
|
|
|
|
Three years later
|
|
|
2,702 |
|
|
|
3,401 |
|
|
|
3,810 |
|
|
|
4,117 |
|
|
|
5,446 |
|
|
|
7,385 |
|
|
|
8,794 |
|
|
|
8,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Four years later
|
|
|
2,692 |
|
|
|
3,404 |
|
|
|
3,807 |
|
|
|
4,209 |
|
|
|
5,952 |
|
|
|
7,412 |
|
|
|
9,104 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Five years later
|
|
|
2,675 |
|
|
|
3,379 |
|
|
|
3,887 |
|
|
|
4,479 |
|
|
|
5,962 |
|
|
|
7,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six years later
|
|
|
2,653 |
|
|
|
3,429 |
|
|
|
4,002 |
|
|
|
4,454 |
|
|
|
6,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seven years later
|
|
|
2,711 |
|
|
|
3,522 |
|
|
|
3,990 |
|
|
|
4,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight years later
|
|
|
2,792 |
|
|
|
3,507 |
|
|
|
4,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine years later
|
|
|
2,780 |
|
|
|
3,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ten years later
|
|
|
2,571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eleven years later
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative redundancy/ (deficiency) before premium development
|
|
|
(205) |
|
|
|
(403) |
|
|
|
(652) |
|
|
|
(917) |
|
|
|
(1,679) |
|
|
|
(2,462) |
|
|
|
(2,187) |
|
|
|
(1,471) |
|
|
|
(426) |
|
|
|
(333) |
|
|
|
|
|
% before premium development
|
|
|
(9) |
% |
|
|
(13) |
% |
|
|
(19) |
% |
|
|
(25) |
% |
|
|
(39) |
% |
|
|
(49) |
% |
|
|
(32) |
% |
|
|
(21) |
% |
|
|
(7) |
% |
|
|
(6) |
% |
|
|
|
|
Premium development
|
|
|
231 |
|
|
|
363 |
|
|
|
344 |
|
|
|
395 |
|
|
|
476 |
|
|
|
957 |
|
|
|
1,238 |
|
|
|
701 |
|
|
|
358 |
|
|
|
337 |
|
|
|
|
|
Cumulative redundancy/(deficiency) after premiums development
|
|
|
26 |
|
|
|
(40) |
|
|
|
(308) |
|
|
|
(522) |
|
|
|
(1,203) |
|
|
|
(1,505) |
|
|
|
(949) |
|
|
|
(770) |
|
|
|
(68) |
|
|
|
4 |
|
|
|
|
|
Percentage
|
|
|
1 |
% |
|
|
(1) |
% |
|
|
(9) |
% |
|
|
(14) |
% |
|
|
(28) |
% |
|
|
(30) |
% |
|
|
(14) |
% |
|
|
(11) |
% |
|
|
(1) |
% |
|
|
|
|
|
|
|
|
Gross re-estimated liability at December 31, 2005
|
|
|
3,057 |
|
|
|
3,945 |
|
|
|
4,761 |
|
|
|
5,239 |
|
|
|
7,213 |
|
|
|
8,774 |
|
|
|
11,240 |
|
|
|
10,162 |
|
|
|
7,513 |
|
|
|
6,604 |
|
|
|
|
|
Re-estimated receivable at December 31, 2005
|
|
|
486 |
|
|
|
497 |
|
|
|
691 |
|
|
|
717 |
|
|
|
1,181 |
|
|
|
1,244 |
|
|
|
2,136 |
|
|
|
1,758 |
|
|
|
757 |
|
|
|
688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net re-estimated liability at December 31, 2005
|
|
|
2,571 |
|
|
|
3,448 |
|
|
|
4,070 |
|
|
|
4,522 |
|
|
|
6,032 |
|
|
|
7,530 |
|
|
|
9,104 |
|
|
|
8,404 |
|
|
|
6,756 |
|
|
|
5,916 |
|
|
|
|
|
Gross cumulative redundancy/(deficiency) before premium
development
|
|
|
(457) |
|
|
|
(585) |
|
|
|
(1,038) |
|
|
|
(1,297) |
|
|
|
(2,439) |
|
|
|
(3,199) |
|
|
|
(2,875) |
|
|
|
(2,196) |
|
|
|
(510) |
|
|
|
(485) |
|
|
|
|
|
Gross premium adjustments
|
|
|
283 |
|
|
|
412 |
|
|
|
368 |
|
|
|
365 |
|
|
|
467 |
|
|
|
805 |
|
|
|
1,168 |
|
|
|
770 |
|
|
|
522 |
|
|
|
401 |
|
|
|
|
|
Gross Cumulative redundancy/(deficiency) after premiums
development
|
|
|
(174) |
|
|
|
(173) |
|
|
|
(670) |
|
|
|
(932) |
|
|
|
(1,972) |
|
|
|
(2,394) |
|
|
|
(1,707) |
|
|
|
(1,426) |
|
|
|
12 |
|
|
|
(84) |
|
|
|
|
|
Percentage
|
|
|
-6.71 |
% |
|
|
-5.15 |
% |
|
|
-18.00 |
% |
|
|
-23.66 |
% |
|
|
-41.30 |
% |
|
|
-42.95 |
% |
|
|
-20.41 |
|
|
|
-18.00 |
% |
|
|
0.17 |
% |
|
|
-1.37 |
% |
|
|
|
|
39
|
|
(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. |
|
(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. |
|
(4) |
Gross underwriting reserves for 2003, 2004 and 2005 differ by
EUR 302 million, EUR 351 million and EUR 409
million, respectively, from the amounts presented on the
financial statements due to the exclusion in this table of the
reserves for increasing risks. |
Reconciliation of Reserves for Losses and LAE
(U.S. GAAP)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Reserves for losses and LAE at beginning of year, net
|
|
|
6,933 |
|
|
|
6,633 |
|
|
|
5,934 |
|
Effect of changes in foreign currency exchange rates
|
|
|
(656 |
) |
|
|
(203 |
) |
|
|
359 |
|
Effect of claims portfolio transfer and other reclassifications
|
|
|
333 |
|
|
|
58 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
Incurred related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
1,661 |
|
|
|
1,002 |
|
|
|
1,134 |
|
|
Prior years
|
|
|
1,078 |
|
|
|
174 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total incurred losses and
LAE(1)
|
|
|
2,739 |
|
|
|
1,176 |
|
|
|
1,168 |
|
|
|
|
|
|
|
|
|
|
|
Paid related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
316 |
|
|
|
116 |
|
|
|
695 |
|
|
Prior years
|
|
|
2,400 |
|
|
|
1,614 |
|
|
|
896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total paid losses and
LAE(1)
|
|
|
2,716 |
|
|
|
1,730 |
|
|
|
1,591 |
|
|
|
|
|
|
|
|
|
|
|
Reserves for losses and loss expenses at end of year
net
|
|
|
6,633 |
|
|
|
5,934 |
|
|
|
5,873 |
|
Reinsurance recoverable on unpaid losses
|
|
|
673 |
|
|
|
536 |
|
|
|
566 |
|
|
|
|
|
|
|
|
|
|
|
Reserves for losses and loss expenses at end of year
gross
|
|
|
7,306 |
|
|
|
6,470 |
|
|
|
6,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
Commutations
In 2005, the Group has pursued an active commutation policy for
its portfolio, the main objective being the reduction of
volatility of claims reserves and to allow the freeing up of
share capital. This policy will be continued in 2006, by
focusing efforts on the run-off activities and business exposed
to Asbestos and Pollution risks.
Commutations on Non Life business occurred in the portfolios of
SCOR U.S., CRP and European business.
Total commutations realized by SCOR U.S. during 2005
permitted a reduction in gross reserves of EUR 264 million.
These commutations have contributed to the global decrease in
reserves at SCOR U.S. of 10% to EUR 1,461 million.
Regarding CRP, the commutations realized for a total amount of
EUR 50 million, as well as the normal payment of
claims, have permitted a reduction in the amount of reserves to
EUR 210 million.
In 2005, commutations in Europe totaled
EUR 25 million, reducing exposure to asbestos and
environmental risks.
Commutations of Life business came to a total of
EUR 265 million in 2005.
40
The commutations in 2005 did not have a material effect on the
Group results of operations for the year ended December 31,
2005, except one commutation relating primarily to SCOR
U.S. that increased the Groups results of operations,
before tax, by USD 13 million.
In 2004, the reduction in reserves on the balance sheet due to
significant commutations amounted to approximately
EUR 26 million at CRP, and approximately
EUR 60 million at SCOR U.S. The commutations in
2004 did not have a material effect on the Group results of
operations for the year ended December 31, 2004. In 2003,
CRPs reserves were reduced on the balance sheet by
approximately EUR 577 million, due to two significant
commutations. These commutations in 2003 reduced the
Groups results of operations for the year ended
December 31, 2003 by approximately
EUR 26 million, before taxes.
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 time. In these circumstances, it
is difficult for us to precisely 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.
41
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) | |
|
|
| |
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Gross Non Life claims reserves, including IBNR reserves
|
|
|
109 |
|
|
|
98 |
|
|
|
111 |
|
|
|
59 |
|
|
|
54 |
|
|
|
39 |
|
% of total loss and LAE reserves
|
|
|
1.5 |
% |
|
|
1.6 |
% |
|
|
1.7 |
% |
|
|
0.8 |
% |
|
|
0.9 |
% |
|
|
0.6 |
% |
Non Life claims and LAE paid
|
|
|
15 |
|
|
|
15 |
|
|
|
12 |
|
|
|
13 |
|
|
|
5 |
|
|
|
7 |
|
% of the Groups total net Non Life claims and LAE paid
|
|
|
0.6 |
% |
|
|
0.9 |
% |
|
|
0.7 |
% |
|
|
0.5 |
% |
|
|
0.3 |
% |
|
|
0.4 |
% |
|
|
(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 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. |
|
|
|
The 2005 reserves were EUR 15 million and
EUR 8 million for asbestos and environmental,
respectively. The 2005 paid claims were
EUR 1.7 million and EUR 1 million for
asbestos and environmental, respectively. |
The exposure to environmental risks has dropped significantly in
the last three years because of agreements on major claims and
the commutations executed by the Group on several policies
related to pollution claims covering earlier years.
As a result, in 2005, SCORs exposure to asbestos and
environmental risks fell by EUR 11 million from the
previous year because of the commutations carried out.
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. It is
the intention of management that this commutation policy be
further pursued and developed in 2006 and in subsequent years.
It is anticipated that the policy will affect settlement
patterns to a limited degree in future years. These changes in
settlement patterns may improve predictability and reduce
potential volatility in the 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 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. The claims costs
42
are invoiced by the ceding companies at the same time as the
claims themselves. No significant cost for litigation was
incurred under these commitments.
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005 | |
|
|
| |
|
|
Asbestos | |
|
Environmental | |
|
|
| |
|
| |
Number of claims notifications with respect to non-proportional
treaties and facultative contracts
|
|
|
7,961 |
|
|
|
7,219 |
|
Average cost per
claim(1)
|
|
|
EUR 14,689 |
|
|
|
EUR 4,338 |
|
|
|
(1) |
Not including claims that were settled at no cost, and claims of
a precautionary nature not quantified in amount. |
43
INVESTMENTS
General
In the year ended December 31, 2004 the Groups total
investments, including cash, rose from
EUR 8,119 million to EUR 8,435 million.
The portion invested in trading equities increased from
EUR 740 million to EUR 778 million at the
end of 2004. At the same time, the portion invested in bonds
rose about EUR 142 million. The duration of the bond
portfolio generally declined over the year from 4.2% to 3.9%.
With respect to the quality of credit, the bond portfolio
continued to be heavily invested in AAA bonds (about
70%), i.e. in securities issued or secured by governments
or in blue chip securities.
The portion invested in real estate remained stable at about 4%
of the assets on the basis of amortized cost.
The currency allocation remained stable over the year, with
about 50% invested in USD, and 36% invested in euros.
In the year ended December 31, 2005 the Groups total
investments, including cash, decreased from
EUR 8,435 million to EUR 8,324 million.
As in the previous year, the portion invested in stocks was
increased to 11.4% of the assets, compared with 5.7% at the
beginning of the year. Most of the stock investments were in
European large market capitalization.
At the same time, the portion invested in bonds dropped to about
64.8% of total assets (EUR 398 million including
trading and available for sale investments. The duration of the
bond portfolio also declined slightly over the year from 3.9% to
3.8%. In terms of credit quality, most of the bond portfolio
continued to be invested in AAA bonds (for approximately 71%),
primarily securities issued or secured by governments or in
securities of very high-quality issuers.
The portion invested in real estate remained stable at
approximately 4% of assets on the basis of amortized cost.
The portion invested in U.S dollar denominated assets rose
slightly to 52% and the portion invested in euro denominated
assets dropped slightly to 33%.
In the first quarter of 2006, the policy to increase the portion
invested in stocks continued.
The following table summarizes net investment income of the SCOR
Groups portfolio for 2003, 2004 and 2005. See also
Note 4 to the consolidated financial statements included in
Item 18. Financial Statements.
Consolidated Net Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
|
|
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
|
|
|
265 |
|
|
|
4.8% |
|
|
|
93 |
|
|
|
244 |
|
|
|
4.4% |
|
|
|
27 |
|
|
|
221 |
|
|
|
4.2% |
|
|
|
48 |
|
Equity securities
|
|
|
3 |
|
|
|
1.1% |
|
|
|
14 |
|
|
|
6 |
|
|
|
1.4% |
|
|
|
17 |
|
|
|
7 |
|
|
|
1.4% |
|
|
|
45 |
|
Trading equity securities
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
49 |
|
|
|
|
|
|
|
|
|
Short term and
other(2)
|
|
|
100 |
|
|
|
4.7% |
|
|
|
10 |
|
|
|
112 |
|
|
|
4.4% |
|
|
|
(2 |
) |
|
|
95 |
|
|
|
3.2% |
|
|
|
6 |
|
Less investment expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap interest
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
Administration expense
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
Other
|
|
|
(52 |
) |
|
|
|
|
|
|
|
|
|
|
(43 |
) |
|
|
|
|
|
|
|
|
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
326 |
|
|
|
|
|
|
|
117 |
|
|
|
282 |
|
|
|
|
|
|
|
42 |
|
|
|
301 |
|
|
|
|
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
(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. Investment balances were converted into euro from
local currencies at
year-end exchange rates. |
|
(2) |
Includes swap income of EUR 3 million in 2003, EUR
8 million in 2004 and EUR 2 million in 2005.
Other swap-related net income is included in realized and
unrealized capital gains (and losses). |
Portfolios
The following table details the distribution by category of
investment of the Groups insurance investment portfolio by
net carrying value:
Consolidated Investment Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Net carrying value as of December 31, | |
|
|
| |
|
|
|
|
2005 | |
|
|
|
|
| |
|
|
) | |
|
|
(EUR in millions | |
Fixed maturities available for sale, at fair value
|
|
|
5,130 |
|
|
|
64 |
% |
|
|
5,272 |
|
|
|
63 |
% |
|
|
5,237 |
|
|
|
63 |
% |
Equity securities, available for sale
|
|
|
109 |
|
|
|
1 |
% |
|
|
265 |
|
|
|
3 |
% |
|
|
769 |
|
|
|
9 |
% |
Trading Investments
|
|
|
740 |
|
|
|
9 |
% |
|
|
778 |
|
|
|
9 |
% |
|
|
335 |
|
|
|
4 |
% |
Short term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long-term investments
|
|
|
316 |
|
|
|
4 |
% |
|
|
322 |
|
|
|
4 |
% |
|
|
317 |
|
|
|
4 |
% |
Cash and cash equivalents
|
|
|
1,824 |
|
|
|
22 |
% |
|
|
1,798 |
|
|
|
21 |
% |
|
|
1,666 |
|
|
|
20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,119 |
|
|
|
100 |
% |
|
|
8,435 |
|
|
|
100 |
% |
|
|
8,324 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Note 4 to the consolidated financial statements
included in Item 18. 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, 2003, 2004 and 2005.
The following table presents the Groups fixed maturities
by counterparty credit quality, including fixed-maturities
classified as trading, as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005 | |
|
|
| |
|
|
Net carrying | |
|
% of total net | |
Rating |
|
value | |
|
book value | |
|
|
| |
|
| |
|
|
(EUR, in millions) | |
AAA
|
|
|
3,824 |
|
|
|
71 |
% |
AA
|
|
|
573 |
|
|
|
11 |
% |
A
|
|
|
621 |
|
|
|
11 |
% |
BBB
|
|
|
310 |
|
|
|
6 |
% |
Below BBB
|
|
|
22 |
|
|
|
0 |
% |
Unrated
|
|
|
45 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
Total
|
|
|
5,395 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
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, 2005.
45
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, claims monitoring 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 its
clients, SCOR is able to process automatically electronic
reinsurance accounts, formatted in the ACORD standard, without
any re-keying. New
electronic exchanges have been put in place in 2005 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 strengthening physical and logic access
controls, protection against unauthorized access, and restarts
in the event of a disaster.
The Group is in the process of defining a strategic plan called
the IS2008 strategy, which sets out the evolutions
of the information system based on the SCOR business strategy.
The IS2008 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 2005 have been dedicated to
front-office applications for an improved risk selection,
anticipation and reactivity on markets and products. The
management system has thus been expanded to strengthen
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. A new P&C underwriting and rating system, which
includes price modeling, profitability criteria, and claims
simulation capacity, was implemented in 2005, demonstrating the
emphasis SCOR places on enhancing risk control.
The portal has been designated as the central repository for
sharing all information, whether internal or collected from
outside sources.
INSURANCE AND RISK COVERAGE (EXCLUDING REINSURANCE
ACTIVITY)
SCOR, both at the level of the parent company and the
subsidiaries, operates a financial business. Therefore, it is
not dependent, as industrial companies may be, on a
manufacturing tool, and generates few physical risks for its
immediate environment.
Some of SCORs major assets include its IT network and its
communication tools, which are regularly updated to reflect
technological progress.
In these fields, emergency solutions have been organized
off-site such as system duplication and data backup, to allow
business continuity in the event of a major incident.
Catastrophic scenarios that could affect SCORs entire
working tool are being studied and will lead to the revision of
the business continuity plan.
The properties and other assets of SCOR and its subsidiaries are
covered locally for replacement value through property and fire
damage and comprehensive IT risk policies. The levels of
self-insurance depend on the risks insured and are generally
less than EUR 15,000 in deductibles per claim.
Liability risks are covered at Group level in amounts considered
to be sufficient.
Third-party liability risks related to the operation of the
company due to employees and properties are insured for
EUR 15 million. Professional liability risks are
insured for EUR 20 million above a self-insurance
charge of EUR 2 million. The Group is covered against
the civil liability of its officers and directors. In addition,
it has EUR 10 million in fraud coverage. All of these
insurance policies are with first-tier insurers.
46
The management of the Groups property and liability
insurance is subject to a validation procedure during which a
steering committee composed of specialist employees is asked to
issue an opinion every six months. Assessment of the strategies
pursued is performed by the Chief Risk Officer (CRO).
REGULATION OF THE REINSURANCE INDUSTRY
The Company is a French société anonyme
governed by French legislation on corporations, subject to
specific provisions applicable to it as a company engaged in
reinsurance. Since
Law No 94-679
of August 8, 1994, reinsurance companies in France are
subject to State control under the conditions defined in
Book III of the French Insurance Code.
The terms and scope of this control were considerably reinforced
by Law
No. 2001-420 of
May 15, 2001. For example, the law introduced the following
provisions:
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|
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|
|
the institution of a prior authorization procedure for French
companies whose exclusive business is reinsurance, prior to
being permitted to engage in this business. However, as the
application texts were not adopted, this procedure has not yet
come into effect; |
|
|
|
the possibility for the French Insurance regulator (A.C.A.M.) to
send warnings when a company violates applicable legislative or
regulatory provisions; |
|
|
|
the introduction of new sanctions to be imposed by the A.C.A.M.
on reinsurance companies for violations of applicable
legislative or regulatory provisions; and |
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|
|
the possibility of withdrawing approvals in the event of
prolonged inactivity, failure to maintain a balance between the
companys financial situation and its business or, if the
general interest requires, substantial modification in the
companys stock ownership or governing bodies. |
There is no European regulatory framework, at present,
harmonizing the supervision of reinsurance across Europe. On
November 16, 2005, directive number 2005/68/EC was
adopted by the European Parliament and the European Council
which established, for reinsurance companies located within the
European Community, a unique approval regime granted by the
supervisory authority of the State in which the company has its
corporate headquarters, recognized in all Member States, as well
as financial supervision exercised by such authority.
Furthermore, this directive establishes the regulations related
to the solvency of reinsurance companies located within the
European Community, thereby aiming to harmonize the inspections
to which such companies are subject. The provisions of the
directive should be transposed into national law by the Member
States no later than December 10, 2007. Within this same
time frame, established reinsurers must comply with the
provisions of the directive related to the operation of their
activities. However, at the time of the transposition of the
directive into national law, the legislators of the various
Member States may grant such companies an additional period of
12 months (i.e. until December 10, 2008) in order
to comply with certain provisions of the directive, in
particular those related to technical reserves, solvency ratios
and loss reserve fund requirements.
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 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 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.
47
Even though there is, at present, 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 increases in 2002, 2004 and 2005
and the reduction of the gross premium written in 2005, the
solvency margin very clearly improved in 2004 and 2005.
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C. |
ORGANIZATIONAL STRUCTURE |
OPERATIONS
General
As of December 31, 2005, the Groups Non-Life
reinsurance operations are conducted primarily through the
Property-Casualty Treaty reinsurance, Facultatives and Large
Corporate Accounts operating divisions of SCOR, which are all
part of the Global P&C sector, 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, a
wholly-owned SCOR subsidiary, since December 1, 2003.
SCOR VIE operates mainly through its branches in Italy,
Germany and Canada as well as through SCOR Life Re U.S. The
subsidiary 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
reinsurance subsidiaries as of December 31, 2005, their
respective country of incorporation, and the main markets served
by each entity:
The current existing Group structure had 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.
In connection with the Project New SCOR announced in June 2005,
SCOR has transferred its Non-Life reinsurance activities in
Europe, comprising Treaty underwriting and management, Large
Corporate Accounts, Credit & Surety and Construction
reinsurance, to a wholly-owned subsidiary of SCOR registered in
France called SCOR Global P&C (formerly
Société Putéolienne de Participations). Such
transfer was approved by the shareholders meeting held on
May 16, 2006 and is effective as of January 1, 2006.
48
This reorganization represents an important step in the strategy
of SCOR and has been carried out with a view to simplifying the
legal structure of the Group by streamlining the Group into two
subsidiaries dedicated to Life and Non-Life business,
respectively. SCOR SA will remain the holding company and
owner of the US, Canadian and Asian Non-Life subsidiaries
(although these entities will report to SCOR Global P&C
for their operational activity). SCOR SA will benefit from
the retrocession of its Life and Non-Life reinsurance
subsidiaries, and will be responsible for the allocation of
capital and resources within the Group, based on the
underwriting needs and the determined capacities of each entity.
The Groups headquarters in Paris determines underwriting
policy and monitors risk accumulation, controls claims and
provides actuarial, accounting, legal, administrative, systems,
internal audit, investment and human resources support to
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.
SCOR wholly owns its operating subsidiaries (excluding the
shares held by members of the Board as required pursuant to
French law and our by-laws). SCOR also makes loans to its
subsidiaries. Lastly, whenever necessary, SCOR acts as
retrocessionnaire vis-à-vis its subsidiaries.
|
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D. |
PROPERTY, PLANTS AND EQUIPMENT |
On December 29, 2003, SCOR sold the Groups
headquarters, consisting of more than 30,000 square meters
of offices located at 1, avenue du Général de
Gaulle, 92074 Paris La Défense, to the German
investment fund KanAm for EUR 149,500,000. On the same
date, SCOR and KanAm entered into a nine-year lease agreement
for this same building for an annual rent equal to
EUR 11 million per year. Under this lease and in
addition to customary guarantees, KanAm asked for financial
guarantees based both on SCORs financial rating and the
term of the lease. For more information on these guarantees, see
Note 16 to the consolidated financial statements included
in Item 18. Financial Statements.
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 offices in Hanover (Germany), Milan (Italy),
and Singapore, which it leases to third parties as part of its
investment management business and in which its local
subsidiaries have their corporate headquarters. The Group leases
office space for its other business locations. SCOR believes
that the Groups office space is adequate for its present
needs. SCOR also holds property investments as part of its asset
management related to its reinsurance operations.
|
|
Item 4A. |
Unresolved Staff Comments |
Not applicable.
|
|
Item 5. |
Operating and Financial Review and Prospects |
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
IFRS, which differ in certain respects from U.S. GAAP.
Overview
In 2005 and 2004, like most other reinsurers, SCOR was affected
by the abnormally high frequency of natural disasters throughout
the world, and particularly, in 2005, due to a storm in Europe,
five hurricanes in the United
49
States and Mexico, and a number of large claims for natural
occurrences that were smaller in scope. Hurricanes Katrina, Rita
and Wilma generated a total claims expense estimated before
taxes and retrocessions, of EUR 177.6 million at the
end of 2005. The storms Erwin/Gudrun generated a total claims
expense estimated before taxes and retrocession of
EUR 21.5 million, while hurricanes Stan and Emily, the
floods in Europe and the Mumbai flood in India generated a total
claims expense estimated before taxes and retrocession of
EUR 40 million.
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 Property-Casualty rates did not reach the
level of 2002, they remained hard in 2003, 2004, and, to a
lesser extent, 2005. 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/ 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 2005, except general liability, and a
moderate decrease in the reinsurance market in 2005. 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.
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|
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, | |
|
|
| |
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
U.S. Dollar
|
|
|
1.263 |
|
|
|
1.3604 |
|
|
|
1.182 |
|
|
|
1.141 |
|
|
|
1.244 |
|
|
|
1.240 |
|
Canadian Dollar
|
|
|
1.623 |
|
|
|
1.648 |
|
|
|
1.380 |
|
|
|
1.587 |
|
|
|
1.619 |
|
|
|
1.502 |
|
British Pound
|
|
|
0.705 |
|
|
|
0.709 |
|
|
|
0.688 |
|
|
|
0.693 |
|
|
|
0.679 |
|
|
|
0.682 |
|
Singapore Dollar
|
|
|
2.145 |
|
|
|
2.228 |
|
|
|
1.968 |
|
|
|
1.986 |
|
|
|
2.010 |
|
|
|
2.061 |
|
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 on foreign
exchange rates.
50
Business Segments
Our operations are organized into the following two business
segments: the Property-Casualty segment and the Life/Accident
& Health segment. Property-Casualty segment is further
organized into two sub-segments: Property & Casualty Treaty
and Large Corporate Accounts treaties underwritten on a
facultative basis. 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.
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 Property-Casualty 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 165 million for the year
ended December 31, 2005 compared to a net profit of EUR
247 million in 2004 and a net loss of EUR 512 million
in 2003. 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, 2003, 2004 and
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Gross premiums written
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property-Casualty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treaty Property-Casualty
|
|
|
1,690 |
|
|
|
1,064 |
|
|
|
996 |
|
|
|
Credit, Surety & Political Risks
|
|
|
65 |
|
|
|
38 |
|
|
|
52 |
|
|
|
Large Corporate accounts
|
|
|
569 |
|
|
|
261 |
|
|
|
335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative Reinsurance
|
|
|
(1 |
) |
|
|
2 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Property-Casualty
|
|
|
2,323 |
|
|
|
1,365 |
|
|
|
1,383 |
|
|
Life/Accident & Health
|
|
|
983 |
|
|
|
880 |
|
|
|
875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,306 |
|
|
|
2,245 |
|
|
|
2,258 |
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written increased by 1% in 2005 from
EUR 2,245 million in 2004 to
EUR 2,258 million in 2005. In 2004, gross premiums
decreased by 32% from EUR 3,306 million in 2003 to
EUR 2,245 million in 2004. 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
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.
51
In 2005, the Property-Casualty segment represented 61% of our
overall gross premiums written, compared to 61% in 2004 and 70%
in 2003. Within the Property-Casualty segment, Property-Casualty
Treaty accounted for 72% of overall gross premiums written in
2005, compared to 78% in 2004 and 73% in 2003, while Large
Corporate Accounts represented 24% of overall gross premiums
written in 2005, compared to 19% in 2004 and 24% in 2003.
Credit, Surety and Political Risks share represented 4%,
3% and 3% of Property-Casualty overall gross premiums written in
2005, 2004 and 2003, respectively, while Alternative Reinsurance
still represented 0% of Property-Casualty overall gross premiums
written in 2003, 2004 and 2005 following the Groups
decision to cease business underwritten by CRP.
Life/Accident & Health represented 39% of overall gross
premiums written in 2005, compared to 39% in 2004 and 30% in
2003.
Conclusion of the Back on Track plan and
implementation of the SCOR 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:
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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 |
|
|
|
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 & Health, Large
Corporate Accounts and Property & Casualty Treaty. 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:
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|
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|
|
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 Property-Casualty, 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 SCOR Moving
Forward. The SCOR 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. 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.
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.
52
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. 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.
On August 1, 2005, the ratings agency S&P raised
SCORs financial solvency rating from BBB+ to A-. The
rating for the Groups senior debt was also raised from
BBB+ to A- and subordinated debt from BBB- to BBB. The outlook
for the rating is stable.
On November 8, 2005, A.M. Best confirmed the financial
solvency of SCOR (Paris) and its principal subsidiaries to
B++ (Very Good). The outlook for the rating is
positive.
On October 7, 2005, Moodys Investors Service
announced that it had upgraded SCORs Insurance Financial
Strength Rating from Baa2 to Baa1, its Senior Debt from Baa3 to
Baa1, and Subordinated Debt from Ba2 to Baa3. The outlook for
these ratings is positive.
Fluctuations in exchange rates. 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. In 2005 the Groups gross written premiums
increased 1% at both current and constant exchange rates.
Net premiums written
The following table sets forth the Groups net premiums
written for the years ended December 31, 2003, 2004 and
2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Net premiums written
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property-Casualty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treaty Property-Casualty
|
|
|
1,580 |
|
|
|
1,014 |
|
|
|
942 |
|
|
|
Credit, Surety & Political Risks
|
|
|
63 |
|
|
|
38 |
|
|
|
51 |
|
|
|
Large Corporate accounts
|
|
|
461 |
|
|
|
227 |
|
|
|
287 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Alternative Reinsurance
|
|
|
(1 |
) |
|
|
3 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Property-Casualty
|
|
|
2,103 |
|
|
|
1,282 |
|
|
|
1,280 |
|
|
Life/Accident & Health
|
|
|
885 |
|
|
|
844 |
|
|
|
841 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,988 |
|
|
|
2,126 |
|
|
|
2,121 |
|
|
|
|
|
|
|
|
|
|
|
Net premiums written constitute gross premiums written during
the financial year, net of retrocession, including unearned
premiums. Net premiums written remain steady from EUR 2,126
million in 2004 to EUR 2,121 million in 2005, reflecting
primarily the slight increase in gross premiums written of 1%.
During 2004, net premiums written decreased by 29% from
EUR 2,988 million in 2003 to EUR 2,126 million in
2004, reflecting the decrease in gross premiums written.
The premiums retroceded increased by 16% in 2005 and 63% in 2004
from EUR 318 million in 2003 to EUR 118 million
in 2004 and EUR 137 million in 2005 due to the increase of
the worldwide reinsurance rates and reflected the slight
decrease of the overall retention level from 95% in 2004 to 94%
in 2005 compared to 90% in 2003. Our retention level for
premiums is computed as net premiums divided by gross premiums.
53
Revenues
Our consolidated total revenues decreased by 3% to
EUR 2,486 million in 2005 compared to EUR 2,551
million in 2004 due primarily to a 6% decrease in net premiums
earned and, to a lesser extent, a 7% increase in net investment
income and a 136% increase in net realized gain on investments.
In 2004, our consolidated total revenues decreased by 32% from
EUR 3,767 million in 2003 to EUR 2,551 million in
2004 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.
Net premiums earned
The following table sets forth the Groups net premiums
earned for the years ended December 31, 2003, 2004 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Net premiums earned
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property-Casualty
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treaty Property-Casualty
|
|
|
1,670 |
|
|
|
1,120 |
|
|
|
937 |
|
|
|
Credit, Surety & Political Risks
|
|
|
122 |
|
|
|
51 |
|
|
|
51 |
|
|
|
Large Corporate accounts
|
|
|
504 |
|
|
|
253 |
|
|
|
240 |
|
|
|
Alternative Reinsurance
|
|
|
159 |
|
|
|
3 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Property-Casualty
|
|
|
2,455 |
|
|
|
1,427 |
|
|
|
1.227 |
|
|
|
|
|
|
|
|
|
|
|
|
Life/Accident & Health
|
|
|
869 |
|
|
|
800 |
|
|
|
859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
3,324 |
|
|
|
2,227 |
|
|
|
2,086 |
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned decreased by 6% in 2005 from EUR 2,227
million in 2004 to EUR 2,086 million in 2005 and
represented 84% of our consolidated total revenues in 2005
compared to 90% in 2004. The overall decrease in net premiums
earned resulted primarily from decreases of 16% in Treaty
Property-Casualty, 5% in Large Corporate Accounts, no change in
Credit, Surety & Political Risks, no premiums earned in
Alternative Reinsurance and an increase of 7% in Life/ Accident
& Health. The decreases in net premiums earned were due to a
1% increase in gross written premiums in 2005 and a 32% decrease
in gross written premiums in 2004.
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 Income from investments
Net income from investment is comprised of investment income,
investment expenses and realized capital gains and losses.
Investment income increased from EUR 365 million in 2004 to
EUR 372 million in 2005 primarily due to a decrease in
revenue from fixed-maturity securities from EUR 244 million
in 2004 to EUR 221 million in 2005, an increase in revenue
from equity securities from EUR 6 million in 2004 to
EUR 7 million in 2005 and from trading equity securities
from EUR 3 million in 2004 to EUR 49 million in 2005
and a decrease in short term investments from EUR 112
million in 2004 to EUR 95 million in 2005.
Approximately 79% of invested assets were invested in
fixed-maturity securities in 2005, compared to approximately 79%
in 2004. Invested assets increased by 1% from EUR 6,637
million in 2004 to EUR 6,658 million in 2005.
54
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 expenses, mainly comprised of financial expenses,
decreased from EUR 83 million in 2004 to EUR 71 million in
2005, mainly as a result of a decrease in other financial
expenses.
Investment expenses decreased from EUR 89 million in 2003
to EUR 83 million in 2004.
Realized capital gains on investments increased from EUR 42
million in 2004 to EUR 99 million in 2005 primarily due to
the sale of fixed and equity securities. In 2005, realized
capital gains on investments amounted to
EUR 99 million and consisted of EUR 48 million
from the sale of fixed-maturity securities, EUR 45 million
from the sale of equity securities and EUR 6 million
on short term investments.
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, 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.
Expenses
In 2005, the Groups consolidated total expenses increased
by 2% to EUR 2,393 million, compared to EUR 2,356
million in 2004, or four points more than the reduction in total
revenues. In 2004, the Groups consolidated total expenses
decreased by 41% to EUR 2,356 million, compared to
EUR 3,976 million in 2003, or 9% more than the reduction in
total revenues.
Total incurred claims decreased by 3% in 2005, while the volume
of premiums earned decreased by 6% primarily due the
commutations made on both Non-Life and Life business. Total
incurred claims decreased by 49% in 2004, notwithstanding the
reserve increases noted below, while the volume of earned
premiums decreased by 33%.
Non-Life claims decreased by 1% in 2005 to
EUR 1,168 million, resulting in a loss ratio of 75% in
2005 (69% in 2004), compared to a decline in Non-Life earned
premium volumes of 8%. This 1% decrease resulted from
commutations made on the U.S. and European business for
EUR 339 million and from the increase in natural
catastrophes, including hurricane Katrina in the US, which
amounted to EUR 168 million.
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
U.S. Treaties. Losses were impacted in 2004 by hurricanes
in the U.S. and Caribbean, typhoons in Asia and additional
World Trade Center reserves, all of which amounted to
EUR 96 million, net of retrocession, in 2004.
Life claims decreased by 8% to EUR 414 million in 2005
compared to EUR 451 million in 2004 primarily due to
the commutations made on Life business for
EUR 265 million. 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.
Policy acquisition costs and commissions decreased by 8% to
EUR 521 million in 2005, compared to
EUR 568 million in 2004. This decrease is
2 percentage points more than the reduction in earned
premiums. Underwriting and administration expenses increased by
4% in 2005 to EUR 141 million compared to
EUR 135 million in 2004.
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
55
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.
Foreign exchange loss amounted to EUR 81 million in
2005 compared to a gain of EUR 37 million in 2004.
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
currency. As a result, the depreciation of the U.S. dollar
against the euro did not have as large of a positive effect on
the Company in 2004 compared to prior years.
Following the purchase of the minority interests of IRP,
goodwill of EUR 3 million has been totally impaired in
2005. No impairment of goodwill occurred in 2004 and 2003.
Interest expenses were EUR 48 million in 2005 compared
to EUR 49 million in 2004 and EUR 33 million
in 2003. On January 1, 2005, SCOR reimbursed its OCEANE
bonds issued in June 1999 with the proceeds from the 2004 OCEANE
bond issuance, together with available cash.
Other operating expenses were EUR 17 million in 2005
compared to EUR 14 million in 2004 and
EUR 19 million in 2003. Other operating expenses were
comprised mainly of provisions for risks and charges,
depreciation on bad debt and amortization of fixed assets.
In 2005, the ratio of underwriting and administration expenses
to gross premiums written was 6%, compared to 6% in 2004 and
4.8% in 2003.
Income taxes
The total rate of income tax on French corporations applied on
taxable income in 2005 was 34.93% compared to 35.43% applied in
2004 and 2003. The total rate of income tax on French
corporations to be applied on taxable income decreased to 34.93%
in 2005 and is scheduled to be decreased to 34.43% in 2006. In
2003, French tax law changed to authorize unlimited carry
forward of tax losses compared to 5 years previously.
In 2005, the Group recorded a net income tax benefit of
EUR 72 million compared to an income tax benefit equal
to EUR 73 million in 2004 and an income tax expense of
EUR 287 million in 2003.
The 2005 net income tax benefit consisted of tax benefit
computed at the statutory rate equal to
EUR 71 million, net of the change in valuation
allowance on deferred tax assets resulting from tax loss carry
forwards. The 2005 net income tax was partially offset by
certain tax-exempt expenses equal to EUR 4 million and
in the reduction in French corporate tax rates for 2005, which
amounted to EUR 5 million.
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 benefits 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 capitalization reserve and other
items amounting to EUR 2 million.
In 2004 and 2005, respectively, the Company recorded a
EUR 133 million and EUR 111 million
reduction to the valuation allowance on French net operating
losses, mainly due to improvements in the profitability 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
capitalization reserve and other items for
EUR 10 million.
56
Minority interests
There were no minority interests in 2005 compared to
EUR 24 million in 2004 and EUR 26 million in
2003. The decrease in 2005 was due to the purchase of the
remaining minority interests of IRP Holdings Limited business.
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
were nil in 2005, compared to EUR (1) million in 2004
and 1 million in 2003.
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.
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 change in accounting principle,
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
Property-Casualty
The Property-Casualty 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).
57
The following table sets forth premium, loss and expense data,
and related ratios, for our Property-Casualty segment for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Gross premiums written
|
|
|
2,323 |
|
|
|
1,365 |
|
|
|
1,383 |
|
Net premiums written
|
|
|
2,103 |
|
|
|
1,282 |
|
|
|
1,280 |
|
Net premiums earned
|
|
|
2,455 |
|
|
|
1,427 |
|
|
|
1,227 |
|
Net loss and LAE
|
|
|
2,507 |
|
|
|
999 |
|
|
|
916 |
|
Net commissions and
expenses(1)
|
|
|
613 |
|
|
|
461 |
|
|
|
393 |
|
Underwriting (loss)
|
|
|
(673 |
) |
|
|
(17 |
) |
|
|
(82 |
) |
Loss ratio
|
|
|
102 |
% |
|
|
70 |
% |
|
|
75 |
% |
Expense
ratio(1)
|
|
|
25 |
% |
|
|
32 |
% |
|
|
32 |
% |
Combined ratio
|
|
|
127 |
% |
|
|
102 |
% |
|
|
107 |
% |
|
|
(1) |
Expenses include direct charges of each business segment and
indirect charges allocated by business segment pro rata
according to direct expenses. |
Gross Property-Casualty premiums written increased by 1% in 2005
compared to 2004 and decreased by 41% in 2004 compared to 2003.
This slight increase in 2005 reflected a reverse trend and the
first steps of the moving forward action plan. 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 2005, Property-Casualty Treaty gross premiums decreased by
6%, Large Corporate Accounts gross premiums increased by 28% and
Credit, Surety and Political Risks gross premiums increased 37%.
The Property Casualty business, Large Corporate Accounts and
Credit and Surety businesses represented 72%, 24% and 4% of the
Property-Casualty segment, respectively, in 2005 compared to
78%, 19% and 3%, respectively, in 2004. Net premium earned
showed a 14% decrease in 2005 compared to 2004, reflecting the
impact of the diminution of unearned premium brought forward
after two consecutive years of reduced activity. Gross written
premiums showed a slight 1% increase compared to 2004 while net
written premium remained stable.
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
Property-Casualty 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.
The retention level of the Property-Casualty segment decreased
by 1 percentage point to 93% in 2005 and increased by
3 percentage points to 94% in 2004. The 2005 combined ratio
of the Property-Casualty segment was 107% compared to 102% in
2004. This decline, that represented an increase of 5 points of
the loss ratio in 2005 compared to 2004, was primarily due to
the occurrence of large catastrophe losses throughout the year.
The combined ratio of the Property-Casualty segment was 102% in
2004 compared to 127% in 2003.
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.
After two consecutive years of reduction in the volume of
premium income, the Group increased its Credit, Surety &
Political Risk gross written premiums by 37% in 2005 compared to
a reduction of 42% in 2004 and 47% in 2003. This increase is
partially attributable to the new opportunities offered in 2005
as well as the completion of the reductions made on past
portfolios and on the Groups surety business in the United
States. In 2005, Credit, Surety & Political Risk earned
premiums remained at the same level as in 2004, compared to a
decrease of 58% in 2004 and a decrease of 20% in 2003, due to
the starting over of the activity. On December 1,
58
2003, SCOR removed its credit 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, 2004 or 2005. Commercial Risk
Partners net premiums earned from the run-off operations
was EUR 0 million in 2005 compared to
EUR 0 million in 2004 and EUR 159 million in
2003, reflecting its run-off status.
The occurrence in 2005 of successive hurricanes Katrina, Wilma
and Rita, caused the highest catastrophe loss ever registered in
the insurance industry within a year. These major events,
coupled with storm Gudrun, floods in Eastern Europe and various
other natural catastrophes generated a global net pre-tax
catastrophe loss of EUR 168 million for the 2005
Property-Casualty Group operations. The SCOR Group, however,
still benefiting from its ongoing selective underwriting policy
believes it was less exposed than the majority of its
competitors to these adverse losses emanating from natural
events in 2005. As a consequence, the overall Group
Property-Casualty net loss ratio deterioration was limited to 5%
and the net loss ratio was 75% in 2005 compared to 70% in 2004.
SCOR actively pursued its efforts to commute certain lines of
business and during the course of 2005 reduced its gross
Property-Casualty liabilities by EUR 314 million in
connection with its run-off portfolios in North America and by
EUR 25 million in connection with its asbestos and
environmental liabilities in Europe.
In 2004, the loss ratio decreased to 70% despite the fact that
the claims related to natural catastrophes represented a net
cost of EUR 76 million for the Property-Casualty
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
U.S. 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 Property-Casualty
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 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.
Property-Casualty commissions and expenses ratio remained stable
at 32% between 2004 and 2005.
59
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, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Gross premiums written
|
|
|
983 |
|
|
|
880 |
|
|
|
875 |
|
Net premiums written
|
|
|
885 |
|
|
|
844 |
|
|
|
841 |
|
Net premiums earned
|
|
|
869 |
|
|
|
800 |
|
|
|
859 |
|
Net loss and LAE
|
|
|
653 |
|
|
|
628 |
|
|
|
666 |
|
Net commissions and
expenses(1)
|
|
|
319 |
|
|
|
266 |
|
|
|
269 |
|
Underwriting (loss)
|
|
|
(104 |
) |
|
|
(94 |
) |
|
|
(76 |
) |
Loss ratio
|
|
|
75 |
% |
|
|
79 |
% |
|
|
78 |
% |
Expense
ratio(1)
|
|
|
37 |
% |
|
|
33 |
% |
|
|
31 |
% |
Combined ratio
|
|
|
112 |
% |
|
|
112 |
% |
|
|
109 |
% |
|
|
(1) |
Expenses include direct charges of each business segment and
indirect charges allocated by business segment pro rata
according to direct expenses. |
The Life/Accident & Health gross written premiums
decreased by 1% in 2005 compared to 2004 mainly from the
reduction of the volume of premiums underwritten in the United
States. On the one hand, SCOR Vie compensated the natural
erosion of business by new business acquired and comforted its
leadership in France regarding long term care reinsurance. On
the other hand, SCOR Life Re reduced its overall premium income
by reducing its Annuity accounts but maintained a satisfactory
level of premium income on its other lines of business.
In 2004, the gross written premiums decreased by 11% compared to
2003. This reduction, which impacted the Accident & Heath
segment resulted primarily from the Accident & Health
segment in which Accident and Medical Care decreased.
In 2005, net premiums written showed a slight increase below 1%
point of variation compared to 2004. As a result, the retention
level for 2005 remained steady at 96% as in 2004.
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.
Net premiums earned in 2005 increased by 7% compared to 2004 as
a result of the reduction of unearned premiums closed at year
end caused by the combined reduction of a certain contract
covering the reinsurance of the person in Europe and the general
reduction of the Accident & Health lines of business in the
United States.
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.
During the period from the 2000 to 2003 balance sheet years,
newly obtained experience data for the industry in general and
SCOR revealed medical cost inflation in the United States
significantly exceeding original projections. Indeed, the actual
medical consumer price index exceeded SCORs original
projection of 7% per annum and turned out to be 14%. This effect
was progressive and was recognized accordingly across these
balance sheet years.
This increase happened after a few years of relatively low
increases in medical costs due to the introduction of the Health
Management Organizations (HMO). In the late 1990s, the
effectiveness of HMOs diminished and medical expenses increased
dramatically. This development was not expected by the non life
insurance industry. This caused SCOR and other members of the
industry to reevaluate the impact of medical costs on all of the
reserves for U.S. Casualty lines of business, particularly
those relating to U.S. workers compensation for underwriting
60
years 1997, 1998, 1999 and 2000. The increase in reserves on the
balance sheet at SCOR U.S. over the period totaled
approximately EUR 929 million comprising an increase
of EUR 206 million, 201 million, 197 million
and 325 million in 2000, 2001, 2002 and 2003, respectively.
These increases in reserves were reflected in Property-Casualty
claims in the consolidated statement of operations for the
corresponding year. No change in actuarial methods was made.
SCOR also revised the reserves corresponding to CRPs
business in 2000 to 2003. The net technical result of these
operations corresponded respectively to a loss of
EUR 14 million in 2000, a loss of
EUR 60 million in 2001, a loss of
EUR 240 million in 2002 and a loss of
EUR 170 million in 2003. These increases in reserves
were reflected in Property-Casualty claims in the consolidated
statement of operations for the corresponding year. No change in
actuarial methods was made.
In 2005, commissions and expenses remained at a level very close
to that reached in 2004. As a consequence the expense ratio
decreased by two percentage points to 31% due to the
increase of the net earned premiums.
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 2005, the loss and LAE ratios remained at the same level as
in 2004. Globally, the Life/Accident & Health operations
showed satisfactory developments in 2005 both for current and
prior accident years and the net Life/Accident & Health
loss ratio stood at 78% for the second consecutive year. Also,
the 2005 accounting year benefited from the release of almost
the totality of the provision made at the end of 2004 for the
December tsunami, having been over estimated by cedents compared
with final indemnifications. During the year, SCOR effected
commutations regarding its Life/Accident & Health
activity for a total amount of EUR 265 million.
|
|
B. |
LIQUIDITY AND CAPITAL RESOURCES |
Liquidity and Capital Resources
The following table sets forth the Groups summarized cash
flows statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Net cash flows provided by (used in) operating activities
|
|
|
(98 |
) |
|
|
(229 |
) |
|
|
(742 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) investing activities
|
|
|
258 |
|
|
|
(450 |
) |
|
|
584 |
|
|
|
|
|
|
|
|
|
|
|
Net cash flows provided by (used in) financing activities
|
|
|
50 |
|
|
|
846 |
|
|
|
(242 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
21 |
|
|
|
(135 |
) |
|
|
171 |
|
Cash and cash equivalents at beginning of year
|
|
|
1,788 |
|
|
|
1,824 |
|
|
|
1,798 |
|
Effect of changes in exchange rates on cash beginning
|
|
|
(195 |
) |
|
|
(58 |
) |
|
|
97 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
|
1,824 |
|
|
|
1,798 |
|
|
|
1,666 |
|
|
|
|
|
|
|
|
|
|
|
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.
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
61
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
increase, generating, as a consequence, a negative operating
cash-flow.
Our operating cash outflows include claim settlements. Since
cash inflow from premiums is received in advance of cash outflow
required to settle claims, we accumulate funds that we invest.
SCORs asset/liability management strategy entails
minimizing asset risk, since SCORs core business activity,
reinsurance, can expose SCOR to significant uncertainty
regarding the expected timing of its liabilities. In addition,
changes in SCORs underwriting strategy and the run-off of
certain business segments have impacted the composition of
SCORs liabilities. Consequently, SCOR has historically
maintained a conservative investment policy. In general, SCOR
invests in liquid, high-grade securities, with a majority (64%,
63% and 63% for each of 2003, 2004 and 2005, respectively) of
its investments in fixed maturities, and a significant portion
of its investments in cash and cash equivalents (22%, 21% and
20% for each of 2003, 2004 and 2005, respectively) in order to
maintain sufficient liquidity to meet its expected liabilities
together with a reasonably possible deviation from these
expected liabilities. As a result, liquidation of fixed maturity
securities should not be necessary in the ordinary course of
business. 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.
The Groups balance of cash and cash equivalents was
EUR 1,666 at December 31, 2005 compared to
EUR 1,798 million at December 31, 2004 and
EUR 1,824 million at December 31, 2003.
Net cash used by operations was EUR 742 million in
2005 compared to EUR 229 million in 2004 and
EUR 98 million in 2003. The significant decrease in
cash flow used in operating activities in 2005 was primarily due
to the commutations made on SCOR U.S. and CRP business for
approximately EUR 339 million and on
Life/Accident & Health Business for approximately
EUR 265 million.
In 2005, the Property-Casualty technical provisions for claims
and unearned premiums decreased by EUR 401 million due
to several commutations during the first half of 2005 made on
business underwritten by SCOR U.S. and our Bermudian
subsidiary CRP and on the European market which accounted for
approximately EUR 339 million. The Life/Accident &
Health technical provisions decreased by EUR 223 million
due to commutations made on Life/Accident & Health
business which accounted for approximately
EUR 265 million.
In 2004, the Property-Casualty 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
U.S. 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 Property-Casualty 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
62
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.
Changes in assets and liabilities resulted in net cash used of
EUR 66 million in 2005 compared to net cash used of
EUR 72 million in 2004. This net cash used in 2005 was
mainly due to an increase of the balance receivable mostly
linked to the upturn of the reinsurance cycle.
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.
Net cash provided by investing activities was
EUR 584 million in 2005 compared to net cash used of
EUR 450 million in 2004 and cash provided by investing
activities of EUR 258 million in 2003. For 2005, our
investing activities consisted primarily of a net sale of fixed
maturity securities amounting to EUR 921 million, the
sale of one building amounting to EUR 18 million and a
purchase of equity securities amounting of
EUR 351 million.
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.
Net cash used by the Groups financing activities was
EUR 242 million in 2005 compared to cash provided of
EUR 846 million in 2004 and EUR 50 million
in 2003. Net cash used by financing activities in 2005 was
primarily due to the redemption of OCEANE bonds
1999-2005 reimbursed on
January 1, 2005 for EUR 225 million, the payment
of IRP Holding minority interests of EUR 183 million
and the payment of a dividend distributed on 2004 results of
EUR 24 million, less the issuance of
149,500,000 shares at a subscription price of EUR 1.56
on June 22, 2005, resulting in a capital increase of
EUR 224 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 a new OCEANE bond issuance on July 2, 2004 for
EUR 200 million.
Net cash provided by financing activities in 2003 was due
primarily to proceeds 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.
At December 31, 2005, the Group had approximately
EUR 99 million available in unused short and long-term
credit lines, compared to approximately EUR 44 million
at December 31, 2004 and EUR 50 million at
December 31, 2003. For additional information, see below
under Item 5.E. Off-Balance Sheet Arrangements.
As of December 31, 2005, SCOR believes that its working
capital is sufficient for its present requirements.
At December 31, 2005, the Group had letters of credit
outstanding with a face amount of EUR 1,090 million.
The principal agreements relating to the Groups letters of
credit facilities as of December 31, 2005 are as follows:
EUR 75 million renewable credit facility with
BNP Paribas
For a description of this credit facility, see
Item 7.B. Related Party Transactions.
This credit facility was never utilized and was terminated in
May 2006.
63
EUR 25 million renewable credit facility with
Deutsche Bank Luxembourg
On May 30, 2005, the Company entered into a renewable
credit facility agreement with Deutsche Bank Luxembourg, the
purpose of which is to provide the Company with short-term cash
facilities to finance its general cash needs. The Credit
Facility Agreement is for a term of twelve months from the date
of signature. The credit may be used in the form of revolving
drawdowns up to a maximum of EUR 25 million.
To guarantee its obligations under the Credit Facility
Agreement, the Company is required to pledge either French
Treasury Bonds (OAT) in an amount at least equal to 105% of
the drawn amount, or shares for an amount at least equal to 125%
of the drawn amount, or bonds in an amount at least equal to
110% of the drawn amount.
This credit facility was never utilized and was terminated in
June 2006.
SCOR stand-by letters of credit facility with BNP
Paribas
For a description of this stand-by letters of credit facility,
see Item 7.B. Related Party Transactions.
The outstanding amount under the facility as at
December 31, 2005 is USD 18.1 million.
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 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. This agreement
was terminated on December 31, 2005.
SCOR VIE and SCOR Financial Services Limited
USD 250 million stand-by letters of credit
facility with CALYON
For a description of this stand-by letters of credit facility,
see Item 7.B. Related Party Transactions.
The outstanding amount under the facility as at
December 31, 2005 is USD 41.6 million.
SCOR and SCOR VIE USD 100 million stand-by letters of
credit facility entered into with CALYON and Caisse
Régionale de Crédit Agricole Mutuel de Paris et
dIle de France on December 14, 2005.
The outstanding amount as at December 31, 2005 is
USD 100 million.
SCOR and SCOR VIE USD 50 million stand-by letters of
credit facility entered into with Natexis on December 19,
2005.
The outstanding amount as at December 31, 2005 is
USD 50 million.
SCOR and SCOR VIE USD 200 million stand-by letter of
credit facility entered into with Deutsche Bank on
October 11, 2004.
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.
Pursuant to
64
amendment No. 1 dated as of November 16, 2005, the
commitment has been increased from USD 200 million to
USD 250 million and the final maturity date has been
extended from December 31, 2005 to December 31, 2008.
The outstanding amount as at December 31, 2005 is
USD 6.9 million.
Letter of credit facility between Commercial Risk
Reinsurance Company Ltd. and Citigroup Global Markets Ltd. dated
December 22, 1999, as amended on of November 16,
2005.
The outstanding amount as of December 31, 2005 is
USD 186.8 million.
EUR 200,000,000 notes due 2007 issued on
June 19, 2002.
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount |
|
Term | |
|
Interest Rate |
|
Interest Payment | |
|
Redeemable |
|
|
| |
|
|
|
| |
|
|
EUR 200 million
|
|
|
2007 |
|
|
From June, 2002 to June, 2007: Fixed Rate 5.25% and
complementary 2.5% |
|
|
Annual |
|
|
The notes will be redeemed at their principal amount on
June 21, 2007. |
On March 23, 1999, June 25, 1999 and July 6,
2000, the Company issued subordinated debt programs of
EUR 50 million, USD 100 million and EUR 100
million, respectively. All consist of step-up notes under the
following conditions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount |
|
Term |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest | |
|
Redeemable |
|
|
|
|
|
|
Payment | |
|
|
|
|
|
|
|
|
| |
|
|
EUR 50 million
|
|
Perpetual |
|
From March, 1999 to March, 2014: EURIBOR for six-month
deposits + 0.75% |
|
March 2014 and thereafter: EURIBOR for six-month
deposits + 1.75% |
|
|
Semi-annual |
|
|
In whole and not in part, at the option of the Company on or
about March 24, 2009, or on any interest payment date
falling on or about each fifth anniversary thereafter. |
USD 100 million
|
|
2029 |
|
From June, 1999 to June, 2009: LIBOR for three months deposits
in USD + 0.80% |
|
From June, 2009 to June, 2029: LIBOR for three months deposits
in USD + 1.80% |
|
|
Quarterly |
|
|
In whole or in part, at the option of the Company on or about
June 25, 2009, or on any interest payment date falling
thereafter. |
EUR 100 million
|
|
2020 |
|
From July, 2000 to July, 2010: EURIBOR for three month
deposits + 1.15% |
|
From July, 2010 to July, 2020: EURIBOR for three months deposits
in USD + 2.15% |
|
|
Quarterly |
|
|
In whole but not in part, at the option of the Company on or
about July 6, 2010, or on any interest payment date falling
thereafter. |
C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES,
ETC.
See Item 4.B. Business Overview
Information Technology.
D. TREND INFORMATION
See Item 4.B. Business Overview and
Item 5.A. Operating Results.
E. OFF-BALANCE SHEET ARRANGEMENTS
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 16 to the
Consolidated Financial Statements.
Off-balance-sheet arrangements entered into on behalf of clients
include letter of credit (LOC) transactions where the Company or
its subsidiaries provide LOC coverage for all or part of
reinsurance obligations to ceding companies, or where similar
coverage is provided to the Company or its subsidiaries by
retrocessionaires. These transactions are entered into in the
ordinary course of business to comply with ceding
companies credit or regulatory requirements. The Company
and its subsidiaries also pledge securities as collateral in
order to
65
guarantee the payment of cedents reserves. The following
table sets forth the off-balance-sheet commitments at
December 31, 2003, 2004 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Commitments received
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unused credit lines
|
|
|
50 |
|
|
|
44 |
|
|
|
99 |
|
|
Endorsements and sureties
|
|
|
68 |
|
|
|
47 |
|
|
|
12 |
|
|
Letters of Credit
|
|
|
1,285 |
|
|
|
867 |
|
|
|
1,090 |
|
|
Other commitments
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,403 |
|
|
|
971 |
|
|
|
1,201 |
|
|
|
|
|
|
|
|
|
|
|
Commitments given
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Endorsements and sureties
|
|
|
90 |
|
|
|
47 |
|
|
|
25 |
|
|
Leases
|
|
|
17 |
|
|
|
10 |
|
|
|
7 |
|
|
Letters of Credit
|
|
|
594 |
|
|
|
656 |
|
|
|
645 |
|
|
Collateralized securities
|
|
|
3,226 |
|
|
|
1,885 |
|
|
|
2,080 |
|
|
Other commitments
|
|
|
139 |
|
|
|
99 |
|
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,066 |
|
|
|
2,697 |
|
|
|
2,919 |
|
|
|
|
|
|
|
|
|
|
|
Additionally, the Group had received EUR 27 million and
EUR 29 million in security pledges from reinsurers and
retrocessionaires at December 31, 2005 and 2004,
respectively.
As of December 31, 2005, 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, 2005, there were no material additional
financial commitments required from Group companies in respect
of such arrangements.
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, 2005, 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, 2005.
66
F. CONTRACTUAL OBLIGATIONS
The following table sets forth the schedule of repayments of
SCORs debt as of December 31, 2005.
|
|
|
|
|
|
Year |
|
Payment | |
|
|
| |
|
|
(EUR, in millions) | |
2006
|
|
|
36 |
|
2007
|
|
|
230 |
|
2008
|
|
|
5 |
|
2009
|
|
|
15 |
|
2010
|
|
|
206 |
|
Thereafter
|
|
|
414 |
|
|
|
|
|
|
Total long-term debt
|
|
|
906 |
(1) |
|
|
|
|
|
|
(1) |
Excluding EUR 144 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 (principal)
|
|
|
813 |
|
|
|
31 |
|
|
|
225 |
|
|
|
210 |
|
|
|
347 |
|
Long term debt and capital lease (interest)
(1)
|
|
|
223 |
|
|
|
21 |
|
|
|
52 |
|
|
|
35 |
|
|
|
115 |
|
Losses and loss adjustment
expenses(2)
|
|
|
6,439 |
|
|
|
1,888 |
|
|
|
1,628 |
|
|
|
1,244 |
|
|
|
1,679 |
|
Future policy
benefits(2)
|
|
|
2,719 |
|
|
|
557 |
|
|
|
140 |
|
|
|
155 |
|
|
|
1,867 |
|
Capital lease
|
|
|
93 |
|
|
|
5 |
|
|
|
10 |
|
|
|
11 |
|
|
|
67 |
|
Operating lease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long term liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(3)
|
|
|
10,287 |
|
|
|
2,502 |
|
|
|
2,055 |
|
|
|
1,655 |
|
|
|
4,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Some of SCORs long term debt bears interest at floating
rates and is denominated in U.S. dollars. The calculation
of interest payments on long term debt is based on interest
rates and exchange rates as of December 31, 2005. |
|
(2) |
Given that loss reserves and future policy benefits are
estimates, the payment of these estimates are generally not
fixed as to amount or timing. The projected amounts included in
the table are estimates based on past experience and our
judgment. The projected settlement of loss reserves and future
policy benefits will differ, perhaps significantly, from future
payments. Deviations from these estimates are normal and are to
be expected. These estimates can not be extrapolated to future
underwriting years payment patterns as underwriting policy has
changed and the commutation policy pursued by SCOR in the past
might significantly change in the future. Additionally,
estimated losses as of the financial statement date do not take
into account the impact of estimated losses from future
business. For further information regarding the uncertainty
associated with loss reserves and future policy benefits see
Item 4.A. History and Development of the
Company Reserves and Item 5.G.
Critical Accounting Policies. |
|
(3) |
Excluding EUR 144 million related to the sale of the
SCOR building. |
For more information, see Note 9 to the financial
statements included in Item 18. Financial
Statements. See also Item 3.D. Risk
Factors SCOR faces a number of significant liquidity
requirements in the short to medium-term.
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
67
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/Accident & Health 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/Accident
& Health 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 included
in Item 18. Financial Statements.
Reserve Segmentation:
SCORs overall Property-Casualty business portfolio is
divided into more than one hundred different reserving segments.
Every contract is assigned to a reserving segment which is
defined homogenously using, among other parameters, the
applicable line of business and geographical areas of
underwriting.
Once a year, in light of year end actuarial studies and in order
to improve the assessment of reserves estimates, modifications
of criteria used to segment the portfolio can be proposed to the
Group Actuarial department which then decides whether or not to
implement any modifications to the portfolio segmentation
criteria. During the course of the year, any new contract is
allocated to the existing pre-defined segmentation.
Actuarial methods:
Reserves are actuarially determined by reserving segment, using
methods consistent with industry practices and taking into
account various assumptions and factors such as internal
analyses, loss and exposure information provided by the ceding
companies, historic loss development and trend experience, which
is viewed as indicative of future loss development and trends,
as well as court decisions, changes in legislation, social,
economic and demographic trends, inflation and other factors
affecting claim costs. SCORs actuaries do not determine a
range of loss reserve estimates. Instead, SCORs actuaries
determine point estimates for each reserving segment which are
then aggregated to determine the total loss reserve estimate.
SCORs management examines and challenges the actuarial
determinations although the actuaries are responsible for the
reserve estimates. No adjustments were made by management to the
actuarially determined loss reserve estimates as of
December 31, 2005.
The methods commonly used by us include, but are not limited to,
the Chain Ladder technique, the Bornhuetter-Ferguson
method (which takes into account exogenous information in the a
priori loss ratio used), and the loss ratio method. The method
used depends heavily on the characteristics of the reserving
segments. The classical loss development factor methods are
usually used for underwriting years where the information
available is considered to be sufficiently reliable. For recent
underwriting years, exogenous information such as underwriting
information and pricing elements are taken into account and the
Bornhuetter-Ferguson and loss ratio methods are used.
Catastrophe claims are evaluated by using commercial catastrophe
modeling systems.
68
Assumptions:
In order to properly apply those actuarial techniques, a
thorough knowledge of the portfolio is needed to analyze and
interpret any trends. For example, changes in legislation or
changes in the underwriting policies of cedents or SCOR could
result in a balance sheet or underwriting effect.
From a mathematical standpoint, the assumptions to be verified
for the Chain Ladder method are the independence of
the underwriting years and similar loss development factors of a
given development year. If one of these assumptions is not able
to be verified, then the model can be altered. With respect to
the Bornhuetter-Ferguson and loss ratio methods, the a priori
expected loss ratio used reflects the projected loss ratio from
the prior year adjusted for loss trends and the impact of rate
changes.
Long tail:
For long tail reserving segments such as medical malpractice,
motor liability and workers compensation (other than asbestos
and environmental claims described below), classic reserving
methods are not always directly applicable due to the long-term
characteristics of these types of claims. For example, for
bodily injury losses, the assessment of the ultimate cost needs
to take into account the stabilization of the victims
state of health and may also take into account a court decision,
which option leads to a long duration between the occurrence of
a loss and its settlement. Assumptions must also be made
regarding the timing of the cash flows, contributing further to
the inherent uncertainty in estimating reserves for these lines
of business. Therefore, in order to complete the analysis for
such reserves, additional studies are performed, taking into
account various factors, such as loss and exposure information
provided by the ceding companies, historic loss development and
trends, medical costs, jury verdicts, regulatory environment,
inflation and other factors affecting claims costs. In some
cases, a more detailed analysis on a contract-by-contract basis
is performed.
Asbestos and Environmental Claims:
Due to the Groups limited activities in these types of
risks, SCORs exposure to these losses is limited. Due to
the characteristics of asbestos and environmental claims, which
include:
a loss which does not manifest itself
until some considerable time after exposure (latency period); and
large volumes of unanticipated claims or
claims with a significantly misjudged scope when underwritten,
other reserving techniques than the ones previously mentioned
are used.
SCOR has four different methods which it can use to assess the
appropriate level of reserves for asbestos and environmental
claims. Depending on the historical data available for each
book, SCOR applies one or more of these methods.
The first method used is the survival ratio technique, defined
as the ratio of loss reserves (including IBNR) over the average
of calendar paid losses over the last three years. This ratio is
commonly used in the industry and by SCOR. It represents the
number of future calendar years, taking into account assumptions
regarding average annual claims payment that the held reserves
could fund.
The survival ratio technique is very sensitive to a
companys litigation settlement philosophy and commutation
activity. The three other actuarial methods used to compute
reserve estimates are an S-curves approach, a
frequency-severity method using the Manville pattern and the
market share approach. It is important to note that none of
these methods can be considered to be perfect. In some cases,
the results of these four methods can vary significantly.
Range and Process:
SCOR believes that due to the variability and unpredictability
of the many factors that impact reserve estimates such as
inconsistent and unforeseeable court decisions, judicial
interpretations that have broadened coverage, increases in
medical costs and related liabilities, and the increasing
frequency of catastrophe losses, one cannot reasonably expect
the reserves to fall within any particular narrow range. This is
particularly the case for the long-
69
tail lines of business. For latent claims, which represent the
most uncertain exposures, industry experience indicates that the
upper end of the range cannot be quantified.
SCOR does not compute a range based on the volatility of losses.
Therefore no actuarial range is available at the Group level.
However, the SCOR Group Actuarial Department verifies on a
yearly basis and for each entity of the Group, that locally
recorded reserves fall within a reasonable range as commonly
accepted by industry practice. At December 31, 2005 the
lower end of the interval is 7% lower than the best estimate,
and the upper end of the interval is 10% higher than the best
estimate.
Furthermore, on specific reserving segments, SCOR actuaries
conduct stress test scenarios using assumed evolution of some
parameters and/or deviation of Ultimate Loss Ratios. For
example, a deviation of 5% of workers compensation and non
proportional casualtys Ultimate Loss Ratios (underwriting
years 1995 to 2005), would increase by around USD
75 million the amount of IBNRs for those two segments.
Each quarter, actuaries within SCORs local business units
conduct analyses of reserves. These analyses undergo a review by
local management, the SCOR Group actuarial department and the
head of SCORs global property and casualty
division. As part of this review, the methodologies and the
underlying assumptions are challenged. Studies of independent
actuaries, where conducted, are also taken into consideration.
Based on these reviews the appropriate level of reserves is
determined.
SCOR sets its claim reserves for assumed reinsurance operations
based upon information received from the ceding companies,
utilizing different methodologies used for its Property-Casualty
and life/Accident & Health businesses.
Property-Casualty
SCORs policy is to ensure that all claims are promptly and
adequately reserved. An adequate reserve is a reserve that is
sufficient to cover SCORs entire estimated ultimate share
of a loss and the expenses generated by such a loss. In
accordance with this policy, the claims handling procedures at
SCOR are designed (i) to ensure that reserves are
adequately recorded, and (ii) that the appropriate control
mechanisms are in place to allow proper monitoring of the
process.
Claims are handled promptly. Upon receipt of a claim, all
related documents are directed to and handled by the technical
staff who verifies that the claim submission conforms to the
terms and conditions of the contract, as already recorded in
SCORs IT system (called Omega). Any issues regarding
coverage are then discussed and resolved with the underwriter
and, when necessary, with SCORs legal department and
outside counsel. In addition, in each business unit dedicated
staff is in charge of overseeing the claims activity. All claims
in litigation are reported to, and monitored by, the Group
Claims Division based in Paris.
If additional claim information is needed, the claims examiner
will contact the ceding company or broker. The booking of
reserves is performed promptly even if additional information
from the ceding company is being requested. If the
examiners evaluation of the claim reveals that the actual
loss value is greater than the claim notice, the examiner will
book an Additional Case Reserve (ACR). In cases where SCOR has
knowledge of a loss (whether from the cedant, market information
or media reports) but with no amount yet reported by the cedant,
substitution reserves (SR) are booked by SCOR to reflect a level
of reserve consistent with the exposure analysis. Substitution
reserves are replaced by information reported by the cedant as
soon as it is available. Both ACR and SR are dynamically
adjusted as new information is obtained. SCORs policy is
to actively seek claims information in order to ensure
that the reserve figure booked is as adequate as possible.
Before each quarterly closing, SCORs technical accounting
department also analyzes the backlog of claims and ensures that
any material claims detected in the backlog are booked.
Claims with reserves in excess of a defined threshold are
subject to committee review and a detailed written description
of the claim is circulated to the management, underwriters and
actuaries. Claims transactions are monitored regularly to
verify that claim reserve and payments are accurate and that any
deviation is immediately
70
detected and corrected. A report of all claims posted on an
accounting data basis is produced periodically in order to
detect and analyze the most significant claims and check their
reliability.
On a regular basis, SCOR conducts claims audits at the
insurance companies premises. Such audits (i) permit
an in-depth analysis of the quality of the claims work by
the insurance companies and, as a consequence, they allow for an
appraisal of the reliability of reported case reserves and
(ii) permit the early detection of loss trends,
legislation, jurisprudence or social inflation that could have
an impact on reserves.
Lastly, the Group Claims Division performs internal audits of
claims operations in order to verify that the group claims
guidelines and group settlement and reserve policy are complied
with.
Life/Accident & Health
With respect to the Life/Accident & Health business,
reserves for future policy benefits are generally based on the
ceding companies information which is usually set forth in
the reinsurance treaty between the cedent and SCOR.
Occasionally, specific audits can be performed on the ceding
companys books and records.
SCORs reserves for future policy benefits are based on
cedents reserves, adjusted for U.S. GAAP when appropriate,
or are directly calculated when individual data is available.
Reserves for future policy benefits include pending claims,
benefits to be paid under the contract and Additional Technical
Reserves.
These Additional Technical Reserves are calculated to take into
account:
|
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|
|
a reserve component that SCOR has identified as an item missing
in the information received from the cedent; or |
|
|
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a Loss Recognition Reserve, when SCORs actuarial analysis
of the reinsured risks reveals that overall losses are expected
until termination of the contracts. |
For the interest sensitive line of business, the benefit reserve
is the account value which is considered to be a deposit.
The process described above is highly automated and controlled.
SCORs underwriting system automatically calculates
estimates for premiums, commissions and losses based on the
underwriting conditions of each treaty which assists in
mitigating the potential impact of backlogs, missing and/or late
accounts.
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/Accident & Health 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 included in Item 18. Financial
Statements.
Methodology
SCOR determines its estimates of assumed premiums with different
methodologies for its Property-Casualty and Life/Accident &
Health businesses and for proportional and non-proportional
contracts.
71
Property-Casualty
The estimated ultimate premium for a given contract and a given
underwriting year (also called Estimated Gross Premium Income,
or EGPI) is the starting point for SCORs premium
recognition process. The determination of this EGPI depends upon
the nature of the particular products comprising the
Property-Casualty business.
For proportional Property-Casualty reinsurance contracts, the
ultimate premium is specified by the cedent in its proposal. In
the case of a proposal to renew an existing contract, the SCOR
underwriter assigned to review the particular proposal verifies
the validity of the information provided in the proposal against
existing statistics and actual accounts recorded during the
previous underwriting year in relation to the cedents
existing contract or contracts with SCOR. The ultimate premium
is revised on a regular basis according to data received and
recorded during the life of the contract, including information
furnished by the cedent and experience. Specific internal
reports are also available for these verifications and controls,
including pattern models. The recorded estimated premium is the
difference between the latest revised ultimate premium (prorated
for the contract risk period) and the actual partial premium
received and recorded from the cedent company to date.
For the non-proportional business, the ultimate premium is equal
to the subject premium provided by the cedent multiplied by the
quoted premium rate. Non-proportional treaties usually include a
minimum premium equal to approximately 80% of the EGPI. Prior to
any acceptance, the SCOR actuarial department provides a
quotation to allow the underwriter to evaluate the rate proposed
by the cedent. Similarly to the proportional business, the
estimated subject premium for non-proportional business is
revised regularly according to information received during the
life of the contract and specific internal reports are available
for these verifications and controls, including pattern models.
The recording of estimates follows the premium installment
schedules set forth in the signed contract.
Lastly, for the facultative business, the ultimate premium is
provided by the cedent in its proposal, which is approved by
SCOR underwriters. This estimated premium is immediately
recorded and will be revised according to the installment
schedule sent by the cedent, or if there is any change in the
coverage provided for the business. Again, specific internal
reports are available for these verifications and controls,
including pattern models.
Life/Accident & Health
For Life treaties, estimated premium income is determined for
each cedents accounting years and premium is recognized
when due from cedents and policyholders. As long as all premium
information has not been received from cedents, the estimates
can be reviewed.
Life premium estimates are calculated on a treaty-by-treaty
basis by SCORs administration department, and the premium
estimates are then validated by SCORs underwriters for a
sampling of treaties. A treaty is sampled if the
estimated premium volume is greater than EUR 150,000, or if
the expected technical result is greater than plus or minus
EUR 100,000, or if related technical reserves are greater
than EUR 450,000. These sampled treaties
generally represent more than 90% of the Life contracts
portfolio.
Non-sampled treaties are estimated on a bulk basis
by geographical segments and by the nature of the business
(proportional or non-proportional). Premium estimates are
generally based upon the cedents premium information which
are then validated by SCORs underwriters.
Estimates are reviewed each time new information is received
from the ceding companies or from industry sources.
The estimates recorded by SCOR are the difference between the
total estimated premium income and the actual premium actually
sent in reinsurance accounts by ceding companies to date.
Different calculation methods are used depending on the type of
business. For renewed or cancelled proportional treaties,
estimates are calculated based upon statistical trends which are
then completed using specific underwriting information. For new
proportional treaties, the estimated gross premium income is
either provided by SCORs underwriters and/or calculated by
actuaries based on the quotation files. Lastly, for
non-proportional treaties, estimated gross premium income
results from the estimated subject premium (provided by
SCORs underwriters based upon the cedents
information) on which SCOR applies the quoted premium rate.
72
Accounting
The assumed premium estimates for SCORs Non-Life and Life
businesses are booked as assets on SCORs consolidated
balance sheet net of the estimates of the corresponding
commissions payable by SCOR. As of December 31, 2005, the
assumed premium estimates for SCORs Non-Life and Life
businesses amounted to EUR 1,245 million.
In cases where SCOR has over-estimated the assumed premium, this
over-estimation would generally be largely offset by a
corresponding over-estimation of commissions and losses payable
by SCOR. If the Property-Casualty estimated premium as of end of
balance sheet year 2005 for the 2005 and 2004 underwriting years
were over estimated by 5%, Property-Casualty underwriting
premium revenues would be overstated by
EUR 26.6 million, and after adjustments for related
expenses, the net effect would be to overstate underwriting
income before income taxes by EUR 0.2 million, and by
EUR 0.13 million after income taxes.
SCORs management considers that the booking of provisions
for depreciation of assumed premium estimates is not necessary
for the following reason. In cases where SCOR identifies a
counter-party risk on one of its cedents, the risk appreciation
by SCOR will be performed on the net financial position
(including reserves, deposits, current account and estimates) of
the cedent vis-à-vis SCOR and thus it is rare that SCOR be
in a net debit position because loss reserves largely exceed
premium estimates and premiums receivable. As long as premium is
not due, claims are neither due. In case of a recoverability
issue, the uncollectible premium would be offset by unpaid
claims.
Amortization of Deferred Policy Acquisition Costs
We amortize our deferred policy acquisition costs (DAC) for our
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 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 U.S. is determined in a similar manner. See
Note 3.10 to the consolidated financial statements included
in Item 18. 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.
73
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.
Deferred Tax
The deferred tax assets and liabilities on the consolidated
balance sheets reflect tax effects of 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 included in
Item 18. 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.
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
(Président-Directeur Général) 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 nine and no more than
eighteen members. The actual number of directors must be within
such limits and may be provided for in the statuts
(bylaws) 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, 2005, 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 on the Board of
Directors may, under certain conditions, be filled by the Board
of Directors, pending the next shareholders meeting.
74
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.
The following table sets forth the directors of the Company,
currently and as at December 31, 2005, unless otherwise
indicated, as appointed by the combined shareholders
meeting of May 15, 2003, their date of birth 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 of office.
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Other current principal position at SCOR |
|
Initially | |
|
Expiration | |
Name |
|
Date of Birth |
|
and principal business activities outside SCOR |
|
appointed | |
|
of term | |
|
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| |
|
| |
Denis
Kessler(1)
Chairman and CEO |
|
March 25, 1952 |
|
Chairman and Chief Executive Officer: SCOR VIE.
Chairman: SCOR Italia Riassicurazioni S.p.A (Italy),
SCOR Life U.S. Re Insurance Company (U.S.), SCOR
Reinsurance Company (U.S.), SCOR U.S. Corporation
(U.S.).
Director: BNP Paribas SA, BOLLORE Investissement SA,
COGEDIM S.A.S., DASSAULT Aviation, SCOR Canada Reinsurance
Company, AMVESCAP Plc (UK), Dexia S.A. (Belgium).
Member of the Supervisory Board: SCOR Deutschland
(Allemagne).
Non-voting director: FDC S.A., GIMAR Finance &
Cie S.C.A.
Permanent representative of FERGASCOR in S.A.
Communication et Participation. |
|
|
11/4/02 |
|
|
|
2007 |
|
|
Carlo
Acutis(2) |
|
October 17, 1938 |
|
Vice-Chairman: Vittoria Assicurazioni S.p.A., Banca
Passadore S.p.A., Presidential Council of the European Committee
of National Insurance Companies, Fondazione Piemontese per la
ricerca sul cancro.
Chairman: BPC INVESTIMENTI SGR S.p.A.; |
|
|
5/15/03 |
|
|
|
2009 |
|
|
|
|
|
Director: SCOR VIE (6), Yura International Holding
B.V., Yura S.A., Camfin S.p.A., Pirelli & C. S.p.A.,
Ergo Italia S.p.A., Ergo Assicurazioni S.p.A., Ergo Previdenza
S.p.A., Vittoria Capital N.V.; |
|
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|
Member of the Supervisory Board: COGEDIM S.A.S., Yam
Invest N.V. |
|
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|
Member of council: European Committee of Insurance
Companies, Geneva Association.
Member of the executive committee: ANIA Associazione
Italiana fra le Imprese di Assicurazione. |
|
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75
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Other current principal position at SCOR |
|
Initially | |
|
Expiration | |
Name |
|
Date of Birth |
|
and principal business activities outside SCOR |
|
appointed | |
|
of term | |
|
|
|
|
|
|
| |
|
| |
Michèle
Aronvald(7) |
|
August 15, 1958 |
|
Employee Director. |
|
|
8/30/01 |
|
|
|
2006 |
|
|
Antonio
Borges(2)(3) |
|
November 18, 1949 |
|
Vice-Chairman: Goldman Sachs International (London).
Supervisory board: CNP Assurances.
Director: SCOR VIE (6), Jérónimo Martins,
SONEAcom, Caixa Seguros, Heidrick & Struggles. |
|
|
5/15/03 |
|
|
|
2007 |
|
|
Allan Chapin,
Esq.(1)(4) |
|
August 28, 1941 |
|
Partner: Compass Advisers LLP (New York, U.S.A.).
Director: Pinault Printemps Redoute, SCOR VIE (6),
In Bev (Belgium), SCOR Reinsurance Company (US), General
Security National Insurance Company (US), French-American
Foundation; Chairman of American Friends of the Pompidou
Foundation. |
|
|
5/12/97 |
|
|
|
2011 |
|
|
Daniel
Havis(2) |
|
December 31, 1955 |
|
Chairman and Chief Executive Officer: MATMUT (Mutuelle
Assurance des Travailleurs Mutualistes).
Chairman: GEMA, SMAC (Mutuelle Accidents
Corporels), IMADIES.
Vice-Chairman: CEGES. |
|
|
11/18/96 |
|
|
|
2011 |
|
|
|
|
|
Director: Mutualité Française de la Seine
Maritime (MFSM), La Fédération Nationale de la
Mutualité Française (FNMF). |
|
|
|
|
|
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|
|
|
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|
|
Member of the bureau: Fédération Nationale de
la Mutualité Interprofessionnelle (FNMI). |
|
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|
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|
|
Chairman of the Supervisory Board: OFI Asset Management
(formerly OFIVALMO Gestion). |
|
|
|
|
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|
|
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|
|
Vice-Chairman of the Supervisory Board: IMA, OFIVALMO. |
|
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|
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|
|
|
Chairman of the Board of Directors: Matmut Protection
Juridique formerly PMA (Protection Mutualiste en Assurance),
MUTRE S.A.; MDA. |
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|
76
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|
Other current principal position at SCOR |
|
Initially | |
|
Expiration | |
Name |
|
Date of Birth |
|
and principal business activities outside SCOR |
|
appointed | |
|
of term | |
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| |
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| |
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|
Director: Matmut Vie, OFIMALLIANCE, SCOR VIE (6).
Vice-chairman of the Board of Directors: Groupe des
Mutuelles Associées.
Permanent representative of OFI Asset Management in
OFIVALMO Net Epargne, OFI Mandats; of MATMUT in the supervisory
board of OFI Palmarès; of SMAC in the board of directors of
OFIMA Trésor, OFIMA Convertibles and OFI SMIDCAP. |
|
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|
|
Chairman of the Comité National des
Réalisations Sanitaires et Sociales, Member of
commissions in the Conseil Supérieur de la Mutualité
(Commission Agréments and Commission Affaires
Générales). Member of the Haut Conseil pour
lAvenir de lAssurance Maladie. Representative
Imadiès in Conseil des Mutuelles Santé. |
|
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|
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|
|
Yvon
Lamontagne*(2) |
|
June 14, 1940 |
|
Director: AXA Insurance Canada (Toronto, Canada), SCOR
VIE (6); SCOR Canada Reinsurance Company (Toronto, Canada),
Hydro-Québec (Montreal, Canada), Anglo-Canada General
Insurance Company (Toronto, Canada), AXA Pacific Insurance
Company (Vancouver, Canada).
Member of the consultative board: Bureau of
Superintendent of Financial Institutions (Ottawa, Canada).
Fiduciary: Fiducie Henri-Paul Rousseau (Montréal,
Canada) (Chairman of the treasury). |
|
|
5/15/03 |
|
|
|
2007 |
|
|
Daniel
Lebègue(1)(2)(3) |
|
May 4, 1943 |
|
Chairman: IFA (French Society of Directors
Institut Français des Administrateurs).
Director: SCOR VIE (6), Crédit Agricole S.A.,
Alcatel, Technip, SCOR Reinsurance Company (U.S.), General
Security National Insurance Company (U.S.). |
|
|
5/15/03 |
|
|
|
2009 |
|
|
|
|
|
Member of the Supervisory Board: Areva. |
|
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|
Chairman of the Board of Directors: Institut
dÉtudes Politiques de Lyon; |
|
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77
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|
|
|
|
Other current principal position at SCOR |
|
Initially | |
|
Expiration | |
Name |
|
Date of Birth |
|
and principal business activities outside SCOR |
|
appointed | |
|
of term | |
|
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| |
|
| |
|
|
|
|
Chairman: Institute of Sustainable Development and
International Relations (Institut du Développement
Durable et des Relations Internationales, IDDRI),
Transparence-International France, Ecoda (European Confederation
of Associations of Directors
Confédération Européenne des Associations
dAdministrateurs).
Co-Chairman: Eurofi (association). |
|
|
|
|
|
|
|
|
|
Helman le Pas
de Sécheval(1)(2)(3)(5) |
|
January 21, 1966 |
|
Group Chief Financial Officer: GROUPAMA S.A..
Chairman of the Board of Directors: Groupama Immobilier,
Groupama Asset Management, Finama Private Equity, Compagnie
Financière Parisienne. |
|
|
11/3/04 |
|
|
|
2009 |
|
|
|
|
|
Vice-Chairman of the Supervisory Board: Banque Finama. |
|
|
|
|
|
|
|
|
|
|
|
|
Director: SCOR VIE (6), GAN Italia Vita (Italy), GAN
Italia S.p.A (Italy). |
|
|
|
|
|
|
|
|
|
|
|
|
Non-Voting member of the Supervisory Board: GIMAR
Finance & Compagnie.
Permanent representative of GROUPAMA S.A. on the
supervisory board of Lagardère S.C.A. and at the Board of
Directors of Silic; of GAN Assurances Vie on the Supervisory
Board of Locindus. |
|
|
|
|
|
|
|
|
|
André
Lévy-Lang(1)(3)(4) |
|
November 26, 1937 |
|
Associate Professor (Emeritus) at the Paris University of
Dauphine.
Director: AGF, SCOR VIE (6), Dexia (Brussels),
Schlumberger (U.S.).
Member of Supervisory Board: Paris-Orléans. |
|
|
5/15/03 |
|
|
|
2009 |
|
|
Herbert
Schimetschek(2) |
|
January 5, 1938 |
|
Chairman: Oesterreichische Nationalbank.
Director: SCOR VIE (6).
Chairman of the Management Board: Austria
Versicherungsverein auf Gegenseitigkeit Privatstiftung
(Holding), UNIQA Immobilien- Projekterrichtungs GmbH. |
|
|
5/15/03 |
|
|
|
2007 |
|
|
|
|
|
Chairman of the Supervisory Board: Austria
Österreichische Hotelbetriebs Aktiengesellschaft. |
|
|
|
|
|
|
|
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current principal position at SCOR |
|
Initially | |
|
Expiration | |
Name |
|
Date of Birth |
|
and principal business activities outside SCOR |
|
appointed | |
|
of term | |
|
|
|
|
|
|
| |
|
| |
|
|
|
|
Vice-Chairman of the Supervisory Board: Bank Gutmann
S.A.
Vice-Chairman: Automobile Club of Austria,
Franco-Austrian Chamber of Commerce. Member of the Board of
Directors: Diplomatic Academy of Vienna. |
|
|
|
|
|
|
|
|
|
Jean-Claude
Seys(1) |
|
November 13, 1938 |
|
Chairman and Chief Executive Officer: COVEA (SGAM).
Chairman of the Board of Directors: MMA IARD, MMA Vie
(SAM), MAAF Santé (Mutuelle 45), Force et Santé (Union
Mutualiste), COSEM (Association), Aide Médicale
(Association), Fondation MAAF Assurances, OCEAM Ré (SRM). |
|
|
5/15/03 |
|
|
|
2009 |
|
|
|
|
|
Director: MAAF Assurances (SAM), MAAF Assurances (SA),
Défense Automobile et Sportive (DAS) (SAM), AGMAA
S.A. Azur GMF Mutuelles Assurances Associés,
SCOR VIE (6), OFIMALLIANCE S.A., Fidelia S.A. (subsidiary
of Azur GMF), COVEA Ré (Luxembourg), EURAPCO. |
|
|
|
|
|
|
|
|
|
|
|
|
Chairman of the Supervisory Board: Savour Club S.A. (MAAF
S.A. subsidiary), OFIVALMO S.A.; |
|
|
|
|
|
|
|
|
|
|
|
|
Member of the Supervisory Board: OFI Asset Management
(subsidiary of OFIVALMO S.A.). |
|
|
|
|
|
|
|
|
|
|
|
|
Vice-Chairman of the Board of Directors: ACMA
(Association for the Cooperation Among Mutual Insurance
Companies for Agriculture and Craft Industry
Association pour la Coopération entre Mutuelles
Assurances pour lAgriculture et lArtisanat:), SC
Holding S.A.S. (Santéclair).
Permanent representative: of COVEA (SGAM) in Covéa
Technologie (S.A.S.) and of OCEAM Ré (SRM) in COVEA Group
S.A.S. |
|
|
|
|
|
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|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current principal position at SCOR |
|
Initially | |
|
Expiration | |
Name |
|
Date of Birth |
|
and principal business activities outside SCOR |
|
appointed | |
|
of term | |
|
|
|
|
|
|
| |
|
| |
|
Jean
Simonnet(2) |
|
August 5, 1936 |
|
Chairman: MACIF (Mutual Insurance Company)
**,
SOCRAM (Credit
Company)**,
SMIP (Mutual Insurance Company).
Director: FORINTER
S.A.**,
SICAV OFIMA EURO Moyen Terme, Union Mutualiste des Deux
Sèvres (Mutual Insurance Company), SCOR VIE (6), IMA
IBERICA. |
|
|
3/2/99 |
|
|
|
2011 |
|
|
|
|
|
Non-Voting Director:
MACIFILIA**,
OFIMA MIDCAP SICAV, OFIMA TRESOR SICAV. |
|
|
|
|
|
|
|
|
|
|
|
|
Managing director (gérant): Gironde et Gascogne
S.A.R.L., Château de Belcier S.C.E.A., Château Ramage
La Batisse S.C.I. |
|
|
|
|
|
|
|
|
|
|
|
|
Permanent representative of MACIF: on the supervisory
board of I.M.A.
S.A.**,
MUTAVIE
S.A.**,
OFIVALMO
S.A.**
and on the board of directors of Compagnie
Immobilière MACIF
S.A.**,
Foncière de Lutèce
S.A.**,
MACIF
Mutualité**,
EURESA. |
|
|
|
|
|
|
|
|
|
|
|
|
Member of the councils or committees: GPIM S.A.S., MACIF
Participations
S.A.S.**,
Compagnie Foncière de la MACIF
S.A.S.**,
SIEM S.A., MACIFIMO S.A.S.
** Companies
consolidated in the MACIF Group |
|
|
|
|
|
|
|
|
|
Claude
Tendil(1)(2) |
|
July 25, 1945 |
|
Chairman and Chief Executive Officer: Generali France,
Generali France Assurances Vie.
Chairman of the Board of Directors: Assurance France
Generali, Generali Assurances-IARD, GPA IARD, GPA VIE, La
Fédération Continentale, Europ Assistance Holding. |
|
|
5/15/03 |
|
|
|
2007 |
|
|
|
|
|
Director: Unibail, SCOR VIE (6). |
|
|
|
|
|
|
|
|
|
|
|
|
Chairman of the Board of Directors: Europ Assistance
Italy.
Permanent representative of Europ Assistance Holding on
the board of directors of Europ Assistance Spain. |
|
|
|
|
|
|
|
|
80
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
Other current principal position at SCOR |
|
Initially | |
|
Expiration | |
Name |
|
Date of Birth |
|
and principal business activities outside SCOR |
|
appointed | |
|
of term | |
|
|
|
|
|
|
| |
|
| |
Daniel
Valot(1) |
|
August 24, 1944 |
|
Chairman and Chief Executive Officer: Technip.
Director: Compagnie Générale de
Géophysique, Institut Français du Pétrole, SCOR
VIE (6), Technip Far East (Malaysia).
Permanent representative of Technip in Technip France.
Chairman: Technip Italy (Italy). |
|
|
5/15/03 |
|
|
|
2007 |
|
|
|
(1) |
Member of the Strategic Committee. |
|
(2) |
Member of the Risks Committee. |
|
(3) |
Member of the Accounts and Audit Committee. |
|
(4) |
Member of the Compensation and Nominations Committee. |
|
(5) |
Mr. Helman le Pas de Secheval is a non-voting member of the
Accounts and Audit Committee. He was appointed as a board member
in replacement of Mr. Jean Baligand on November 3,
2004, and his appointment was ratified by the general
shareholders meeting of May 31, 2005. |
|
(6) |
During the meeting of SCOR VIE Board of Directors held on
May 16, 2006, these Directors resigned from their position
as Directors of SCOR VIE and have been replaced by Patrick
Thourot, Jean-Luc Besson, Marcel Kahn and Christian Mounis. |
|
(7) |
The bylaws were amended at the May 16, 2006
shareholders meeting. The amended bylaws no longer contain
a provision requiring one Board member to be an employee
director. |
|
* |
Mr. Yvon Lamontagne passed away on March 20, 2006. |
In addition, Georges Chodron de Courcel, 55, Chief
Operating Officer of BNP Paribas, was elected as a
non-voting director for a two-year term commencing by the
ordinary general shareholders meeting of May 31,
2005. He is also a member of the Compensation and Nominations
Committee and the Risks Committee. Mr. Chodron de Courcel
holds various non-executive positions within the
BNP Paribas Group subsidiaries and is a director of
Bouygues S.A., Alstom, Nexans S.A., Société
Foncière Financière et de Participations (FFP)
and Erbé S.A. (Belgium), chairman of BNP Paribas
Suisse S.A. and BNP Paribas UK Holdings Limited
(United Kingdom), a member of the supervisory board of
Lagardère S.C.A. and chairman of BNP Paribas
Emergis S.A.S., Compagnie dInvestissement de
Paris S.A.S., Financière BNP Paribas S.A.S.
He is also a non-voting director in SCOR VIE and SAFRAN.
The Board of Directors sets the amount and type of guarantees or
sureties that the Chairman and Chief Executive Officer may grant
on behalf of the Company pursuant to applicable law.
The age limit for directors is 72. The average age of
SCORs directors is currently 59.
In 2005, the Board of Directors met eight times, on
March 23, April 12, May 9, May 31 (morning),
May 31 (afternoon), June 14, August 31 and
November 2.
The following sets forth the business experience of the voting
and non-voting members of SCORs Board of Directors:
Denis Kessler
Denis Kessler is a graduate of HEC business school (Ecole des
Hautes Etudes Commerciales) and holds a PhD in economics, an
advanced degree in economics and an advanced degree in social
sciences. He was Chairman of the Fédération
Française des Sociétés
dAssurance (FFSA) and Senior Executive Vice President
and member of the Executive Committee of the AXA Group. Denis
Kessler worked also for the MEDEF (French Business
Confederation). He joined SCOR as Chairman and Chief Executive
Officer on November 4, 2002.
81
Carlo Acutis
Carlo Acutis, an Italian national, is Vice-Chairman of Vittoria
Assicurazioni S.p.A. He also serves as chairman or member of the
boards of directors for a number of companies. An expert in the
international insurance market, he was formerly chairman of the
Comité Européen des Assurances (CEA) (European
Insurance Committee), and a Director of the Geneva Association.
Michèle Aronvald
Michèle Aronvald has been employed with SCOR for twenty-six
years in the Finance Department. Mrs. Aronvald has served
as an employee-elected director on SCORs Board of
Directors since 2001.
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.
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 Advisers LLP, New York, since
June 2002. He also serves on the boards of directors for Pinault
Printemps Redoute Group, InBev (Belgium), and a number of
subsidiaries of SCOR U.S. Corporation.
Daniel Havis
The principal position of Daniel Havis is as Chairman and Chief
Executive Officer of the Mutuelle Assurance de Travailleurs
Mutualistes (MATMUT).
Yvon Lamontagne
Non-executive Chairman of SCOR Canada, Yvon Lamontagne served as
Chairman of Boreal Assurances (now AXA). Mr. Lamontagne is
director in several other Canadian companies. Yvon Lamontagne
passed away on March 20, 2006.
Daniel Lebègue
Daniel Lebègue has directed the French Trésor and has
been Chief Executive Officer of BNP and of 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
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.
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 and an associate professor emeritus at the
University of Paris-Dauphine.
Herbert Schimetschek
From 1997 to 2000, Herbert Schimetschek was Chairman of the
Comité Européen des Assurances, then until June
2000, Vice Chairman of the Austrian Insurance Companies
Association and from 1999 to 2001, Chairman of the Management
Board and Chief Executive Officer of UNIQA Versicherung S.A.
82
Jean-Claude Seys
Jean-Claude Seys has worked mainly in the insurance field. He
was appointed Chairman and Chief Executive Officer of MAAF in
1992 and Chairman and Chief Executive Officer of MAAF-MMA in
1998. Mr. Seys is currently the Chairman and Chief
Executive Officer of SGAM COVEA (since June 2003) and Chairman
of MMA.
In connection with the Crédit Lyonnais/ Executive Life
matter, Jean-Claude Seys entered into a settlement with the
California prosecutors office pursuant to which he is
subject to five years of probation. During such time, he cannot
travel to the United States without a special authorization.
Jean Simonnet
Jean Simonnet is currently the Chairman of MACIF (Mutuelle
Assurance des Commerçants et Industriels de France) and
also serves as Chairman of SMIP (Mutuelle Complémentaire
Santé) and of SOCRAM (a credit institution).
Claude Tendil
Claude Tendil began his career at UAP in 1972 and joined the AXA
Group from 1989 to 2002, where he became Vice-Chairman of the
Management Board in 2001. Claude Tendil is Chairman and Chief
Executive Officer of Generali France, the holding company of the
Generali Group in France and of Generali Assurances Vie. He is
also Chairman of the Board of Directors of Assurance France
Generali, Generali Assurances IARD, Gpa IARD, Gpa Vie, La
Fédération Continentale, Europ Assistance Holding and
Europ Assistance Italie. Claude Tendil is a permanent
representative of Europ Assistance Holding, director of Europ
Assistance Espagne. Claude Tendil is also a director of Unibail.
Daniel Valot
Daniel Valot was Chief Executive Officer of Total Exploration
Production, then worked for Technip, where he was appointed
Chairman and Chief Executive Officer in September 1999.
Georges Chodron de Courcel
Georges Chodron de Courcel is Chief Operating Officer of BNP
Paribas in Paris and is a director of several subsidiaries of
the BNP Paribas Group.
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 Chairman of the Board (Président du Conseil
dAdministration) and Chief Executive Officer
(Directeur Général). Upon a proposal made by
the Chairman and Chief Executive Officer
(Président-Directeur Général), the Board
of Directors may also appoint a Chief Operating Officer
(Directeur Général Délégué) to
assist the Chairman and Chief Executive Officer in managing the
Companys affairs.
83
The following table sets forth the Companys executive
officers who comprise the Executive Committee at
December 31, 2005 and as of the date hereof, their ages as
of December 31, 2005, 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
|
|
|
53 |
|
|
Chairman and Chief Executive Officer |
|
|
2002 |
|
Patrick
Thourot(1)
|
|
|
57 |
|
|
Chief Operating Officer (Directeur
Général Délégué) |
|
|
2003 |
|
Yvan Besnard
|
|
|
51 |
|
|
Deputy Chief Operating Officer (Adjoint du Directeur
Général Délégué) of SCOR
Global P&C |
|
|
2004 |
|
Jean-Luc Besson
|
|
|
59 |
|
|
Chief Risk Officer |
|
|
2003 |
|
Romain
Durand(2)
|
|
|
48 |
|
|
Chief Executive Officer and Director of SCOR VIE |
|
|
1997 |
|
Marcel Kahn
|
|
|
49 |
|
|
Chief Financial Officer |
|
|
2004 |
|
Henry Klecan Jr.
|
|
|
54 |
|
|
President and CEO of SCOR U.S. and SCOR Canada |
|
|
2003 |
|
Victor Peignet
|
|
|
48 |
|
|
Chief Operating Officer of SCOR Global P&C |
|
|
2004 |
|
|
|
(1) |
Mr. Thourot was appointed by the Board of Directors on
January 22, 2003 as Chief Operating Officer for the length
of the term of the Chairman and Chief Executive Officer. |
|
(2) |
Romain Durand resigned as Chief Executive Officer and director
of SCOR VIE on December 28, 2005. The Board of Directors of
SCOR VIE confirmed his resignation on January 11, 2006.
Upon a proposal of the Compensation and Nominations Committee,
the Board of Directors of SCOR VIE unanimously appointed its
Chairman, Denis Kessler, as Chief Executive Officer of SCOR VIE. |
Emmanuelle Rousseau has served as Secretary to the Executive
Committee and the Board of Directors since September 10,
2004.
The following sets forth the business experience of SCORs
executive officers:
Denis Kessler
See above under Item 6.A. Directors and Senior
Management Board of Directors.
Patrick Thourot
Patrick Thourot is a graduate of the Ecole Nationale
dAdministration, and worked first with the French Ministry
of Finance, before becoming Chief Executive Officer of PFA
(Athéna Group), then had several duties in the AXA Group,
where he was 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.
Yvan Besnard
Yvan Besnard graduated from the ESSEC Business School. He joined
SCOR Group in 1991, where he held international and financial
duties. In 2000, he was appointed Head of Development for the
SCOR Group. He has been Chief Internal Auditor for the Group
since 2003. In July 2004, Yvan Besnard was named Director for
Non Life Treaties for Europe, and thereafter Deputy Chief
Operating Officer of SCOR Global P&C. 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.
Jean-Luc Besson
Jean-Luc Besson, an actuary holding a PhD in mathematics, first
served as a University Professor in Mathematics at the French
University, and joined the FFSA where he served as President of
the Research, Statistics and Information Systems.
Mr. Besson was appointed as Chief Reserving Actuary of SCOR
Group in January, 2003 and was appointed as Chief Risk Officer
of the SCOR Group on July 1, 2004.
84
Romain Durand
Romain Durand is a graduate of HEC business school (Ecole des
Hautes Etudes Commerciales) and IEP Paris (Institut
dEtudes Politiques de Paris). Romain Durand joined
SCOR in January 1997, after spending several years in the
international insurance industry. He was named director of the
SCOR VIE Division in April 1998 and was Chief Executive Officer
and a director of SCOR VIE until December 28, 2005.
Marcel Kahn
Marcel Kahn, actuary, chartered accountant and graduate from the
ESSEC business school, spent several years as an external
auditor and chartered accountant before joining the AXA group in
1988 as Group Management Control Director. From 1991 to 2001, he
was successively Chief Financial Officer of AXA France,
International Director for Europe, Director for Strategy and
Development and Chief Operating Officer (Directeur General
Adjoint) of AXIVA (Life insurance). In 2001, he was
appointed Chief Financial Officer of PartnerRe Global and Chief
Executive Officer 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.
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 Canadian citizen, a founder and manager of the
London Guarantee Insurance Company and then, of Citadel
Assurance Company. Henry Klecan Jr. has been President and Chief
Executive Officer of SCOR Canada Reinsurance Company since July
2000 and was appointed President and Chief Executive Officer of
SCOR U.S. on November 18, 2003.
Victor Peignet
Victor Peignet, marine and offshore engineer, joined SCORs
Facultative Department in 1984. He was appointed Executive Vice
President of SCOR Business Solutions, since its formation in
2000 and Chief Operating Officer of SCOR Global P&C. He is a
director of SCOR UK Co., SCOR Channel Ltd, Arisis Ltd., General
Security Indemnity Company of Arizona, General Security National
Insurance Company, and SCOR Reinsurance Company.
|
|
|
|
|
|
|
|
|
Name |
|
Age | |
|
Current position |
|
Other offices |
|
|
| |
|
|
|
|
Denis Kessler
|
|
|
53 |
|
|
Chairman and Chief Executive Officer |
|
See above under Item 6.A. Directors and Senior
Management Board of Directors. |
85
|
|
|
|
|
|
|
|
|
Name |
|
Age | |
|
Current position |
|
Other offices |
|
|
| |
|
|
|
|
Patrick
Thourot(1)
|
|
|
57 |
|
|
Chief Operating Officer |
|
Chairman and Chief Executive Officer: EUROFINIMO; FINIMOFRANCE;
FERGASCOR; SCOR AUBER.
Director: MUTRE S.A.
Permanent Representative of FERGASCOR on the Board of Directors
of the Société Putéolienne de Participations
Chairman: SCOR UK Group Limited; SCOR UK Company Limited; IRP
Holdings Limited (Ireland); Irish Reinsurance Partners Ltd
(Ireland); SCOR Reinsurance Asia-Pacific (Singapore); SCOR
Deutschland (Germany); Commercial Risk Re-Insurance Company
(U.S.); Commercial Risk Partners Ltd (Bermuda); Commercial Risk
Reinsurance Company Ltd (Bermuda);
Director: SCOR Reinsurance Company U.S.; SCOR
U.S. Corporation; General Security National Insurance
Company (U.S.); ASEFA (Spain). |
Yvan Besnard
|
|
|
51 |
|
|
Deputy Chief Operating Officer of SCOR Global P&C |
|
Member of the Supervisory Board: FCPE Actions SCOR; FCPE Valeurs
Mobilières Obligations. Director: Groupement de Services
dAssurance et Réassurance; Euroscor/ Actiscor
(Luxembourg); SCOR UK Group Ltd; SCOR UK Company Ltd; SCOR
Europe Mid Cap (Luxembourg); SCOR Italia; SCOR Picking
(Luxembourg). Permanent Representative of SCOR in: Assuratome
(G.I.E.); Assurpol (G.I.E.); Tricast S.A. Member of the
Supervisory Board and Deputy Chairman of SCOR Deutschland. |
Jean-Luc Besson
|
|
|
59 |
|
|
Chief Risk Officer |
|
Director of the Institut des Actuaires. |
Romain
Durand(2)
|
|
|
48 |
|
|
CEO of SCOR VIE |
|
Chairman: SOLAREH S.A.* Permanent Representative of SCOR VIE on
the Supervisory Board of MUTRE*. Director: SGF*; Investors
Insurance Corporation (U.S.)*; Investors Marketing Group
(U.S.)*; SCOR Financial Services Limited (Ireland)*; SCOR Life
U.S. Reinsurance Company (U.S.)*; SCOR Italia
Riassicurazioni S.p.A. (Italy)*. Member of the Supervisory Board
REMARK B.V. (Netherlands)*.
* Romain
Durand resigned from his positions within these companies on
December 31, 2005. |
86
|
|
|
|
|
|
|
|
|
Name |
|
Age | |
|
Current position |
|
Other offices |
|
|
| |
|
|
|
|
Marcel Kahn
|
|
|
49 |
|
|
Group Chief Financial Officer |
|
Member of the Supervisory Board: FCPE Actions SCOR; FCPE Valeurs
Mobilières Obligations.
Chairman: Euroscor/ Actiscor (Luxembourg); SCOR Europe Mid Cap
(Luxembourg); SCOR Picking (Luxembourg).
Permanent Representative of SCOR in SGF, SCOR Auber and in the
Supervisory Board of Locindus SA. |
Henry Klecan, Jr.
|
|
|
54 |
|
|
President and CEO of SCOR U.S. and SCOR Canada |
|
Chief Executive Officer of SCOR Reinsurance Company (U.S.); SCOR
U.S. Corporation; General Security Indemnity Company of
Arizona (U.S.); General Security National Insurance Company
(U.S.); SCOR Canada Reinsurance Company; Cal Re Management, Inc
(U.S.); SOREMA N.A. Holding Corporation. |
Victor Peignet
|
|
|
48 |
|
|
Chief Operating Officer of SCOR Global P&C |
|
Chairman of SCORLUX (Luxembourg; company in the process of
liquidation). Director of SCOR UK Co. Ltd. (London); SCOR
Channel Ltd. (Guernsey); Arisis Ltd. (Guernsey); General
Security Indemnity Company of Arizona (U.S.); General Security
National Insurance Company (U.S.); SCOR Reinsurance Company
(U.S.). |
|
|
(1) |
Mr. Thourot was appointed by the Board of Directors on
January 22, 2003 as Chief Operating Officer for the length
of the term of the Chairman and Chief Executive Officer. |
|
(2) |
Romain Durand resigned as Chief Executive Officer and director
of SCOR VIE on December 28, 2005. The Board of Directors of
SCOR VIE confirmed his resignation on January 11, 2006.
Upon a proposal of the Compensation and Nominations Committee,
the Board of Directors of SCOR VIE unanimously appointed its
Chairman, Denis Kessler, as Chief Executive Officer of SCOR VIE. |
B. COMPENSATION
Directors attendance fees
The General Meeting of Shareholders on May 31, 2005 set the
aggregate annual amount payable to the Board of Directors for
attendance fees at EUR 800,000. 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 at meetings of the Board of Directors (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. No attendance fees are paid to
the Chief Operating Officer. In addition, an amount of EUR 1,700
is paid for each attendance at a meeting of a board committee.
These fees are paid at the end of each quarter.
The amount of compensation paid, and benefits in kind granted
to, all of SCORs voting and non-voting directors during
and for the year ended December 31, 2005 is set forth below.
87
Attendance fees were paid for 2005 and 2004 as listed below (In
euro):
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Mr. Denis
Kessler(1)
|
|
|
0 |
|
|
|
0 |
|
Mr. Carlo
Acutis(2)
|
|
|
18,825 |
|
|
|
20,100 |
|
Ms. Michèle
Aronvald(3)
|
|
|
31,900 |
|
|
|
28,500 |
|
Mr. Antonio
Borges(4)
|
|
|
30,300 |
|
|
|
27,750 |
|
Mr. Allan
Chapin(5)
|
|
|
31,575 |
|
|
|
26,475 |
|
Mr. Georges Chodron de Courcel
|
|
|
35,300 |
|
|
|
31,900 |
|
Mr. Daniel Havis
|
|
|
31,900 |
|
|
|
28,500 |
|
Mr. Yvon
Lamontagne(6)
|
|
|
23,925 |
|
|
|
21,375 |
|
Mr. Helman le Pas de Sécheval
|
|
|
37,000 |
|
|
|
35,300 |
|
Mr. Daniel Lebègue
|
|
|
43,800 |
|
|
|
43,800 |
|
Mr. André Lévy Lang
|
|
|
45,500 |
|
|
|
47,200 |
|
Mr. Herbert
Schimetschek(7)
|
|
|
18,825 |
|
|
|
17,550 |
|
Mr. Jean-Claude Seys
|
|
|
30,200 |
|
|
|
31,900 |
|
Mr. Jean Simonnet
|
|
|
30,200 |
|
|
|
26,800 |
|
Mr. Claude Tendil
|
|
|
31,900 |
|
|
|
30,200 |
|
Mr. Daniel Valot
|
|
|
33,600 |
|
|
|
28,500 |
|
|
|
(1) |
In accordance with the decision taken by the Board of Directors
on March 21, 2006, in the future the Chairman and Chief
Executive Officer will receive directors attendance fees
to the same extent as the other members of the Board of
Directors of the Company and according to the same breakdown. |
|
(2) |
The amount allocated to Mr. Carlo Acutis was initially EUR
25,100 which takes into account an initial tax of 25%, (i.e.
EUR 6,275), pursuant to Articles 117 bis, 119 bis 2,
and 187 of the French Tax Code. |
|
(3) |
Employee director. |
|
(4) |
The amount allocated to Mr. Antonio Borgès was
initially EUR 40,400 which takes into account an initial tax of
25%, (i.e. EUR 10,100), pursuant to Articles 117 bis, 119
bis 2, and 187 of the French Tax Code. |
|
(5) |
The amount allocated to Mr. Allan Chapin was initially EUR
42,100 which takes into account an initial tax of 25%, (i.e. EUR
10,525), pursuant to Articles 117 bis, 119 bis 2, and 187
of the French Tax Code. |
|
(6) |
The amount allocated to Mr. Yvon Lamontagne was initially
EUR 31,900 which takes into account an initial tax of 25% (i.e.
EUR 7,975), pursuant to Articles 117 bis, 119 bis 2,
and 187 of the French Tax Code. |
|
(7) |
The amount allocated to Mr. Herbert Schimetschek was
initially EUR 25,100 which takes into account an initial tax of
25%, (i.e. EUR 6,275), 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 2005 and 2004 as follows:
SCOR U.S.:
Mr. Chapin: 27,000 USD in 2005 and 27,000 USD in 2004.
Mr. Lebègue: 14,700 USD in 2005 and 14,700 USD in 2004.
SCOR Canada:
Mr. Lamontagne: 40,000 CAD in 2005 and 40,000 in 2004.
The Company paid an aggregate of EUR 4,753.54 to the French
government for pension benefits on behalf of its employee
director, Michele Aronvald. No other amounts were paid whether
for pension, retirement, or any other purpose to the
Companys directors in 2005.
2005 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, 2005 amounted to EUR 4,019,557.
88
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, and the meeting of the Board of
Directors of August 31, 2005. The Compensation and
Nominations Committee proposed to the Board 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 900,000,
including a portion of 3 per thousand of the consolidated
net result for SCOR, provided such result exceeds
EUR 30,000,000, up to EUR 360,000, and an amount up to
EUR 540,000 determined by the Board of Directors linked to
the achievement of objectives decided for each year by the Board
of Directors. |
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 the Board of Directors held on
January 22, 2003. The Compensation Committee proposed to
the Board that the compensation of the Chief Operating Officer
be comprised 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 linked to the achievement of objectives decided for
each year by the Chairman and Chief Executive Officer. |
The following table presents gross compensation owing for fiscal
year 2005 and fiscal year 2004 to the Chairman and Chief
Executive Officer and to the Chief Operating Officer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable | |
|
|
|
|
|
|
|
|
|
|
Fixed | |
|
compensation | |
|
Total | |
|
Fixed | |
|
Variable | |
|
Total | |
|
|
compensation | |
|
paid and/or to be | |
|
compensation | |
|
compensation | |
|
compensation | |
|
compensation | |
|
|
paid for 2005 | |
|
paid for 2005 | |
|
paid for 2005 | |
|
paid for 2004 | |
|
paid for 2004 | |
|
paid for 2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
In euros | |
|
In euros | |
|
In euros | |
|
In euros | |
|
In euros | |
|
In euros | |
Mr. Denis Kessler
|
|
|
500,000 |
|
|
|
846,000 |
|
|
|
1,346,000 |
|
|
|
500,000 |
|
|
|
328,791 |
|
|
|
828,791 |
|
Mr. Patrick Thourot
|
|
|
410,000 |
|
|
|
289,450 |
|
|
|
699,450 |
|
|
|
410,000 |
|
|
|
164,477 |
|
|
|
574,477 |
|
The following table presents the gross compensation paid in 2005
and 2004 to the Chairman and Chief Executive Officer and to the
Chief Operating Officer:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable | |
|
|
|
|
Fixed | |
|
Variable | |
|
Total | |
|
Fixed | |
|
compensation | |
|
Total | |
|
|
compensation | |
|
compensation | |
|
compensation | |
|
compensation | |
|
variable | |
|
compensation | |
|
|
paid in 2005 | |
|
paid in 2005 | |
|
paid in 2005 | |
|
paid in 2004 | |
|
paid in 2004 | |
|
paid in 2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
In euros | |
|
In euros | |
|
In euros | |
|
In euros | |
|
In euros | |
|
In euros | |
Mr. Denis Kessler
|
|
|
500,000 |
|
|
|
495,364 |
|
|
|
995,364 |
|
|
|
500,000 |
|
|
|
150,000 |
|
|
|
650,000 |
|
Mr. Patrick Thourot
|
|
|
410,000 |
|
|
|
164,477 |
|
|
|
574,477 |
|
|
|
410,000 |
|
|
|
123,000 |
|
|
|
533,000 |
|
The Compensation and Nominations Committee determines the
variable compensation attributed to the other members of the
Executive Committee on the proposal of the Chairman. The
variable portion of the compensation presented in the table
below depends, on the one hand, on the achievement of individual
objectives and, on the other hand, on the achievement of the
Groups earnings objectives, which are based on return on
equity or ROE.
89
The following table presents gross compensation owing for fiscal
year 2005 and for fiscal year 2004 to the members of the
Executive Committee (other than the Chairman and Chief Executive
Officer and the Chief Operating Officer):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed | |
|
compensation | |
|
Profit | |
|
Total | |
|
Fixed | |
|
Variable | |
|
Profit | |
|
Total | |
|
|
compensation | |
|
paid and/or to be | |
|
sharing | |
|
compensation | |
|
compensation | |
|
compensation | |
|
sharing | |
|
compensation | |
|
|
paid for 2005 | |
|
paid for 2005 | |
|
for 2005 | |
|
paid for 2005 | |
|
paid for 2004 | |
|
paid for 2004 | |
|
paid for 2004 | |
|
paid for 2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
In euros | |
|
In euros | |
|
In euros | |
|
In euros | |
|
In euros | |
|
In euros | |
|
In euros | |
|
In euros | |
Marcel Kahn
|
|
|
280,000 |
|
|
|
138,390 |
|
|
|
25,130 |
|
|
|
443,520 |
|
|
|
195,152 |
|
|
|
142,240 |
|
|
|
11,342 |
|
|
|
348,734 |
|
Romain
Durand(1)
|
|
|
280,000 |
|
|
|
|
|
|
|
251 |
|
|
|
280,251 |
|
|
|
255,000 |
|
|
|
142,240 |
|
|
|
|
|
|
|
397,240 |
|
Jean-Luc Besson
|
|
|
280,000 |
|
|
|
171,990 |
|
|
|
25,130 |
|
|
|
477,120 |
|
|
|
209,000 |
|
|
|
167,740 |
|
|
|
15,753 |
|
|
|
392,493 |
|
Victor Peignet
|
|
|
280,000 |
|
|
|
160,790 |
|
|
|
25,130 |
|
|
|
465,920 |
|
|
|
203,000 |
|
|
|
159,676 |
|
|
|
15,753 |
|
|
|
378,429 |
|
Henry Klecan
Jr(2)
|
|
|
253,700 |
|
|
|
111,112 |
|
|
|
|
|
|
|
364,812 |
|
|
|
226,743 |
|
|
|
126,850 |
|
|
|
|
|
|
|
353,593 |
|
Yvan Besnard
|
|
|
197,000 |
|
|
|
97,798 |
|
|
|
25,130 |
|
|
|
319,928 |
|
|
|
157,000 |
|
|
|
90,226 |
|
|
|
12,397 |
|
|
|
259,623 |
|
The following table presents gross compensation paid in 2005 and
in 2004 to the members of the Executive Committee (other than
the Chairman and Chief Executive Officer and the Chief Operating
Officer):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed | |
|
Variable | |
|
Profit | |
|
Total | |
|
Fixed | |
|
Variable | |
|
Profit | |
|
Total | |
|
|
compensation | |
|
compensation | |
|
sharing | |
|
compensation | |
|
compensation | |
|
compensation | |
|
sharing | |
|
compensation | |
|
|
paid in 2005 | |
|
paid in 2005 | |
|
paid in 2005 | |
|
paid in 2005 | |
|
paid in 2004 | |
|
paid in 2004 | |
|
paid in 2004 | |
|
paid in 2004 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
In euros | |
|
In euros | |
|
In euros | |
|
In euros | |
|
In euros | |
|
In euros | |
|
In euros | |
|
In euros | |
Marcel Kahn
|
|
|
280,000 |
|
|
|
142,240 |
|
|
|
11,342 |
|
|
|
433,582 |
|
|
|
195,152 |
|
|
|
|
|
|
|
|
|
|
|
195,152 |
|
Romain
Durand(1)
|
|
|
280,000 |
|
|
|
148,774 |
|
|
|
|
|
|
|
428,774 |
|
|
|
255,000 |
|
|
|
79,635 |
|
|
|
|
|
|
|
334,635 |
|
Jean-Luc Besson
|
|
|
280,000 |
|
|
|
133,840 |
|
|
|
15,753 |
|
|
|
429,593 |
|
|
|
209,000 |
|
|
|
50,460 |
|
|
|
|
|
|
|
259,460 |
|
Victor Peignet
|
|
|
280,000 |
|
|
|
181,842 |
|
|
|
15,753 |
|
|
|
477,595 |
|
|
|
203,000 |
|
|
|
109,078 |
|
|
|
|
|
|
|
312,078 |
|
Henry
Klecan, Jr.(2)
|
|
|
253,700 |
|
|
|
126,850 |
|
|
|
|
|
|
|
380,550 |
|
|
|
226,743 |
|
|
|
25,481 |
|
|
|
|
|
|
|
252,224 |
|
Yvan Besnard
|
|
|
197,000 |
|
|
|
90,226 |
|
|
|
12,397 |
|
|
|
299,623 |
|
|
|
157,000 |
|
|
|
11,700 |
|
|
|
|
|
|
|
168,700 |
|
|
|
(1) |
Romain Durand resigned from his functions as Chief Executive
Officer and director of SCOR VIE on December 28, 2005.
The Board of Directors of SCOR VIE accepted his resignation
on January 11, 2006. Effective December 28, 2005,
Romain Durand lost all his rights under the Companys stock
option plans and stock compensation plans. |
|
(2) |
Exchange rate at December 31, 2005 of 1 USD =
0.8456 EUR and 1 CAD = 0.7448 EUR. |
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; all insurance,
maintenance and fuel costs in addition to driver service
expenses in relation to the Chairman and Chief Executive
Officers vehicle are charged to the Company. The aggregate
amounts set aside or accrued by the Group to provide pension,
retirement or similar benefits for senior executives in 2005 was
EUR 3,992,964.
In addition, the Chairman and Chief Executive Officer and the
Chief Operating Officer receive the following benefits in kind:
|
|
|
|
(a) |
a health insurance policy under the terms of a contract dated
September 16, 1998; |
|
|
(b) |
an all causes death or permanent disability
insurance underwritten for the senior management of the Company
on June 30, 1993. |
|
|
|
The Company is currently re-negotiating this contract, and it
should be noted that the Chairman and Chief Executive Officer
and the Chief Operating Officer will benefit from any contract
replacing the existing contract; and |
|
|
(c) |
an insurance for death or permanent disability caused by an
accident, underwritten on January 1, 2006. The Company is
currently re-negotiating this contract and it should be noted
that the Chairman and Chief Executive Officer and the Chief
Operating Officer will benefit from any contract replacing the
existing contract. |
90
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.
Compensation to the Chairman and Chief Executive Officer and
the Chief Operating Officer for the 2006 Financial Year
Compensation to the Chairman and Chief Executive
Officer
On March 21, 2006, as proposed by the Compensation and
Nominations Committee, the Board of Directors decided that the
Chairman and Chief Executive Officer:
|
|
|
|
|
will continue to receive a fixed annual gross amount of
EUR 500,000, payable in twelve monthly payments; and |
|
|
|
will receive, as of the 2006 financial year, a variable annual
gross amount capped at EUR 1,000,000, consisting of: |
|
|
|
|
|
an annual variable gross amount capped at EUR 500,000,
which will be determined in accordance with the achievement of
personal objectives, defined at the beginning of each financial
year by the Board of Directors following a proposal by the
Compensation and Nominations Committee; and |
|
|
|
|
|
an annual variable gross amount capped at EUR 500,000,
which will be determined in accordance with the achievement of
financial objectives, defined at the beginning of each financial
year by the Board of Directors following a proposal of the
Compensation and Nominations Committee. |
The variable amount for the N financial year will be
paid during the N financial year + 1, when
the Company financial statements for the N financial
year are approved by the shareholders meeting.
For the 2006 financial year, the variable amount paid to the
Chairman and Chief Executive Officer will be determined
according to the following criteria:
|
|
|
|
|
personal criteria: completion of strategic transactions, return
to an A- rating (A.M.Best) and maintenance of the A- rating
(S&P), restructuring of the SCOR Group around the three
companies currently being created, general management of the
firm; and |
|
|
|
financial criteria: level of Return on Equity (ROE) achieved by
SCOR, provided that the amount of the variable compensation will
be progressive and proportional to the amount of ROE between 0%
and 10%, an ROE exceeding or equal to 10% awards the
maximum variable amount. |
In the event of departure during the N financial
year:
|
|
|
|
|
the entire variable amount of his compensation for the
N-1 financial year will be payable during the
N financial year when the Company financial
statements for the financial year N-1 are approved
by the shareholders meeting; |
|
|
|
furthermore, in the event of dismissal, the variable amount of
his compensation for the N financial year will be
(i) determined based on the variable amount for the
N-1 financial year and in proportion to his
departure date during the N financial year in
course, and (ii) paid when the Company financial statements
for the N-1 financial year are approved by the
shareholders meeting. |
In the event of dismissal, the Chairman and Chief Executive
Officer will receive an indemnity corresponding to the amount of
all fixed and variable elements of his gross annual compensation
paid by the Company during the two years prior to his dismissal.
In the event of a change in the structure of the Companys
share capital which significantly affects his responsibilities
and which causes difficulties in the pursuit of his activity and
the regular exercise of his powers, and in the event of his
resignation, the Chairman and Chief Executive Officer will
receive an indemnity corresponding to the amount of all fixed
and variable elements of his gross annual compensation paid by
the Company during the three years prior to his resignation.
This indemnity will be paid at the request of the
91
Chairman and Chief Executive Officer, which must be presented
within six months from the occurrence of the significant change
in the structure of the Companys share capital.
Finally, pursuant to the decision of the Board of
Directors meeting of March 21, 2006, the Chairman and
Chief Executive Officer will benefit from a specific life
insurance aimed at covering the risks inherent to the functions
of Chairman and Chief Executive Officer of the Company for an
amount equivalent to three years of fixed and variable
compensation. Such insurance policy will be subscribed by the
Company to the benefit of the members of the Executive Committee.
Compensation to the Chief Operating Officer
On March 21, 2006, as proposed by the Compensation and
Nominations Committee, the Board of Directors decided that the
Chief Operating Officer:
|
|
|
|
|
will continue to receive a fixed annual gross amount of
EUR 410,000, payable in twelve monthly payments; and |
|
|
|
will receive, as of the 2006 financial year, a variable annual
gross amount capped at EUR 410,000, consisting of: |
|
|
|
|
|
an annual variable gross amount capped at EUR 205,000,
which will be determined in accordance with the achievement of
personal objectives, defined at the beginning of each financial
year by the Board of Directors following a proposal by the
Compensation and Nominations Committee; and |
|
|
|
an annual variable gross amount capped at EUR 205,000,
which will be determined in accordance with the achievement of
financial objectives, defined at the beginning of each financial
year by the Board of Directors following a proposal of the
Compensation and Nominations Committee. |
The variable amount for the N financial year will be
paid during the N financial year + 1, when
the Company financial statements for the N financial
year are approved by the shareholders meeting.
For the 2006 financial year, the variable amount paid to the
Chief Operating Officer will be determined according to the
following criteria:
|
|
|
|
|
personal criteria: completion of strategic transactions, return
to an A- rating (A.M. Best) and maintenance of the A- rating
(S&P), restructuring of the SCOR Group around the three
companies currently being created, contribution to the general
management of the firm; and |
|
|
|
financial criteria: level of Return on Equity (ROE) achieved by
SCOR, provided that the amount of the variable compensation will
be progressive and proportional to the figure achieved by this
ROE between 0% and 10%, an ROE exceeding or equal to
10% awards the maximum variable amount. |
In the event of departure during the N financial
year:
|
|
|
|
|
the entire variable amount of his compensation for the
N-1 financial year will be payable during the
N financial year when the Company financial
statements for the financial year N-1 are approved
by the shareholders meeting; |
|
|
|
furthermore, in the event of dismissal, the variable amount of
his compensation for the N financial year will be
(i) determined based on the variable amount for the
N-1 financial year and in proportion to his
departure date during the N financial year in
course, and (ii) paid when the Company financial statements
for the N-1 financial year are approved by the
shareholders meeting. |
In the event of dismissal, the Chief Operating Officer will
receive an indemnity corresponding to the amount of all fixed
and variable elements of his gross annual compensation paid by
the Company during the two years prior to his dismissal.
In the event of a change in the structure of the Companys
share capital which significantly affects his responsibilities
and which causes difficulties in the pursuit of his activity and
the regular exercise of his powers, and in the event of his
resignation, the Chief Operating Officer will receive an
indemnity corresponding to the
92
amount of all fixed and variable elements of his gross annual
compensation paid by the Company during the three years prior to
his resignation. This indemnity will be paid at the request of
the Chief Operating Officer, which must be presented within six
months from the occurrence of the significant change in the
structure of the Companys share capital.
C. BOARD PRACTICES
As recommended in an evaluation of board practices carried out
in January 2003, the Board of Directors now abides by the
following principles:
|
|
|
|
|
A majority of independent directors, pursuant to criteria
adopted by the Board of Directors based on those set forth in
the 2003 AFEP-MEDEF
Report in France. 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.; |
|
|
|
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; |
|
|
|
An improved flow of information with the Board of Directors of
the Companys subsidiaries; |
|
|
|
A reorganization of the Board of Directors committees; and |
|
|
|
An in-depth evaluation, every three years, of the functioning of
the Board of Directors and an update in each intervening year. |
Pursuant to the above recommendations,
Mr. Lévy-Lang
led an evaluation relative to the functioning of the Board of
Directors for the 2004 fiscal year. The summary of the
evaluation questionnaire completed by the Board of Directors as
well as the comments of
Mr. Lévy-Lang
were remitted to the Board of Directors at its meeting of
March 23, 2005.
At the meeting of the Board of Directors held on March 31,
2004, new internal regulations regarding the organization and
functioning of the Board were formalized. The main provisions of
these internal regulations are set out below:
Mission of the Board of Directors
Pursuant to these internal regulations, the Board of Directors
determines the policies of the Companys businesses,
oversees their implementation and supervises managements
administration. The Board meets at least four times a year. In
accordance with legal provisions, it approves the financial
statements, proposes dividends, and makes investment and
financial policy decisions. The Board also determines the amount
and the nature of the sureties, securities and guarantees that
can be granted by the Chief Executive Officer on behalf of the
Company.
Meetings of the Board of Directors
At least five days before any meeting of the Board of Directors,
the Chairman and Chief Executive Officer is required to submit a
work folder to the Directors including all information that will
allow them to participate in the discussions listed on the
agenda in a discerning and efficient manner. Furthermore,
outside of Board meetings, the Chairman and Chief Executive
Officer is required to submit to the Directors any information
and documents necessary to complete their duties, and the
Directors may submit requests for information to the Chairman
and Chief Executive Officer. In addition, Directors may ask the
Chairman and Chief Executive Officer to invite the principal top
executives of the Company to attend Board meetings.
Meetings held by videoconference or
telecommunication
At the Board of Directors meeting held on November 2, 2005,
the set of internal regulations (règlement
intérieur) were amended to allow the Board to hold its
meetings via means of telecommunication in accordance with the
93
provisions of the Act of July 26, 2005. Subject to the
implementation of the Decree referred to in this July 26,
2005 Act, the Board of Directors will be able to hold meetings
either via videoconferencing or telecommunication, under the
conditions established by applicable regulations.
Independence of Directors
The independence of Directors is now analyzed on the basis of
the following principal criteria. Independent Directors must not:
|
|
|
|
|
receive a salary or hold an executive position within SCOR and
must not have done so during the previous five years; |
|
|
|
have received from SCOR compensation greater than
EUR 100,000 during the five previous years, except for
directors fees, |
|
|
|
be an officer in a company in which SCOR directly or indirectly
is a director or in which an employee has been designated as
such or in which an officer of SCOR (currently or within the
last five years) is a director; |
|
|
|
be a significant client, supplier, investment banker, commercial
banker of the Company or of the Group or for which the Company
or the Group represents a significant share of the business. A
significant share is a contribution to the business equal to the
lesser of the following two amounts: more than 2% of the
Companys consolidated premium income, or an amount greater
than EUR 100 million, |
|
|
|
have a close family relationship with an officer of the Company; |
|
|
|
have been an auditor of the company during the previous five
years; |
|
|
|
have been a Director of SCOR for more than twelve years, |
|
|
|
represent a shareholder of the Company owning more than 5% of
the share capital or voting rights. |
Rights and obligations of Directors
Directors may receive training at their request on the specific
nature of the Company, its business lines and its business
sector. They agree to regularly attend meetings of the Board,
Committees of which they may be members, and general
shareholders meetings. Lastly, they are obligated to
express their opposition when they believe that a decision of
the Board of Directors is likely to be harmful to the Company.
Loyalty and conflict of interest
The internal regulations prohibit Directors from accepting
benefits from the Company or from the Group that are likely to
place their independence in question, and require them to
dismiss any pressure from other Directors, specific groups of
shareholders, creditors, suppliers or other third parties.
Directors agree to submit to the Board of Directors any
agreement falling under the purview of
Article L. 226-38
of the French Commercial Code. In the event of a conflict of
interest, the Director will fully inform the Board in advance.
He is then required to abstain from participating in any Board
discussions.
Accumulation of directorships
The internal regulations requires that candidates for Director
inform the Board of the directorships that they hold, as the
Board has the duty to ensure compliance with the rules on
accumulation of directorships. Once appointed, Directors must
inform the Board of any appointment as a company officer within
a period of five days following their appointment. Lastly,
Directors must inform the Board within a period of one year
following the end of the fiscal year of the list of
directorships they held during that fiscal year.
94
Limitations and restrictions on trading SCOR
securities
The internal regulations set out the principal recommendations
of the market authorities with regard to Directors trading the
securities of their company.
First and foremost, the internal regulations set out the legal
and regulatory provisions requiring confidentiality with regard
to privileged information of which Directors could have
knowledge while performing their functions.
Then, the internal regulations require Directors to register as
owners of SCOR equities that they themselves or their minor
children are holding at the time they enter office or those
acquired subsequently. In addition, the internal regulations lay
down certain restrictions on trading SCOR securities:
|
|
|
|
|
first, it is forbidden to trade in SCOR securities while in
possession of information which, when made public, is likely to
have an impact on the share price. This restriction remains in
effect two days after this information has been made public by a
press release; |
|
|
|
in addition, it is forbidden to directly or indirectly conduct
any transaction with regard to the Companys securities
during certain sensitive periods as notified to the Directors by
the Company or during any period preceding an important event
affecting the Company and likely to influence its market price. |
Lastly, Directors are required to inform SCOR of all
transactions conducted with regard to the Companys
securities, directly or by an intermediary, on their behalf or
on behalf of a third party, by their spouse, or by a third party
holding a power of attorney.
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).
Pursuant to the internal regulations, this Committee is
comprised of six to ten members appointed by the Board of
Directors and chosen among the Directors and
Non-voting Directors.
The duration of their term corresponds to the their term as
Director or Non-voting
Director. |
|
|
(1) |
Independent director. |
|
(2) |
Appointed as member of the Strategic Committee on
November 3, 2004 in replacement of Jean Baligand who
resigned on August 18, 2004. |
|
|
|
Its mission is to scrutinize the Groups development
strategies and to make recommendations on major Group
acquisition and disposal plans in excess of
EUR 100 million. |
|
|
The Chairman of the Committee may call any individual to attend
who is likely to shed relevant light on the clear understanding
of a given point, this persons presence and the
information shall be limited to an agenda item concerning him.
The Chairman of the Committee must exclude the non-independent
members of the Committee from its deliberations on matters
likely to pose an ethical problem or conflict of interest. |
|
|
The Strategic Committee convened twice in 2005. |
|
|
|
|
|
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(2).
Pursuant to the bylaws, this Committee is comprised of three to
five members appointed by the Board of Directors and chosen
among the Directors and non-voting Directors. The duration of
their term corresponds to their term as Director or non-voting
Director. |
|
|
(1) |
Independent Director. |
|
|
(2) |
Mr. le Pas de Sécheval is a non-voting member of the
Accounts and Audit Committee. |
95
|
|
|
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 six times in 2005 and
discussed the following matters: |
|
|
|
|
|
the disengagement from IRP, |
|
|
|
update and principal issues relative to IFRS standards; |
|
|
|
Sarbanes-Oxley developments and compliance requirements; |
|
|
|
2005 budget of the external auditors and pre-approval of the
missions of the external auditors; |
|
|
|
verification of the French GAAP Company and consolidated
financial statements at December 31, 2004; |
|
|
|
approval of the U.S. GAAP accounts at December 31,
2004 and at September 30, 2004; |
|
|
|
the Groups 2005 budget; |
|
|
|
agreement for the SCOR SCOR VIE pooling of resources; |
|
|
|
financial consequences of the exit of minority shareholders from
IRP; |
|
|
|
the organization of the management of SCORs assets; |
|
|
|
IFRS financial statements at March 31, 2005; |
|
|
|
consolidated results of the first quarter of 2005; |
|
|
|
2005 Audit Plan; |
|
|
|
Auditors Report; |
|
|
|
consolidated results at September 30, 2005; |
|
|
|
the Groups exposure to and protection from natural
catastrophes in 2005 and forecast for 2006; and |
|
|
|
Certification of the CRP accounts in 2004. |
|
|
|
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 Chairman of the Committee may call any individual to attend
an Accounts and Audit Committee meeting who is likely to assist
in achieving a clear understanding of a given point. This
persons presence and the information shall be limited to
an agenda item concerning him. The Chairman of the Committee
must exclude the non-independent members of the Committee from
its discussions to examine points likely to pose an ethical
problem or conflict of interest. |
|
|
The Sarbanes-Oxley Act of 2002 requires, among other things,
that the audit committees of listed companies in the United
States, such as SCOR, be entirely composed of independent board
members (as |
96
|
|
|
such notion is defined in the Sarbanes-Oxley Act of 2002),
subject to certain exemptions, and that they be exclusively
responsible for supervising the selection of external auditors.
The internal rules of SCORs Accounts and Audit Committee
provide that all members of the Accounts and Audit Committee
will be chosen among the independent Directors, subject to
exceptions provided by applicable regulations. See
Item 16D Exemptions from the Listing
Standards For Audit Committees. |
|
|
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).
Pursuant to internal rules, it is composed of three to five
members appointed by the Board of Directors and non-voting
Directors. The majority of the members must be chosen among the
independent Directors. The duration of their term corresponds to
their term as Director or non-voting Director. |
|
|
|
Its missions are to make recommendations on the compensation of
Group Directors, officers and of senior executives, on pension
plans and stock options, and to make proposals regarding the
membership and organization of the Board of Directors and its
committees. |
|
|
The Compensation and Nominations Committee met four times in
2005 and has made recommendations on the implementation of a
stock award plan, a stock option 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);
Daniel
Lebègue(1);
Herbert
Schimetschek(1);
Jean
Simonnet(1);
Claude
Tendil(1);
Georges Chodron de
Courcel(2);
and Helman le Pas de Sécheval. |
|
|
|
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 decided to dissolve
the Risks Committee going forward, and to transfer its tasks to
other relevant Group Committees. On May 16, 2006 the Board
of Directors decided to re-instate the Risks Committee following
its dissolution on March 23, 2005 with the same mission as
it previously had. |
Statement of Significant Differences Between Corporate
Governance Practices Followed by SCOR and the NYSEs
Corporate Governance Standards Pursuant to Article 303A-11
of the New York Stock Exchange Listed Company Manual
Overview
The following discussion provides a general summary of the
significant differences between the corporate governance
standards followed by SCOR and those required by the listing
standards of the New York Stock Exchange (NYSE) for
U.S companies.
Principal sources
The principal sources of corporate governance standards in
France are the French Commercial Code (Code de commerce)
and the French Financial and Monetary Code (Code
monétaire et financier), both as amended, in particular
by the French Financial Security Act (Loi de
sécurité financière) of August 2003 and the
French Economic Improvement and Confidence Act (Loi pour la
confiance et la modernisation de léconomie) of
July 2005, the European Prospectus Directive (European
Parliament and Council Directive 2003/71/EC of 4 November
|
|
(1) |
Independent director. |
97
2003 on the prospectus to be published when securities are
offered to the public or admitted to trading) and its
implementing regulation (Commission Regulation (EC)
No 809/2004 of 29 April 2004) as well as a number of
general recommendations and guidelines on corporate governance
issued in France, most notably the AFEP-MEDEF Report, a report
issued in October 2003 to promote better corporate governance of
listed companies in France. The AFEP-MEDEF Report includes,
among other, recommendations relating to the role and operation
of the board of directors (creation, composition and evaluation
of the board of directors and the audit, compensation and
nominating committees) and the independence criteria for board
members. The French Financial Security Act also prohibits
statutory auditors from providing certain non-audit services and
defines certain criteria for independence of auditors. In
France, the independence of statutory auditors is also monitored
by an independent body, the High Council for Statutory Auditors
(Haut Conseil du Commissariat aux Comptes).
The NYSE listing standards are available on the NYSEs
website at http://www.nyse.com.
Composition of the Board of Directors;
Independence.
The NYSE listing standards provide that the board of directors
of a U.S listed company must consist of a majority of
independent directors and that certain committees must consist
solely of independent directors. A director qualifies as
independent only if the board affirmatively determines that the
director has no material relationship with the company, either
directly or indirectly. In addition, the listing standards
enumerate a number of relationships that preclude independence.
French law does not contain any independence requirement for the
members of the board of directors of a French company and the
functions of board chairman and chief executive officer are
frequently performed by the same person. The AFEP-MEDEF Report
recommends, however, that at least half of the members of the
board of the directors be independent in companies that have a
dispersed ownership structure and no controlling shareholder.
The report states that a director is independent when he
or she has no relationship of any kind whatsoever with the
corporation, its group or the management of either that is such
as to color his or her judgment. The report also
enumerates specific criteria for determining independence, which
are on the whole consistent with the goals of the NYSEs
rules although the specific tests under the two standards may
vary on some points.
At its meeting on March 31, 2004, the Board of Directors of
SCOR adopted internal Board rules governing its operation and
composition, including specific criteria for determining the
independence of its Boards members. These criteria have regard
to both the independence standards of the AFEP-MEDEF Report and
the NYSE listing standards.
Based on the independence criteria of its internal Board rules,
SCOR considers that 11 of its 15 directors are independent.
Board Committees
Overview. The NYSE listing standards require that a
U.S. listed company must have an audit committee, a
nominating/ corporate governance committee and a compensation
committee. Each of these committees consists solely of
independent directors and must have a written charter that
addresses certain matters specified in the listing standards.
French law requires neither the establishment of board committee
nor the adoption of written charters. The AFEP-MEDEF Report
recommends, however, that the board of directors set up an audit
committee, a nominating committee and a compensation committee,
indicating that the nominating and compensation committees may
form one committee. The report also recommends that at least
two-thirds of the audit committee members and a majority of the
members of each the nominating and the compensation committee be
independent directors.
SCOR established an Accounts and Audit Committee and a combined
nominating and compensation committee called the Compensation
and Nominations Committee and considers all of the voting
members of the Accounts and Audit Committee and two-thirds of
the Compensation and Nominations Committee to be independent.
The Board determined the scope of the activities of both
committees.
98
Audit committee. The NYSE listing standards contain
detailed requirements for the audit committees of
U.S. listed companies. Starting on July 31, 2005,
some, but not all, of these requirements applied to
non-U.S. listed companies, such as SCOR. As of the date
hereof, SCOR considers that is in compliance with all of the
NYSE rules applicable to non-U.S. companies, subject to
certain exemptions as permitted by such rules.
The AFEP-MEDEF Report recommends that French public companies
establish an audit committee that is responsible for, among
other things, examining the companys risk exposures and
material off-balance sheet commitments and the scope of
consolidation, reviewing the financial statements, managing the
process of selecting the statutory auditors, expressing an
opinion on the amount of their fees and monitoring compliance
with the rules designed to ensure auditor independence,
regularly interviewing statutory auditors without executive
management present, and may call outside experts if necessary.
Although the audit committee recommendations of the AFEP-MEDEF
Report are less detailed than those contained in the NYSE
listing standards, the NYSE listing standards and the AFEP-MEDEF
Report share the goal of establishing a system for overseeing
the companys accounting that is independent from
management and of ensuring the auditors independence. As a
result, they address similar topics, and there is some overlap.
SCOR has established certain roles and tasks for its Accounts
and Audit Committee, which emphasize the two following essential
missions and exceed those recommended by the AFEP-MEDEF Report:
|
|
|
|
|
Accounting: review of periodic financial reports, review of the
appropriateness of choices and proper application of accounting
methods, review of the accounting treatment of all significant
transactions, review of the consolidation scope, review of
off-balance sheet liabilities, management of the selection and
remuneration of the statutory auditors, control of all
accounting and financial disclosure documents prior to their
release to the public; and |
|
|
|
Ethical and internal controls: ensure that internal procedures
for the gathering and verification of data ensure the quality
and reliability of SCORs financial statements, review
related-party transactions, analyze and reply to employees
questions with respect to internal control, preparation of the
financial statements, and the treatment of accounting entries. |
One structural difference between the legal status of the audit
committee of the U.S. listed company and that of the French
listed company concerns the degree of the committees
involvement in managing the relationship between the company and
the auditors. French law requires French companies that publish
consolidated financial statements, such as SCOR, to have two
co-auditors. While the NYSE listing standards require the audit
committee of a U.S listed company to have direct responsibility
for the appointment, compensation, retention, and oversight of
the work of the auditor, French law provides that the election
of the co-auditors is the sole responsibility of the
shareholders meeting. In making its decision, the
shareholders meeting may rely on proposals submitted to it
by the board of directors, whose decision is taken upon
consultation with the audit committee. The shareholders
meeting elects the auditors for an audit period of six fiscal
years. The auditors may only be dismissed by a court and only on
grounds of professional negligence or incapacity to perform
their mission.
Corporate governance guidelines
The NYSE listing standards require U.S. listed companies to
adopt, and post on their websites, a set of corporate governance
guidelines. The guidelines must address, among other things:
director qualifications standards, director responsibilities,
director access to management and independent advisers, director
compensation, director orientation and continuing education,
management succession, and an annual performance evaluation. In
addition, the chief executive officer of a U.S. listed
company must certify to the NYSE annually that he or she is not
aware of any violations of the company of the NYSEs
corporate governance listing standards. The certification must
be disclosed in the companys annual report to shareholders.
French law requires neither the adoption of such guidelines nor
the publication of such certification. The AFEP-MEDEF Report
recommends, however, that the board of directors of a French
public company perform annual self-evaluations by an outside
consultant every three years, and that shareholders be informed
each year in the annual report of the evaluations. In 2002,
pursuant to the recommendations of the AFEP-MEDEF Report and the
Sarbanes-Oxley Act of July 2002, SCORs Board of Directors
mandated Allan Chapin, one of its independent members, to
99
carry out a review of the functioning of the Board of Directors
and issue recommendations. One of these recommendations,
submitted to the Board of Directors in January 2003, was to
carry out an in-depth review of the functioning of the Board
every three years, with an annual review in the interim years.
In addition, the French Financial Security Act (Loi de
sécurité financière) of August 1, 2003,
now requires the Chairman of SCORs Board of Directors to
deliver a special report to the annual general meeting of
shareholders regarding, inter alia, the Boards
practices. The text of this report has been included in
Item 15. Internal Controls and Procedures.
Code of Business Conduct and Ethics
The NYSE listing standards require each U.S. listed company to
adopt, and post on its website, a code of business conduct and
ethics for its directors, officers and employees. There is no
similar requirement or recommendation under French law. However,
under the SECs rules and regulations, all companies
required to submit periodic reports to the SEC, including SCOR,
must disclose in their annual reports whether they have adopted
a code of ethics for their principal executives and senior
financial officers. In addition, they must file a copy of the
code with the SEC, post the text of the code on their website or
undertake to provide a copy upon request to any person without
charge. SCOR adopted a Code of Ethics in 1996. This Code of
Ethics is applicable to all members of personnel. A copy is
available on SCORs corporate website. In addition, SCOR
undertakes to provide to any person without charge, upon
request, a copy of such code of ethics by writing to:
Investor Relations and Financial Communications Department
Immeuble SCOR
1, Avenue du Général de Gaulle
92074 Paris La Défense Cedex
Attention: Stéphane Le May, Investor Relations Office
D. EMPLOYEES
As of December 31, 2005, the Group employed 994 people,
including 565 at its headquarters in Paris, 208 in North
America, 62 in the Asia-Pacific region, 141 in other European
countries, and 18 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 5.5% from 1,052 as
of December 31, 2004 to 994 as of December 31, 2005.
The primary decrease took place in North America and in the
staff and financial sectors in Paris.
As part of the restructuring of the Group and its personnel, a
redundancy program was initiated in France in September 2005,
the effects of which should be primarily apparent at the
beginning of 2006.
100
The following table sets forth the distribution of employees at
the dates
indicated(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Number of employees
|
|
|
1,187 |
|
|
|
1,052 |
|
|
|
994 |
|
Breakdown by geographic location
|
|
|
|
|
|
|
|
|
|
|
|
|
France
|
|
|
639 |
|
|
|
587 |
|
|
|
565 |
|
Asia-Pacific region
|
|
|
70 |
|
|
|
63 |
|
|
|
62 |
|
Other European countries
|
|
|
167 |
|
|
|
150 |
|
|
|
141 |
|
North America
|
|
|
293 |
|
|
|
233 |
|
|
|
208 |
|
Other regions
|
|
|
18 |
|
|
|
19 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,187 |
|
|
|
1,052 |
|
|
|
994 |
|
Breakdown by main category of activity
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Property and Casualty
|
|
|
553 |
|
|
|
455 |
|
|
|
416 |
|
Life reinsurance
|
|
|
238 |
|
|
|
224 |
|
|
|
215 |
|
Staff and financial sectors
|
|
|
396 |
|
|
|
373 |
|
|
|
363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,187 |
|
|
|
1,052 |
|
|
|
994 |
|
|
|
(1) |
The calculation of the total workforce is based on the
registered workforce as of December 31, 2005 with
expatriates being counted in their country of expatriation. The
figures published last year, 1,038 in 2004 and 1,162 in 2003,
were based on the workforce present on December 31 of each
financial year, with expatriates being counted in their country
of origin. |
E. SHARE OWNERSHIP
Shares Held by Directors and Executive Officers
The following table indicates the number of Ordinary Shares held
by each director and executive officer of the Company as of
December 31, 2005, representing approximately 0.07% of
SCORs outstanding capital stock on such date:
|
|
|
|
|
Directors
|
|
|
|
|
Mr. Carlo Acutis
|
|
|
60,000 |
|
Ms. Michèle Aronvald
|
|
|
948 |
|
Mr. Antonio Borges
|
|
|
1 |
|
Mr. Allan Chapin
|
|
|
1,000 |
|
Mr. Daniel Havis
|
|
|
7,602 |
|
Mr. Denis Kessler
|
|
|
319,920 |
|
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
|
|
|
21,050 |
|
Mr. Jean Simonnet
|
|
|
2,736 |
|
Mr. Claude Tendil
|
|
|
1,506 |
|
Mr. Daniel Valot
|
|
|
100 |
|
|
|
|
|
Non-Voting Directors
|
|
|
|
|
Mr. Georges Chodron de Courcel
|
|
|
17,836 |
|
|
|
|
|
Chief Operating Officer
|
|
|
|
|
Mr. Patrick Thourot
|
|
|
91,530 |
|
|
|
|
|
Total
|
|
|
679,295 |
|
|
|
|
|
101
Stock Option Plans
The total number of share options outstanding as of
December 31, 2005 was 20,712,100.
As of December 31, 2005, unexercised share subscription
options, if exercised, would lead to the creation of 16,812,193
shares, representing approximately 2.2% of the capital of the
Company.
The following table sets forth certain information relating to
the various option plans as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
granted to | |
|
|
|
|
|
|
|
|
|
|
Total | |
|
Number | |
|
top ten | |
|
|
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 |
|
|
Expired |
|
|
Expired |
|
|
|
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,088,489 |
|
|
|
2,229,143 |
|
|
|
1,519,870 |
|
|
2003 |
|
|
|
February 28 |
|
|
February 28, 2007 |
|
|
Feb. 27, 2013 |
|
|
|
65 |
|
|
|
1,435,688 |
|
|
|
655,233 |
|
|
|
247,532 |
|
|
2003 |
(1) |
|
|
June 3 |
|
|
June 3, 2007 |
|
|
June 2, 2013 |
|
|
|
1,161 |
|
|
|
2,266,927 |
|
|
|
420,441 |
|
|
|
177,787 |
|
|
2003 |
|
|
|
|
|
|
Condition of benefit not achieved (cancelled) |
|
|
|
|
|
|
|
|
|
|
2,266,929 |
|
|
|
420,441 |
|
|
|
177,787 |
|
Readjusted total after the capital increase, at
December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,058,033 |
|
|
|
3,725,258 |
|
|
|
2,122,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Readjusted total after the capital increase, at
January 7, |
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 |
|
|
|
August 25 |
|
|
August 26, 2008 |
|
|
Aug. 25, 2014 |
|
|
|
171 |
|
|
|
5,990,000 |
|
|
|
1,335,000 |
|
|
|
920,000 |
|
|
2005 |
|
|
|
August 31 |
|
|
September 16, 2009 |
|
|
Sept. 16, 2015 |
|
|
|
219 |
|
|
|
7,260,000 |
|
|
|
1,650,000 |
|
|
|
1,420,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL at December 31, 2005 |
|
|
|
|
|
|
30,308,033 |
|
|
|
6,710,258 |
|
|
|
4,462,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. Since these conditions were unrealized,
the options were cancelled. |
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
cancellation 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 cancellation of preferential subscription
right (average listed
opening price during the subscription period) + value of
preferential subscription right |
|
|
102
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, 2005 | |
| |
|
|
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 | |
|
2005 | |
|
2005 | |
|
2005 | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
1995 |
|
|
|
6.59 |
|
|
|
192,782 |
|
|
|
192,782 |
|
|
|
|
|
|
|
|
|
|
1996 |
|
|
|
11.70 |
|
|
|
703,785 |
|
|
|
42,096 |
|
|
|
661,689 |
|
|
|
|
|
|
1997 |
|
|
|
15.03 |
|
|
|
865,443 |
|
|
|
59,429 |
|
|
|
806,014 |
|
|
|
|
|
|
1998 |
|
|
|
22.72 |
|
|
|
937,260 |
|
|
|
76,764 |
|
|
|
860,496 |
|
|
|
|
|
|
1999 |
|
|
|
18.58 |
|
|
|
903,835 |
|
|
|
86,667 |
|
|
|
817,168 |
|
|
|
|
|
|
2000 |
|
|
|
19.39 |
|
|
|
187,248 |
|
|
|
25,647 |
|
|
|
161,601 |
|
|
|
|
|
|
2000 |
|
|
|
18.17 |
|
|
|
761,469 |
|
|
|
86,420 |
|
|
|
675,049 |
|
|
|
|
|
|
2001 |
|
|
|
19.39 |
|
|
|
1,137,848 |
|
|
|
137,430 |
|
|
|
1,000,418 |
|
|
|
|
|
|
2001 |
|
|
|
13.73 |
|
|
|
445,312 |
|
|
|
60,137 |
|
|
|
385,175 |
|
|
|
|
|
|
2003 |
|
|
|
2.86 |
|
|
|
1,275,553 |
|
|
|
104,840 |
|
|
|
1,170,713 |
|
|
|
|
|
|
2003 |
|
|
|
3.94 |
|
|
|
3,655,163 |
|
|
|
2,026,386 |
|
|
|
1,628,777 |
|
|
|
|
|
|
2004 |
|
|
|
1.14 |
|
|
|
5,990,000 |
|
|
|
450,000 |
|
|
|
5,540,000 |
|
|
|
|
|
|
2005 |
(1) |
|
|
1.66 |
|
|
|
|
|
|
|
255,000 |
|
|
|
7,005,000 |
|
|
|
7,260,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
17,055,698 |
|
|
|
3,603,598 |
|
|
|
20,712,100 |
|
|
|
7,260,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
out of the 7,260,000 options granted in 2005, 255,000 were
cancelled due to the departure of certain beneficiaries. |
The stock option plans for the years 1994 to 1997 and 2003, to
2005 are share subscription plans giving rise to an increase in
share capital if exercised. The plans for the years 1998 to 2001
are stock option plans to purchase existing shares.
In accordance with the authorization of the general
shareholders meeting of May 18, 2004, the Board of
Directors approved a plan on August 25, 2004, for certain
of the Groups Directors and officers and senior
executives, offering a total of 5,990,000 options, granted
without discount, at a price of EUR 1.14 per option. The options
can be exercised all at once or on several occasions but with a
minimum of 1,000 shares per exercise, from August 26, 2008
to August 25, 2014. After August 25, 2014, any
unexercised options will become null and void.
The Board of Directors of SCOR, in accordance with the authority
granted to it by the general shareholders meeting of
May 31, 2005, established a new stock option plan on
August 31, 2005 intended for Group Directors, officers and
certain senior executives of the Groups companies. The
stock subscription price amounts to EUR 1.66 per share. The
7,260,000 options may be exercised all at once or on several
occasions from September 16, 2009 to September 15,
2015 and will give the right to one share per option. After this
date, the rights will expire.
Conditions for exercising the options include a condition based
on continued employment, but not a condition based on
performance.
103
The table below shows the outstanding options for members of the
Executive Committee as at December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential | |
|
|
|
|
Options | |
|
Options to | |
|
|
|
Price | |
|
transaction | |
|
|
|
|
exercised | |
|
be exercised | |
|
Plan dates | |
|
(EUR) | |
|
volume (EUR) | |
|
Exercise period | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Denis
Kessler(1)
|
|
|
None |
|
|
|
364,019 |
|
|
|
Feb. 28, 2003 |
|
|
|
2.86 |
|
|
|
1,041,094 |
|
|
|
Feb. 28, 2007 to Feb. 28, 2013 |
|
|
|
|
None |
|
|
|
160,169 |
|
|
|
June 03, 2003 |
|
|
|
3.94 |
|
|
|
631,065 |
|
|
|
June 03, 2007 to June 03, 2013 |
|
|
|
|
None |
|
|
|
375,000 |
|
|
|
Aug. 25, 2004 |
|
|
|
1.14 |
|
|
|
427,500 |
|
|
|
Aug. 26, 2008 to Aug. 25, 2014 |
|
|
|
|
None |
|
|
|
450,000 |
|
|
|
Sept. 16, 2005 |
|
|
|
1.66 |
|
|
|
747,000 |
|
|
|
Sept. 16, 2009 to Sept. 15, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
1,349,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patrick
Thourot(1)
|
|
|
None |
|
|
|
72,804 |
|
|
|
Feb. 28, 2003 |
|
|
|
2.86 |
|
|
|
208,219 |
|
|
|
Feb. 28, 2007 to Feb. 28, 2013 |
|
|
|
|
None |
|
|
|
60,064 |
|
|
|
June 03, 2003 |
|
|
|
3.94 |
|
|
|
236,652 |
|
|
|
June 03, 2007 to June 03, 2013 |
|
|
|
|
None |
|
|
|
180,000 |
|
|
|
Aug. 25, 2004 |
|
|
|
1.14 |
|
|
|
205,200 |
|
|
|
Aug. 26 2008 to Aug. 25, 2014 |
|
|
|
|
None |
|
|
|
200,000 |
|
|
|
Sept. 16, 2005 |
|
|
|
1.66 |
|
|
|
332,000 |
|
|
|
Sept. 16, 2009 to Sept. 15, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
512,868 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Romain
Durand(2)
|
|
|
None |
|
|
|
19,809 |
|
|
|
Sept. 04, 1997 |
|
|
|
15.03 |
|
|
|
297,729 |
|
|
|
Sept. 04, 2002, to Sept. 03, 2007 |
|
|
|
|
None |
|
|
|
29,713 |
|
|
|
Sept. 03, 1998 |
|
|
|
22.72 |
|
|
|
675,079 |
|
|
|
Sept. 04, 2003 to Sept. 03, 2008 |
|
|
|
|
None |
|
|
|
32,188 |
|
|
|
Sept. 02, 1999 |
|
|
|
18.58 |
|
|
|
598,053 |
|
|
|
Sept. 03, 2004 to 02 Sep. 2009 |
|
|
|
|
None |
|
|
|
249 |
|
|
|
May 04, 2000 |
|
|
|
19.39 |
|
|
|
4,828 |
|
|
|
May 05, 2004 to May 03, 2010 |
|
|
|
|
None |
|
|
|
37,141 |
|
|
|
Aug. 31, 2000 |
|
|
|
18.17 |
|
|
|
674,852 |
|
|
|
Sept. 01, 2005 to Aug. 30, 2010 |
|
|
|
|
None |
|
|
|
49,520 |
|
|
|
Sept. 04, 2001 |
|
|
|
19.39 |
|
|
|
960,193 |
|
|
|
Sept. 04, 2005 to Sept. 03, 2011 |
|
|
|
|
None |
|
|
|
497 |
|
|
|
Oct. 03, 2001 |
|
|
|
13.73 |
|
|
|
6,824 |
|
|
|
Oct. 04, 2005 to Oct. 02, 2011 |
|
|
|
|
None |
|
|
|
43,683 |
|
|
|
Feb. 28, 2003 |
|
|
|
2.86 |
|
|
|
124,933 |
|
|
|
Feb. 28, 2007 to Feb. 25, 2013 |
|
|
|
|
None |
|
|
|
40,043 |
|
|
|
June 03, 2003 |
|
|
|
3.94 |
|
|
|
157,770 |
|
|
|
June 03, 2007 to June 03, 2013 |
|
|
|
|
None |
|
|
|
180,000 |
|
|
|
Aug. 25, 2004 |
|
|
|
1.14 |
|
|
|
205,200 |
|
|
|
Aug. 26, 2008 to Aug. 25, 2014 |
|
|
|
|
None |
|
|
|
200,000 |
|
|
|
Sept. 16, 2005 |
|
|
|
1.66 |
|
|
|
332,000 |
|
|
|
Sept. 16, 2009 to Sept. 15, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
632,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jean-Luc Besson
|
|
|
None |
|
|
|
43,683 |
|
|
|
Feb. 28, 2003 |
|
|
|
2.86 |
|
|
|
124,933 |
|
|
|
Feb. 28, 2007 to Feb. 28, 2013 |
|
|
|
|
None |
|
|
|
40,043 |
|
|
|
June 03, 2003 |
|
|
|
3.94 |
|
|
|
157,770 |
|
|
|
June 03, 2007 to June 03, 2013 |
|
|
|
|
None |
|
|
|
120,000 |
|
|
|
Aug. 25, 2004 |
|
|
|
1.14 |
|
|
|
136,800 |
|
|
|
Aug. 26, 2008 to Aug. 25, 2014 |
|
|
|
|
None |
|
|
|
180,000 |
|
|
|
Sept. 16, 2005 |
|
|
|
1.66 |
|
|
|
298,800 |
|
|
|
Sept. 16, 2009 to Sept. 15, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
383,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcel Kahn
|
|
|
None |
|
|
|
120,000 |
|
|
|
Aug. 25, 2004 |
|
|
|
1.14 |
|
|
|
136,800 |
|
|
|
Aug. 26, 2008 to Aug. 25, 2014 |
|
|
|
|
None |
|
|
|
150,000 |
|
|
|
Sept. 16, 2005 |
|
|
|
1.66 |
|
|
|
249,000 |
|
|
|
Sept. 16, 2009 to Sept. 15, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
270,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Victor Peignet
|
|
|
None |
|
|
|
9,905 |
|
|
|
Sept. 05, 1996 |
|
|
|
11.7 |
|
|
|
115,889 |
|
|
Sept. 05, 1997 to Sept. 04, 2006 (30%) Sept. 05, 1998 to Sept. 04, 2006 (30%) Sept. 05, 1999 to Sept. 04, 2006 (40%) |
|
|
|
None |
|
|
|
12,381 |
|
|
|
Sept. 04, 1997 |
|
|
|
15.03 |
|
|
|
186,086 |
|
|
|
Sept. 04, 2002 to Sept. 03, 2007 |
|
|
|
|
None |
|
|
|
9,905 |
|
|
|
Sept. 03, 1998 |
|
|
|
22.72 |
|
|
|
225,042 |
|
|
|
Sept. 04, 2003 to Sept. 03, 2008 |
|
|
|
|
None |
|
|
|
12,381 |
|
|
|
Sept. 02, 1999 |
|
|
|
18.58 |
|
|
|
230,039 |
|
|
|
Sept. 03, 2004 to Sept. 02, 2009 |
|
|
|
|
None |
|
|
|
249 |
|
|
|
May 04, 2000 |
|
|
|
19.39 |
|
|
|
4,828 |
|
|
|
May 05, 2004 to May 03, 2010 |
|
|
|
|
None |
|
|
|
14,857 |
|
|
|
Aug. 31, 2000 |
|
|
|
18.17 |
|
|
|
269,952 |
|
|
|
Sept. 01, 2005 to Aug. 30, 2010 |
|
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential | |
|
|
|
|
Options | |
|
Options to | |
|
|
|
Price | |
|
transaction | |
|
|
|
|
exercised | |
|
be exercised | |
|
Plan dates | |
|
(EUR) | |
|
volume (EUR) | |
|
Exercise period | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
None |
|
|
|
19,809 |
|
|
|
Sept. 04, 2001 |
|
|
|
19.39 |
|
|
|
384,097 |
|
|
|
Sept. 04, 2005 to Sept. 03, 2011 |
|
|
|
|
None |
|
|
|
497 |
|
|
|
Oct. 03, 2001 |
|
|
|
13.73 |
|
|
|
6,824 |
|
|
|
Oct. 04, 2005 to Oct. 02, 2011 |
|
|
|
|
None |
|
|
|
26,210 |
|
|
|
Feb. 28, 2003 |
|
|
|
2.86 |
|
|
|
74,961 |
|
|
|
Feb. 28, 2007 to Feb. 28, 2013 |
|
|
|
|
None |
|
|
|
28,030 |
|
|
|
June 03, 2003 |
|
|
|
3.94 |
|
|
|
110,438 |
|
|
|
June 03, 2007 to June 03, 2013 |
|
|
|
|
None |
|
|
|
120,000 |
|
|
|
Aug. 25, 2004 |
|
|
|
1.14 |
|
|
|
136,800 |
|
|
|
Aug. 26, 2008 to Aug. 25, 2014 |
|
|
|
|
None |
|
|
|
200,000 |
|
|
|
Sept. 16, 2005 |
|
|
|
1.66 |
|
|
|
332,000 |
|
|
|
Sept. 16, 2009 to Sept. 15, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
454,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henry Klecan
|
|
|
None |
|
|
|
14,857 |
|
|
|
Sept. 04, 2001 |
|
|
|
19.39 |
|
|
|
288,077 |
|
|
|
Sept. 04, 2005 to Sept. 03, 2011 |
|
|
|
|
None |
|
|
|
497 |
|
|
|
Oct. 03, 2001 |
|
|
|
13.73 |
|
|
|
6,824 |
|
|
|
Oct. 04, 2005 to Oct. 02, 2011 |
|
|
|
|
None |
|
|
|
11,649 |
|
|
|
Feb. 28, 2003 |
|
|
|
2.86 |
|
|
|
33,316 |
|
|
|
Feb. 28, 2007 to Feb. 28, 2013 |
|
|
|
|
None |
|
|
|
16,017 |
|
|
|
June 03, 2003 |
|
|
|
3.94 |
|
|
|
63,107 |
|
|
|
June 03, 2007 to June 03, 2013 |
|
|
|
|
None |
|
|
|
120,000 |
|
|
|
Aug. 25, 2004 |
|
|
|
1.14 |
|
|
|
136,800 |
|
|
|
Aug. 26, 2008 to Aug. 26, 2014 |
|
|
|
|
None |
|
|
|
150,000 |
|
|
|
Sept. 16, 2005 |
|
|
|
1.66 |
|
|
|
249,000 |
|
|
|
Sept. 16, 2009 to Sept. 15, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
313,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yvan Besnard
|
|
|
None |
|
|
|
17,334 |
|
|
|
Sept. 04, 1997 |
|
|
|
15.03 |
|
|
|
260,530 |
|
|
|
Sept. 04, 2002 to Sept. 03, 2007 |
|
|
|
|
None |
|
|
|
17,334 |
|
|
|
Sept. 03, 1998 |
|
|
|
22.72 |
|
|
|
393,828 |
|
|
|
Sept. 04, 2003 to Sept. 03, 2008 |
|
|
|
|
None |
|
|
|
17,334 |
|
|
|
Sept. 02, 1999 |
|
|
|
18.58 |
|
|
|
322,066 |
|
|
|
Sept. 03, 2004 to Sept. 02, 2009 |
|
|
|
|
None |
|
|
|
249 |
|
|
|
May 04, 2000 |
|
|
|
19.39 |
|
|
|
4,828 |
|
|
|
May 05, 2004 to Mar. 05, 2010 |
|
|
|
|
None |
|
|
|
14,857 |
|
|
|
Aug. 31, 2000 |
|
|
|
18.17 |
|
|
|
269,952 |
|
|
|
Sept. 01, 2005 to Aug. 30, 2010 |
|
|
|
|
None |
|
|
|
17,334 |
|
|
|
Sept. 04, 2001 |
|
|
|
19.39 |
|
|
|
336,106 |
|
|
|
Sept. 04, 2005 to Sept. 03, 2011 |
|
|
|
|
None |
|
|
|
497 |
|
|
|
Oct. 03, 2001 |
|
|
|
13.73 |
|
|
|
6,824 |
|
|
|
Oct. 04, 2005 to Oct. 02, 2011 |
|
|
|
|
None |
|
|
|
26,210 |
|
|
|
Feb. 28, 2003 |
|
|
|
2.86 |
|
|
|
74,961 |
|
|
|
Feb. 28, 2007 to Feb. 28, 2013 |
|
|
|
|
None |
|
|
|
14,416 |
|
|
|
June 03, 2003 |
|
|
|
3,94 |
|
|
|
56,799 |
|
|
|
June 03, 2007 to June 03, 2013 |
|
|
|
|
None |
|
|
|
120,000 |
|
|
|
Aug. 25, 2004 |
|
|
|
1.14 |
|
|
|
136,800 |
|
|
|
Aug. 26, 2008 to Aug. 25, 2014 |
|
|
|
|
None |
|
|
|
120,000 |
|
|
|
Sept. 16, 2005 |
|
|
|
1.66 |
|
|
|
199,200 |
|
|
|
Sept. 16, 2009 to Sept. 15, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
365,565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GRAND TOTAL
|
|
|
|
|
|
|
4,281,434 |
|
|
|
|
|
|
|
|
|
|
|
13,886,268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
In the event of dismissal or a significant change in the share
capital of the Company that substantially affects their
respective responsibilities and makes it difficult for them to
pursue their respective activities and the normal exercise of
their duties, and if their professional relationship is
terminated at their request, the Chairman and Chief Executive
Officer and/or the Chief Operating Officer shall retain the
right to exercise the options allotted to them that have been
fully vested within the periods defined by the stock option
plan, and shall be entitled to an indemnity, for the options
they would be unable to exercise under this plan, to compensate
for the loss of the right to exercise the options under the
terms of the plan. The amount of this indemnity will be
determined by an independent expert using the
Black & Scholes option valuation method on
the date of their respective departures. |
|
(2) |
For a description of the treatment of the stock options granted
to Romain Durand following his resignation on December 28,
2005, please see Item 6.B. Compensation
2005 Compensation for Members of the Executive Committee. |
The other group directors were not granted stock options.
Taking into account the results recorded in 2003 and 2004, the
stock options from the June 2003 plan with the condition of a
2003 return on equity of more than 10% or 2004 return on equity
of more than 12% were cancelled.
A total of 920,000 stock options were granted to the top ten
non-director employees under the August 25, 2004 plan. They
received 1,290,000 options from the August 25, 2005 plan.
No options were exercised in 2003, 2004 and 2005.
105
No options have been awarded by a related company.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options awarded to top ten non-officer |
|
Number of | |
|
Exercise | |
|
Expiration | |
|
|
employee recipients and exercised options |
|
options | |
|
Price | |
|
date | |
|
Plan | |
|
|
| |
|
| |
|
| |
|
| |
Options awarded during the financial year, by the issuer and by
any company included in the option distribution scope, to the
top ten recipient employees of the issuer and of any company
included in this scope and which were granted the most options
(aggregate information) |
|
|
1,420,000 |
|
|
|
1.66 |
|
|
|
Sept. 16, 2009 |
|
|
|
Sept. 16, 2005 |
|
Options exercised during the financial year by the ten employees
of the issuer or the companies included in the scope who
exercised the most options (aggregate information) |
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Other Stock Compensation
On August 25, 2004, the Board of Directors approved a stock
compensation plan applicable to all employees and officers of
the Group. This plan was implemented following the authorization
of the May 18, 2004 shareholders meeting and a
subsequent proposal of the Compensation and Nominations
Committee. The Group decided to grant shares for no
consideration to all employees of the Group, up to an aggregate
of 7,140,705 shares, subject to the continued employment
conditions of the beneficiaries. On January 10, 2005, a
distribution of 4,397,008 shares was made to all employees.
As determined by the Chairman and Chief Executive Officer, the
shares may be sold by the employees as of such date.
The rules of the stock compensation plan for directors, officers
and certain senior executives of the Group companies called for
the transfer of the securities at two separate times, in equal
amounts on January 10, 2005 (Tranche A) and on
November 10, 2005 (Tranche B), subject to compliance
with continued employment conditions.
In the context of the transfer that took place on
January 10, 2005 (Tranche A), the members of the
Executive Committee collected half of the shares to which they
were entitled under the stock compensation plan.
The French 2005 Financial Security Act instituted a new
incentive tax and company benefits system for stock awards, the
purpose of which is to promote employee savings. As such, French
recipients had the option of forfeiting the November 10,
2005 transfer (Tranche B), in exchange for which the
distribution was increased by 40% and became subject to the new
incentive arrangement (Plan 2004
forfeiture redistribution), under the 2005
redistribution plan approved by the Board of Directors on
August 31, 2005 to that effect.
On August 31, 2005, SCORs Board of Directors,
pursuant to the authorization of the shareholders meeting
of May 31, 2005, and upon the proposal of the Compensation
and Nominations Committee, established a new stock compensation
plan for group directors, officers and certain senior executives
of the Groups companies.
7,305,000 shares will be transferred in September 2007, subject
to compliance with continued employment conditions of the
employee recipients of the Group, and will be required to be
held until September 2009.
106
The table below presents the share award plan issued to members
of the Executive Committee as of December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price | |
|
Transaction | |
|
|
|
|
Plan | |
|
Shares | |
|
(in euros) | |
|
(in euros) | |
|
Date of transfer | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Denis
Kessler(1)
|
|
|
2004 Plan Tranche A |
|
|
|
187,500 |
|
|
|
1.44 |
|
|
|
270,000 |
|
|
|
January 10, 2005 |
|
|
|
|
Plan 2004 Forfeiture redistribution |
|
|
|
262,500 |
|
|
|
|
|
|
|
|
|
|
|
September 01, 2007 |
|
|
|
|
2005 Plan |
|
|
|
450,000 |
|
|
|
|
|
|
|
|
|
|
|
September 01, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
900,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patrick
Thourot(1)
|
|
|
2004 Plan Tranche A |
|
|
|
90,000 |
|
|
|
1.44 |
|
|
|
129,600 |
|
|
|
January 10, 2005 |
|
|
|
|
2004 Plan Forfeiture redistribution |
|
|
|
126,000 |
|
|
|
|
|
|
|
|
|
|
|
September 01, 2007 |
|
|
|
|
2005 Plan |
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
September 01, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
416,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Romain
Durand(2)
|
|
|
2004 Plan Tranche A |
|
|
|
90,000 |
|
|
|
1.44 |
|
|
|
129,600 |
|
|
|
January 10, 2005 |
|
|
|
|
2004 Plan Tranche B |
|
|
|
90,000 |
|
|
|
1.69 |
|
|
|
152,100 |
|
|
|
November 10, 2005 |
|
|
|
|
2005 Plan |
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
September 01, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
380,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jean-Luc Besson
|
|
|
2004 Plan Tranche A |
|
|
|
75,000 |
|
|
|
1.44 |
|
|
|
108,000 |
|
|
|
January 10, 2005 |
|
|
|
|
2004 Plan Tranche B |
|
|
|
75,000 |
|
|
|
1.69 |
|
|
|
126,750 |
|
|
|
November 10, 2005 |
|
|
|
|
2005 Plan |
|
|
|
180,000 |
|
|
|
|
|
|
|
|
|
|
|
September 01, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
330,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marcel Kahn
|
|
|
2004 Plan Tranche A |
|
|
|
75,000 |
|
|
|
1.44 |
|
|
|
108,000 |
|
|
|
January 10, 2005 |
|
|
|
|
2004 Plan Forfeiture redistribution |
|
|
|
105,000 |
|
|
|
|
|
|
|
|
|
|
|
September 01, 2007 |
|
|
|
|
2005 Plan |
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
|
|
September 01, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
330,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Victor Peignet
|
|
|
2004 Plan Tranche A |
|
|
|
75,000 |
|
|
|
1.44 |
|
|
|
108,000 |
|
|
|
January 10, 2005 |
|
|
|
|
2004 Plan Forfeiture redistribution |
|
|
|
105,000 |
|
|
|
|
|
|
|
|
|
|
|
September 01, 2007 |
|
|
|
|
2005 Plan |
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
|
September 01, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
380,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Henry Klecan
|
|
|
2004 Plan Tranche A |
|
|
|
65,576 |
|
|
|
1.44 |
|
|
|
94,429 |
|
|
|
January 10, 2005 |
|
|
|
|
2004 Plan Tranche B |
|
|
|
65,576 |
|
|
|
1.69 |
|
|
|
110,823 |
|
|
|
November 10, 2005 |
|
|
|
|
2005 Plan |
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
|
|
September 01, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
281,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yvan Besnard
|
|
|
2004 Plan Tranche A |
|
|
|
51,842 |
|
|
|
1.44 |
|
|
|
74,652 |
|
|
|
January 10, 2005 |
|
|
|
|
2004 Plan Forfeiture redistribution |
|
|
|
72,579 |
|
|
|
|
|
|
|
|
|
|
|
September 01, 2007 |
|
|
|
|
2005 Plan |
|
|
|
120,000 |
|
|
|
|
|
|
|
|
|
|
|
September 01, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
244,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GRAND TOTAL
|
|
|
|
|
|
|
3,261,573 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
In the event of dismissal or a significant change in the share
capital of the Company that substantially affects their
respective responsibilities and makes it difficult for them to
pursue their activities and the normal exercise of their
responsibilities, and if their professional relationship is
terminated at their request, the Chairman and Chief Executive
Officer and/or the Chief Operating Officer shall be entitled to
an indemnity, for the bonus shares that would have been allotted
to them and which they could not receive, to compensate for the
loss of the right to the shares. The amount of this loss shall
be calculated as the number of shares in question multiplied by
the average price of the SCOR shares on the date of their
respective departures. |
|
(2) |
For a description of the treatment of the rights of Romain
Durand under the share award plan following his resignation on
December 28, 2005, please see Item 6.B.
Compensation 2005 Compensation for Members of the
Executive Committee. |
The other Directors of the Group were not awarded any shares.
107
Item 7. Major Shareholders and Related Party
Transactions
A. MAJOR SHAREHOLDERS
The following sets forth entities or persons known to the
Company to be the direct or indirect holders of 5% or more of
the Companys Ordinary Shares as of January 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003(1) | |
|
December 31, 2004 | |
|
December 31, 2005 | |
|
January 31, 2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% of | |
|
|
Number | |
|
% of | |
|
voting | |
|
Number | |
|
% of | |
|
voting | |
|
Number | |
|
% of | |
|
voting | |
|
Number | |
|
% of | |
|
voting | |
|
|
of shares | |
|
capital | |
|
rights(2) | |
|
of shares | |
|
capital | |
|
rights(2) | |
|
of shares | |
|
capital | |
|
rights(2) | |
|
of shares | |
|
capital | |
|
rights(2) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Groupama/Gan Groupe
|
|
|
25,656,535 |
|
|
|
18.79% |
|
|
|
18.86% |
|
|
|
155,260,343 |
(3) |
|
|
18.95% |
|
|
|
19.17% |
|
|
|
155,246,370 |
(12) |
|
|
16.03% |
|
|
|
16.18% |
|
|
|
155,246,370 |
(15) |
|
|
16.03% |
|
|
|
16.18% |
|
Silchester(4)
|
|
|
11,729,332 |
|
|
|
8.59% |
|
|
|
8.62% |
|
|
|
70,375,992 |
|
|
|
8.59% |
|
|
|
8.69% |
|
|
|
81,375,992 |
|
|
|
8.40% |
|
|
|
8.48% |
|
|
|
76,771,648 |
|
|
|
7.92% |
|
|
|
8.00% |
|
Marathon
AM(4)
|
|
|
9,145,757 |
|
|
|
6.70% |
|
|
|
6.72% |
|
|
|
58,549,828 |
|
|
|
7.15% |
|
|
|
7.23% |
|
|
|
57,295,188 |
|
|
|
5.91% |
|
|
|
5.97% |
|
|
|
56,566,688 |
|
|
|
5.84% |
|
|
|
5.89% |
|
Groupe
MAAF-MMA(5)
|
|
|
6,707,235 |
|
|
|
4.91% |
|
|
|
4.93% |
|
|
|
31,505,874 |
|
|
|
3.85% |
|
|
|
3.89% |
|
|
|
33,725,874 |
|
|
|
3.48% |
|
|
|
3.51% |
|
|
|
33,725,874 |
|
|
|
3.48% |
|
|
|
3.51% |
|
MACIF
|
|
|
3,966,628 |
(6) |
|
|
2.91% |
|
|
|
2.92% |
|
|
|
26,941,535 |
(7) |
|
|
3.29% |
|
|
|
3.33% |
|
|
|
29,908,937 |
|
|
|
3.09% |
|
|
|
3.12% |
|
|
|
29,908,937 |
|
|
|
3.09% |
|
|
|
3.12% |
|
Generali(8)
|
|
|
2,365,660 |
|
|
|
1.73% |
|
|
|
1.74% |
|
|
|
15,100,507 |
|
|
|
1.84% |
|
|
|
1.86% |
|
|
|
15,100,507 |
|
|
|
1.56% |
|
|
|
1.57% |
|
|
|
15,100,507 |
|
|
|
1.56% |
|
|
|
1.57% |
|
MATMUT(9)
|
|
|
2,750,000 |
|
|
|
2.01% |
|
|
|
2.02% |
|
|
|
14,250,000 |
|
|
|
1.74% |
|
|
|
1.76% |
|
|
|
15,505,983 |
(13) |
|
|
1.60% |
|
|
|
1.62% |
|
|
|
14,130,983 |
(16) |
|
|
1.46% |
|
|
|
1.47% |
|
Employees
|
|
|
861,220 |
(10) |
|
|
0.63% |
|
|
|
0.63% |
|
|
|
1,278,720 |
(11) |
|
|
0.16% |
|
|
|
0.16% |
|
|
|
3,396,922 |
(14) |
|
|
0.35% |
|
|
|
0.35% |
|
|
|
3,350,517 |
(17) |
|
|
0.35% |
|
|
|
0.35% |
|
Owned by SCOR
|
|
|
489,500 |
|
|
|
0.36% |
|
|
|
|
|
|
|
9,298,085 |
|
|
|
1.13% |
|
|
|
|
|
|
|
9,110,915 |
|
|
|
0.94% |
|
|
|
|
|
|
|
9,110,915 |
|
|
|
0.94% |
|
|
|
|
|
Others
|
|
|
72,872,978 |
|
|
|
53.37% |
|
|
|
53.56% |
|
|
|
436,708,186 |
|
|
|
53.30% |
|
|
|
53.92% |
|
|
|
568,102,382 |
|
|
|
58.64% |
|
|
|
59.20% |
|
|
|
574,856,631 |
|
|
|
59.34% |
|
|
|
59.90% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
136,544,845 |
|
|
|
100% |
|
|
|
100% |
|
|
|
819,269,070 |
|
|
|
100% |
|
|
|
100% |
|
|
|
968,769,070 |
|
|
|
100.00% |
|
|
|
100.00% |
|
|
|
968,769,070 |
|
|
|
100.00% |
|
|
|
100.00% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Information is as of the closest date to December 31, 2003
as possible. |
|
(2) |
The percentage of voting rights is determined on the basis of
the number of shares outstanding after deducting the number of
shares owned by the Company. |
|
(3) |
Source: Groupama. This figure includes 139,439,070 shares
owned directly by Groupama S.A. and 15,821,273 shares
owned by subsidiairies and Caisses-Regionales of
Groupama. |
|
(4) |
Source: Silchester, Marathon. These companies are shareholders
through mutual funds. |
|
(5) |
Source: MAAF-MMA. |
|
(6) |
Source: MACIF. |
|
(7) |
Source: MACIF. This figure includes 26,908,937 shares owned
directly and 32,598 shares owned through funds managed by
MACIF Gestion. |
|
(8) |
Source: Generali. |
|
(9) |
Source: MATMUT. |
|
(10) |
This figure includes 295,220 shares owned directly and
566,000 shares owned through a company-sponsored mutual
fund. |
|
(11) |
This figure includes 295,220 shares owned directly and
983,500 shares owned through a company-sponsored mutual
fund. |
|
(12) |
Source: Groupama. This figure includes 139,439,071 shares
owned directly by Groupama S.A. and 15,807,299 shares
owned by subsidiaries and the Caisses-Regionales of
Groupama. |
|
(13) |
Source: MATMUT. This figure includes 14,250,000 shares
owned directly and 1,255,983 shares owned through their
mutual funds. |
|
(14) |
This figure includes 1,764,622 shares owned directly and
1,632,300 shares owned through a company-sponsored mutual
fund. |
|
(15) |
Source: Groupama. This figure includes 139,439,071 shares
owned by Groupama S.A. and 15,807,299 shares held by
subsidiaries and by Regional Mutuals. |
|
(16) |
Source: Matmut. This figure includes 12,875,000 shares
owned directly and 1,255,983 shares held through mutual
funds. |
|
(17) |
This figure includes 1,695,417 shares owned directly and
1,655,100 shares owned through a company-sponsored mutual
fund. |
To the Companys knowledge, no material changes in the
Companys share ownership percentages took place during the
year ended December 31, 2005.
A survey of all shares outstanding carried out by the Company in
February 2005, aimed at identifying the owners of bearer shares,
revealed the existence of more than 37,000 shareholders. In
January 2006, a survey aimed at identifying the owners of bearer
shares revealed the existence of more than
34,000 shareholders. The Company estimates that as of
June 6, 2006, a total of 968,769,070 Ordinary Shares,
including 21,112,258 shares underlying the ADSs, or 2.18%
of our capital, were held in the U.S. by approximately
27 record holders. Since certain of SCORs ADSs and
Ordinary Shares are held by brokers or other nominees, the
number of ADSs and Ordinary
108
Shares held of record and the number of record holders may not
be representative of the location of where the beneficial
holders are resident.
To the Companys knowledge, no other shareholder or group
of shareholders holds more than 5% of SCORs share capital
other than those reflected above.
To the Companys knowledge, there are no shareholder
agreements or other agreements among our shareholders pursuant
to which they act in concert. To the Companys knowledge,
there have been no transactions between senior managers,
Directors or officers, and shareholders holding more than 2.5%
of the share capital (or of the company controlling them) and
the Company on terms other than market terms.
Groupama is the largest shareholder of SCOR. As of
December 31, 2005, Groupama/Gan Groupe held approximately
16.03% of the Companys share capital. Mr. Le Pas de
Sécheval (Chief Financial Officer of Groupama S.A) was
named non-voting director at the annual meeting of May 15,
2003, and then co-opted as voting director by the Board of
Directors of November 3, 2004, which was approved by the
shareholders at the annual meeting of May 31, 2005. SCOR
has business relationships with Groupama, since it conducts
reinsurance transactions with it.
All Ordinary Shares have the same voting rights. There is no
covenant or clause thereof stipulating preferential terms for
the sale or purchase of shares eligible for trading, or for
which application is pending, on a regulated stock market and
representing 0.5% or more of the share capital or voting rights
of the Company that has been notified to the Autorité
des Marchés Financiers. No Ordinary Shares have been
pledged.
At December 31, 2005, SCOR held 9,110,915 of its own shares.
The total number of voting rights at January 1, 2005 was
809,970,985, and at December 31, 2005 was 959,658,155.
To the Companys knowledge, except as disclosed above, the
Company is not directly or indirectly owned or controlled by any
other corporation, foreign government or any other natural or
legal person severally or jointly and the Company is not aware
of any arrangements, the operation of which may at a subsequent
date result in a change of control of the Company.
To the Companys knowledge, the percentage of share capital
and voting rights held by the members of the Companys
directors and officers was 0.07% as of December 31, 2005.
Pursuant to Article 8 (Rights attached to each
share) of the bylaws, each ordinary share gives its owner
the right to one vote at the general shareholders meetings
and the bylaws do not stipulate shares having the right to a
double vote. In addition, there is no statutory limitation on
voting rights. Therefore, the shareholders of the Company do not
have different voting rights.
B. RELATED PARTY TRANSACTIONS
Several directors of the Company are also officers or directors
of companies with whom SCOR has arms length transactions
in the regular course of business. In particular, SCOR enters
into reinsurance transactions with Groupama in the regular
course of business.
The following material transactions have been executed with
related parties since January 1, 2005:
|
|
|
|
|
On February 7, 2005, SCOR and its U.S. and Bermudian
subsidiaries, SCOR U.S. and CRP, signed a large commutation
agreement for the SCOR Group which reduced the overall reserves
of SCOR U.S. and, to a lesser extent, CRP, by approximately
USD 300 million and has been accounted for in the first
quarter of 2005. |
|
|
|
The Board of Directors, at its meeting of May 9, 2005,
authorized the entering into of an agreement to open a revolving
credit facility with a banking syndicate represented by BNP
Paribas as Agent and Lead Manager (the Credit Facility
Agreement) in order to make available to the Company a
short-term credit facility to finance its general cash needs.
The Credit Facility Agreement was entered into on May 18,
2005 for a term of 12 months. The credit facility is
available by drawing down a maximum |
109
|
|
|
|
|
amount of EUR 75,000,000 over a period ending one month before
the facilitys final payment date. This agreement expired
on May 18, 2006. |
The composition of the banking syndicate and their respective
commitments provided by each lender of the total facility is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitment | |
Lender |
|
Credit | |
|
in % | |
|
|
| |
|
| |
BNP Paribas
|
|
|
EUR 24,750,000 |
|
|
|
33% |
|
CALYON
|
|
|
EUR 18,750,000 |
|
|
|
25% |
|
Natexis Banques Populaires
|
|
|
EUR 15,000,000 |
|
|
|
20% |
|
Crédit Industriel et Commercial
|
|
|
EUR 7,500,000 |
|
|
|
10% |
|
Ixis Corporate & Investment Bank
|
|
|
EUR 5,250,000 |
|
|
|
7% |
|
Caisse Régionale de Crédit Agricole Mutuel de Paris
et dIle-de-France
|
|
|
EUR 3,750,000 |
|
|
|
5% |
|
|
|
|
|
|
|
|
Total Commitments
|
|
|
EUR 75,000,000 |
|
|
|
100% |
|
|
|
|
|
|
|
|
|
|
|
As a security of its obligations under the Credit Facility
Agreement, the Company must grant a first rank pledge over its
securities account for the benefit of the Lenders and BNP
Paribas as Agent pursuant to the terms of the related pledge
agreement and must pledge as security, as a condition precedent
to each draw down under the credit facility and at the option of
the Company, either (i) French treasury bonds
(Obligations Assimilables du Trésor, or
OAT) for an amount equal to at least 105% of the
draw down amount, (ii) shares for an amount equal to at
least 125% of the draw down amount, or (iii) bonds for an
amount equal to at least 110% of the draw down amount. |
|
|
The Board authorized as may be necessary, the execution of an
amendment to the Credit Facility Agreement providing for the
pledge of shares of Luxembourg SICAV mutual funds as well as a
pledge agreement subject to Luxembourg law between the Company,
the Lenders and BNP Paribas as Agent, relative to the pledge of
such shares of Luxembourg SICAV mutual funds (hereinafter, with
the securities pledge described above, the Security). |
|
|
The applicable margin for each draw down is a function of the
type of securities pledged as collateral prior to the draw down.
In the event of a pledge of shares (including shares of a
Luxembourg SICAV mutual fund), the applicable margin is set at a
rate of 0.45% per year; in the event of a pledge of bonds, the
applicable margin was fixed at a rate of 0.25% per year; and, in
the event of a pledge of OAT French treasury bonds, the
applicable margin is set at the greater of (i) the rate of
0.15% per year and (ii) fees for non-use of the draw down
applicable on the date of the applicable draw down. |
|
|
The interest period is set, at the Companys discretion and
for each draw down, at 1, 2, 3 or 6 months. The applicable
interest rate for the drawn amount is equal to the sum of
(i) EURIBOR for the applicable interest period,
(ii) the margin applicable to the applicable draw down and,
as the case may be, (iii) mandatory costs applicable under
the terms of the agreement. |
Banking commissions provided for under the terms of the Credit
Line Agreement are as follows:
|
|
|
Non-use fees: payable quarterly in arrears on the basis of a
rate applied at the time of the opening of the credit facility
and which varies as a function of the Counterparty Credit Rating
attributed to the Company by Standard & Poors: |
|
|
|
|
|
|
BBB or less: |
|
|
0.28% per year |
|
BBB+: |
|
|
0.20% per year |
|
A-: |
|
|
0.15% per year |
|
A or better: |
|
|
0.12% per year |
110
|
|
|
If on the calculation date, Standard & Poors no longer
attributed such a rating to the Company, the rate is to be
determined as a function of the Counterparty Credit Rating
attributed by Moodys, in the following manner: |
|
|
|
|
|
|
Baa2 or less: |
|
|
0.28% per year |
|
Baa1: |
|
|
0.20% per year |
|
A3: |
|
|
0.15% per year |
|
A2 or better: |
|
|
0.12% per year |
|
|
|
In the event Standard & Poors and Moodys no
longer attributed to the Company the credit ratings referred to
above, and assuming an event of default (as defined in the
Credit Facility Agreement) were to occur, the applicable rate
would be set at the maximum applicable rate, i.e. 0.28% per year. |
|
|
Participation fee: 0.20% of the amount of commitments of each
Lender, payable on the day of execution of the Credit Facility
Agreement. |
|
|
|
|
|
Agents commission: EUR 10,000 (not including VAT)
payable in one installment. |
|
|
|
Lead Managers commission: 0.10% flat rate (not including
VAT), calculated on the basis of the credit line of
EUR 75,000,000 and payable in one installment. |
|
|
|
The representations and warranties of the Company pursuant to
the Credit Facility Agreement and events of default are similar
in all material respects to those shown in the letter of credit
facility agreement, as amended, entered into on
December 26, 2002. |
The director concerned by this agreement is Mr. Kessler,
Chairman and Chief Executive Officer of the Company.
|
|
|
|
|
The Board of Directors at its meeting of May 31, 2005
authorized, pursuant to
Article L. 225-38
of the French Commercial Code, and in connection with the
capital increase dated June 30, 2005, the execution of a
mandate letter and an underwriting agreement between SCOR and
BNP Paribas relative to the offer and to the placement of shares
to be issued. |
The director concerned by this agreement is Mr. Kessler,
Chairman and Chief Executive Officer of the Company.
|
|
|
|
|
The Board of Directors at its meeting of August 31, 2005
authorized, pursuant to
Article L. 225-38
of the French Commercial Code, the execution of a Global
Novation Agreement among SCOR, Irish Reinsurance Partners
Limited (IRP), and SCOR, SCOR Italia Riassicurazioni, SCOR UK
Company Ltd, SCOR Deutschland, SCOR Asia Pacific, SCOR Re Co
(Asia) Ltd, SCOR Asia Pacific Australian Branch, SCOR Asia
Pacific Labuan Branch and SCOR Re Asia Pacific PTE Ltd Korea
Branch, (referred to as the Subsidiaries), pursuant
to which SCOR shall be assigned all IRP rights and obligations
resulting from the quota share retrocession agreements. |
The directors and officers concerned by this agreement are
Messrs. Kessler and Thourot.
|
|
|
|
|
The Board of Directors at its meeting of August 31, 2005
authorized, pursuant to
Article L. 225-38
of the French Commercial Code, the execution of the SCOR Re
Novation Agreement between SCOR, Irish Reinsurance Partners
Limited (IRP) and SCOR Reinsurance Company, pursuant to which
SCOR shall be assigned all IRP rights and obligations resulting
from the quota share retrocession agreement, as defined by such
agreement. |
The directors and officers concerned by this agreement are
Messrs. Kessler, Chapin, Lebègue and Thourot.
|
|
|
|
|
The Board of Directors at its meeting of August 31, 2005
authorized, pursuant to
Article L. 225-38
of the French Commercial Code, the execution of the Canada
Novation Agreement between SCOR, Irish Reinsurance Partners
Limited (IRP) and SCOR Canada Reinsurance Company, pursuant to
which SCOR shall be assigned all IRP rights and obligations
resulting from the quota share retrocession agreement, as
defined by such agreement. |
The directors and officers concerned by this agreement are
Messrs. Kessler, Lamontagne and Thourot.
111
|
|
|
|
|
The Board of Directors at its meeting of August 31, 2005
authorized, pursuant to
Article L. 225-38
of the French Commercial Code, the execution of an indemnity
agreement requested of SCOR by the Board of Directors of IRP in
order to indemnify any liability to Irish Reinsurance Partners
Limited resulting from the execution of the renewal agreements
described above. |
The directors and officers concerned by this agreement are
Messrs. Kessler and Thourot.
|
|
|
|
|
The Board of Directors at its meeting dated August 31, 2005
authorized, pursuant to
Articles L. 225-38
and L. 225-35 of
the French Commercial Code, the renewal of certain parent
company guarantees granted by SCOR in order to allow the
Groups reinsurance subsidiaries to benefit from a
financial rating equivalent to SCORs. SCOR guarantees the
obligations of such subsidiaries under their insurance and
reinsurance agreements, especially in connection with a parent
company letter of guarantee which the Board authorized on
December 19, 2002. |
|
|
|
During the 2004/2005 period, the subsidiary General Security
Indemnity Company of Arizona was required to produce the letter
of guarantee once for the attention of a certain intermediary. |
|
|
Furthermore, the Board of Directors also authorized a new parent
company guarantee granted by SCOR to Commercial Risk Reinsurance
Company and Commercial Risk
Re-Insurance Limited. |
|
|
The Chairman of the Board also indicated that pursuant to
Article L. 225-38
of the French Commercial Code and given the functions that they
occupy on the Board of Directors of certain of the
Companys subsidiaries, Messrs. Chapin, Lamontagne,
Lebègue and Kessler did not take part in the vote. For the
same reasons, with respect to the parent company guarantee
granted to SCOR VIE, only Ms. Aronvald was authorized to
vote. |
|
|
The benefit of such parent company guarantee is granted to the
following subsidiaries of the SCOR Group, pursuant to the
insurance and/or reinsurance agreements entered into by such
subsidiaries: |
|
|
|
|
|
SCOR Reinsurance Co. Ltd (US) |
|
|
|
General Security Indemnity Co. of Arizona |
|
|
|
General Security National Insurance Co. |
|
|
|
Commercial Risk Reinsurance Company |
|
|
|
Commercial Risk Re-Insurance Limited |
|
|
|
Investors Insurance Corp. |
|
|
|
SCOR Life Insurance Company (ex. Republic-Vanguard Life
Insurance Co) |
|
|
|
SCOR Asia-Pacific Pte Ltd |
|
|
|
SCOR Canada Reinsurance Co. |
|
|
|
SCOR Channel |
|
|
|
SCOR Deutschland |
|
|
|
SCOR Financial Services Ltd |
|
|
|
SCOR Italia Riassicurazioni SpA |
|
|
|
SCOR Life U.S. Re Insurance Co |
|
|
|
SCOR Reinsurance Co. (Asia) Ltd |
|
|
|
SCOR U.K. Co. Ltd |
|
|
|
SCOR VIE |
This new authorization takes effect September 3, 2005 and
shall terminate no later than September 2, 2006.
112
|
|
|
The directors and officers concerned are Messrs. Chapin,
Lamontagne, Lebègue, Thourot and Kessler. Concerning the
parent company guarantee granted to SCOR VIE, the directors and
officers concerned are Messrs. Kessler, Havis, Chapin,
Simonnet, Seys,
Levy-Lang, Borges,
Schimetschek, Tendil, Acutis, Lamontagne, Valot, Lebègue
and le Pas de Sécheval. |
|
|
|
|
|
The Board of Directors in its meeting of November 2, 2005
authorized, pursuant to Article L. 225-38 of the French
Commercial Code, the issuance of a parent company letter of
guarantee to cover the financial obligations of SCOR VIE
pursuant to an agreement for the issuance of letters of credit
to be entered into among SCOR VIE, SCOR Financial Services
Limited (SFS) and CALYON. |
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This agreement to issue letters of credit and the parent company
guarantee are part of a transaction intended to make available
to SCOR Life U.S. Reinsurance Company (SLR) additional
financial resources in order for it to satisfy the financial
coverage requirements provided by
so-called Triple
X U.S. regulations. |
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Pursuant to the agreement referred to above, CALYON undertook to
issue or to cause the issuance to the benefit of SLR of one or
more letters of credit for a term of five years and up to a
total commitment corresponding to the smaller of the two
following amounts: (a) USD 250 million and
(b) the difference between the (i) Triple X reserves
and (ii) 150% of the amount of the reserves required
pursuant to accounting requirements (net of deferred acquisition
costs). |
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The transaction was submitted to the Texas Department of
Insurance as it required a number of modifications to the
Automatic Coinsurance Retrocession Treaty entered into on
December 31, 2003 among SLR and SFS. The Texas Department
of Insurance indicated, in a letter dated September 30,
2005, that it had no comments to the modifications made to this
agreement. The Irish regulatory authority (IFSRA) was also
informed of the transaction and indicated they had no objection. |
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The transaction was finalized at the end of December 2005. |
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The board members concerned are Messrs. Kessler, Havis,
Chapin, Simonnet, Seys, Levy-Lang, Lebègue, Borges,
Schimetschek, Tendil, Acutis, Lamontagne, Valot and le Pas de
Sécheval. |
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In December 2002, SCOR entered into a credit agreement with a
banking syndicate led by BNP Paribas providing for a credit
facility of USD 900 million. The maximum amount of the
credit line was successively reduced to: (i) USD
842 million under Amendment No. 2; (ii) USD
822 million following the Companys contribution of
its personal reinsurance activities to SCOR VIE; (iii) USD
732 million following the final discharge of the letters of
credit relating to the reinsurance activities contributed;
(iv) USD 582 million and finally to USD
292 million following partial waivers of the credit
executed by SCOR and delivered to BNP Paribas in its capacity as
issuing bank, under correspondence dated March 29, 2004 and
September 8, 2004, respectively. |
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On August 25, 2004, an Amendment No. 3 to the credit
agreement was authorized by the Companys Board of
Directors in order to (i) eliminate some provisions that
had become irrelevant following the discharge of pledges SCOR
had made on certain of its subsidiaries on March 31, 2004
under the agreement; and (ii) to modify the obligations
with respect to purchases of shares and capital reductions in
order to specify an exception for the capital reduction and
share buyback plan approved at the May 18, 2004
shareholders meeting. |
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In addition, in November 2004 the Board of Directors authorized
Amendment No. 4 to the credit agreement which extended the
maturity date of the credit agreement to December 31, 2005
and reduced the credit lien to USD 115 million effective
January 1, 2005. Amendment No. 4 also provided for the
following lender fees payable under the credit agreement:
(i) a use commission of 0.15% per year as of
November 1, 2004, reduced from 0.30% per year under the
original agreement; (ii) a non-use commission of 0.06% per
year as of January 1, 2005, reduced from 0.20% for the
previous year, calculated on the basis of the amount of credit
not used and not cancelled and payable quarterly, commencing
with the quarterly payment due as of the execution date of
Amendment No. 4 calculated on the basis of the average rate
determined and prorated from the previously applicable rate of
0.20% per year and the new 0.06% per year rate applicable from
and after the execution date; (iii) an extension commission
of 0.045%, reduced from of 0.20%, calculated on the |
113
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basis of the new USD 115 million amount of the credit
facility as of January 1, 2005 and payable on
January 3, 2005; (iv) an issuance commission of USD
400 for every issuance of a letter of credit; (v) a
fronting commission payable to BNP Paribas of 0.10%, reduced
from of 0.24%, calculated on the basis of the outstanding amount
payable quarterly; and (vi) a commission for establishing
Amendment No. 4 due to BNP Paribas of 0.04% of the new USD
115 million amount of the credit facility as of
January 1, 2005 payable on January 3, 2005. |
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In addition to the changes in the financial terms, Amendment
No. 4 also: (i) expanded the real and personal
sureties that SCOR may grant under the terms of the credit
agreement; (ii) cancelled the requirement that SCOR obtain
prior approval from the banking syndicate to dispose of assets,
other than the equity interests held in SCOR VIE;
(iii) raised the cross-default threshold to EUR
50 million; and (iv) substituted the concept of
Principal Subsidiaries in lieu of the notion of
consolidated Member of the SCOR Group. |
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Amendment No. 4 included a partial and definitive reduction
of the amount of the credit facility by SCOR in the amount of
USD 177 million. As a result of this amendment, the total
amount of credit available under the facility was USD
115 million as of January 1, 2005. The participating
banks and their respective commitment amounts were as follows:
BNP Paribas (USD 37.95 million, or 33%); CALYON (USD
26.45 million, or 23%); Natexis Banques Populaires (USD
19.55 million, or 17%); CIC (USD 17.25 million, or
15%); Ixis Corporate & Investment Bank (USD
8.05 million, or 7%); and CRCAM (USD 5.75 million,
or 5%). |
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The Company terminated this credit facility agreement, as
amended, with effect as of December 31, 2005. The
Companys objective is to favor bilateral relations with
one or more banking partners with respect to the coverage by
letters of credit of its reinsurance obligations. The Company
asked BNP Paribas not to terminate certain of its
stand-by letters of
credit issued in connection with such credit agreement and to
retain responsibility for certain banking commitments in
connection therewith (so that such letters of credit renew
automatically for a year as from December 31, 2005) and
requested BNP Paribas, subject to the decision of its Board, to
issue new letters of credit in connection with a new agreement. |
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The Board of Directors at its meeting of November 2, 2005
authorized, pursuant to Article L.
225-38 of the French
Commercial Code, the execution of a new stand-by letter of
credit facility agreement with the BNP Paribas to guarantee the
performance of the Companys obligations under its
reinsurance operations. The agreement was executed on
November 25, 2005. The credit facility is available by
issuing letters of credit and/or revolving stand-by letters of
credit (SBLC) up to a maximum of USD 85,000,000 (eighty-five
million USD) and over a period running from January 4, 2006
to December 31, 2008. |
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In order to guarantee its obligations under the above credit
facility agreement, SCOR offered a first-rank pledge of
securities account to the benefit of the BNP Paribas pursuant to
a pledge agreement (and the related pledge declaration) and
pledged as collateral, (i) on the date of execution of the
pledge agreement, a number of OAT French treasury bonds in a
minimum amount equal to EUR 5,000 (five thousand euros),
(ii) on December 30, 2005, an additional number of OAT
French treasury bonds in an amount equal to the value in EUR of
105% of the Initial SBLCs (corresponding to the letters of
credit issued in connection with the former credit facility
agreement and assumed and extended by the BNP Paribas), and
(iii) before each new draw down, is required to pledge
additional OAT French treasury bonds in an amount equal to the
value in EUR of 105% of the amount of the new draw down. |
The bank fees provided for under the terms of this credit
facility agreement are the following:
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Non-use fee: 0.05% per year as from January 1, 2006,
calculated on the non-utilized and uncancelled amount of the
credit facility and payable per semester in arrears. |
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Use fee: 0.10% per year as from January 1, 2006, calculated
on the basis of the outstanding credit facility and payable
monthly in advance. |
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Other BNP Paribas commissions: |
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fixed commission of USD 400 for each issuance of SBLC; |
114
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fixed commission of USD 100 for each modification of SBLC; |
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fixed commission of USD 100 for each annual extension of SBLC. |
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The Board member concerned is Mr. Kessler. |
The following material transactions were executed with related
parties prior to January 1, 2005 and were continued in 2005:
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As part of the transaction for the acquisition of Sorema S.A.
and Sorema N.A. in May 2001, Groupama, as the seller of both
companies provided two guarantees for a period of six years,
pursuant to which Groupama may be required to indemnify SCOR in
the event of negative developments concerning material social
security and income tax liabilities and liabilities in respect
of technical reserves for the 2000 and previous subscription
years as assessed at December 31, 2006. As of
December 31, 2005, the amount of such obligations was
estimated by SCOR at EUR 250 million. This amount may be
adjusted at the end of the guaranty period which expires on
June 30, 2007. Mr. Baligand, a former director of the
Company, is a director of Groupama, and Mr. Le Pas de
Sécheval, the Chief Financial Officer of Groupama S.A., is
currently a director of the Company. |
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On June 24, 2004, SCOR entered into an underwriting
agreement with BNP Paribas, Goldman Sachs International and HSBC
CCF for the placement and subscription of the bonds convertible
and/or exchangeable for new or existing shares (OCEANE) with a
par value of EUR 2 due January 1, 2010 authorized by the
Board of Director of June 21, 2004 and approved by the
Autorité des marchés financiers on
June 24, 2004 under No. 04-627. The agreement provided
for a placement fee, a success fee and guaranty fee aggregating
EUR 4,175,000. The directors concerned by this agreement are
Mr. Kessler, the Chairman and Chief Executive Officer and a
director of the Company who also serves on the Board of
Directors of BNP Paribas, and Mr. Borges, a director of the
Company who is Vice Chairman and a Director of Goldman Sachs
International. |
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In June 2004, the Companys Board of Directors approved a
loan agreement dated June 21, 2004, in favor of SCOR Auber,
a Company subsidiary, in the amount of EUR 23,570,000, the
proceeds of which were used to fund the acquisition by SCOR
Auber of a logistics platform on June 30, 2004. Interest on
the loan was calculated at market rates. EUR 10 million of
the loan was capitalized following a share capital increase. The
officer concerned by this agreement was Mr. Thourot, Chief
Operating Officer of the Company, who also serves on the board
of SCOR Auber. |
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In November 2004, the Companys Board of Directors approved
a joint and several guarantee granted by the Company to SCOR VIE
with respect to a stand-by letter of credit facility agreement
dated November 14, 2003 for a maximum amount of EUR
110 million between SCOR VIE and a bank pool including BNP
Paribas, CIC, CAI, Natexis Banques Populaires, WestLB,
CDC-Finance
CDC Ixis, Crédit Agricole dIle de France and
Crédit Lyonnais. This credit facility agreement was
terminated with effect from December 31, 2005. |
C. INTERESTS OF EXPERTS AND COUNSEL
Not applicable.
115
Item 8. Financial Information
A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL
INFORMATION
Legal Proceedings
We are involved in one legal proceeding concerning past
environmental claims. Based on information currently available
to us, we believe that the provisions we have reserved as of the
date hereof are sufficient to cover this matter.
In addition, we are involved in the following litigation matters:
In the United States:
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In December 2002, a petition was filed by Dock Resins
Corporation and Landec Corporation before a U.S. Federal
District Court in New Jersey against SCORs subsidiary,
Sorema North America Reinsurance Company, now known as GSNIC,
for an alleged bad faith denial of coverage by GSNIC concerning
business interruption suffered by the plaintiffs. GSNIC filed a
cross claim for fraud and misrepresentation seeking to void the
policy and preserve GSNICs right to recover the costs
incurred in litigating the case. The plaintiffs claim an
unspecified amount of damages in excess of policy limits for the
contents and business interruption coverage, which are capped
under the insurance policy at an aggregate total of USD
15 million. The policy has been retroceded at 80% outside
of the SCOR Group. GSNIC has paid the undisputed portions of the
claim. On January 27, 2006, motions for partial summary
judgment and cross-motions filed by the various parties were
argued, with the decisions being very favorable for the
defendants. The Court granted GSNICs Motion for partial
summary judgment dismissing all claims against it for alleged
bad-faith denial as well as dismissing the claim that GSNIC
conspired with its consultants to wrongfully deny the insurance
claim. Additionally, claims for other punitive or
extra-contractual damages as well as counsel fees were also
dismissed. Plaintiffs cross-motion for partial summary
judgment on GSNICs affirmative defense of insurance fraud
was denied. As a result of these rulings, plaintiff is left with
a contract cause of action against GSNIC on the insurance
policy. Discovery is likely to be completed in the spring of
2006. A date for trial is tentatively listed for June 2006. |
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In March 2004, certain funds of Highfields Capital (Highfields
Capital LTD, Highfields Capital I LP and Highfields Capital II
LP, together referred to as the Highfields Funds),
as minority shareholders of IRP Holdings Limited, filed a
complaint against SCOR in the US District Court of
Massachusetts. The complaint alleges fraud and violations of
Massachusetts law with regard to the acquisition by the
Highfields Funds of a stake in IRP Holdings Limited in December
2001. On April 19, 2006, after a question arose regarding
the U.S. District Courts jurisdiction over the case,
Highfields filed a Motion to Affirm Subject Matter Jurisdiction
or, in the Alternative, to Refer Case to State Court, which asks
the federal court to clarify jurisdictional questions. The
parties have filed briefs on that motion but, as of
June 22, 2006, the court has neither heard oral argument
nor issued a ruling on Highfields motion. If the
U.S. District Court determines it has the proper
jurisdiction over the case, damages (including punitive damages)
owed, if any, would only be determined by the court at the end
of the trial which is scheduled to begin in May 2007. If the
U.S. District Court determines it lacks jurisdiction over the
law suit, Highfields may be permitted to file a similar
complaint in Massachusetts state court. |
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Beginning in October 2001, various lawsuits were brought and
counterclaims made in U.S. Federal Court in New York
concerning the question of whether the terrorist attack on the
World Trade Center (WTC) on September 11, 2001 constituted
one or two occurrences under the terms of the applicable
property insurance coverage issued to the lessees of the WTC and
other parties. While SCOR as a reinsurer is not a party to such
lawsuits, its ceding company, Allianz Global Risks
U.S. Insurance Company (Allianz), which insured a portion
of the WTC and which is reinsured by SCOR, is a party to the
legal action. |
The first two phases of the trial were completed in 2004. At
the end of the first phase, nine of the twelve insurers involved
in that phase were found to be bound by a definition of the term
occurrence that as a matter of law has been found to mean that
the attack on the WTC constituted one occurrence. Allianz did
116
not participate in that first phase, but has participated in the
second phase of the trial. On December 6, 2004, the jury in
the second phase of the trial determined that the attack on the
WTC on September 11, 2001 constituted two occurrences under
the property insurance coverages issued by Allianz and by eight
other insurers of the WTC that were parties to this phase of the
trial. SCOR, a reinsurer of Allianz, considered the jury verdict
to be contrary to the terms of the insurance coverage in force
and to the intent of the parties. SCOR fully supported Allianz
in its efforts to overturn the verdict. This verdict has been
appealed to the U.S. Court of Appeals for the Second
Circuit and a decision is expected in 2006.
The verdict in the second phase of the trial did not determine
the amount of damages owed by the insurers, and a separate
court-supervised appraisal procedure is underway to determine
the amount of indemnification due by the insurers following the
destruction of the WTC towers. The final determination of the
appraisal procedure is expected in late 2006 or early 2007.
In the Groups original calculations of its technical
reserves, the WTC attack was treated as one occurrence for
purposes of the underlying insurance coverage since the
terrorist attack on September 11, 2001 was a single,
coordinated occurrence. As a result of the above-described jury
verdict in the second phase of the trial, the Group has
increased the reserves based on the initial replacement value
estimated 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. These amounts did not change significantly
in 2005. In addition, the Group issued two letters of credit to
Allianz for a total amount of USD 145,320,000 on
December 27, 2004 as security required by Allianz to
guarantee payment to the ceding company if the verdict is not
reversed or if the appraisal process were to lead to an
increased amount of liabilities to be paid in the future. See
Item 3.D. Risk Factors We may be subject
to losses due to our exposure to risks related to terrorist
acts.
Allianz has instituted an arbitration proceeding against the
Company in order to clarify the extent of the Companys
obligations under the reinsurance contract entered into with it.
The arbitration proceeding has been stayed by the arbitration
panel pending the happening of certain events relating to the
second phase of the trial. The arbitration proceeding has not
been reactivated.
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The Group is also involved in various arbitration proceedings
relating to the subscription of business, currently in run off,
primarily relating to coverage for certain bond losses. The
total amount of the related claims is approximately USD
10.3 million. |
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In January 2005, Continental Casualty Company (CCC), a CNA
subsidiary, initiated an arbitration proceeding to obtain a
declaration that six contracts signed with Commercial Risk
Re-Insurance Company (CRRC) should contain the so called
insolvency clause. CRRC issued a counter demand for
arbitration proceedings to obtain access to all relevant books
and records from CCC. |
On November 2, 2005, the panel rendered its award stating
that the six contracts were supposed to contain this insolvency
clause. Following this ruling, CRRC filed motions to vacate the
panels final award in U.S. Federal District Courts in
the state of Connecticut and for the Northern District of
Illinois seeking to vacate the arbitration panels ruling.
In its counter claim, CRRC is requesting, pursuant to the
provisions of the contracts in question, an order giving it full
access to all relevant books and records held by CCC and its
Agents. The organizational meeting in respect of this second
arbitration was held in October 2005 and the parties are in the
process of submitting their respective schedules to the panel.
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In August 2005, certain American subsidiaries of Royal & Sun
Alliance (RSA) initiated four arbitration proceedings against
Commercial Risk Re-Insurance Company and Commercial Risk
Reinsurance Company Ltd (Commercial Risk) relating to seven
reinsurance treaties signed by RSA and Commercial Risk. RSA is
alleging breach of the contracts and is seeking full payment of
balances due under these contracts, plus interest and expenses,
for a total of approximately USD 23 million. Commercial
Risk denies these balances asserting that the losses are outside
the scope of coverage and the terms and conditions of the
treaties. |
117
No significant development has occurred in these arbitration
proceedings. Panels have been constituted and the organizational
meetings were held on February 22, 2006 and March 28,
2006.
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At the end of February 2006, Security Insurance Company of
Hartford, Orion Insurance Company and other subsidiaries of
Royal & Sun Alliance (RSA) instituted litigation against
SCOR Reinsurance Company (SCOR Re) in the Supreme Court of the
State of New York alleging breach of contract and seeking
recovery of claimed loss balances of approximately USD
48.9 million allegedly due as losses under two quota share
treaties between the parties (the Treaties). |
SCOR Re is seeking to dismiss or stay the Supreme Court
litigation and is demanding that the issues raised in the
litigation be submitted to arbitration pursuant to the
arbitration clauses contained in the Treaties. At the
appropriate time in either the litigation or arbitration, SCOR
Re will assert its own defense and claims or counterclaims
concerning the substantive issues raised in the litigation.
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In February 2006, SCOR received an arbitration notice from the
captive of a pharmaceutical laboratory concerning
the settlement of a claim under civil liability for a laboratory
product. SCOR denied owing this amount and claims that the
captive was not required to indemnify the pharmaceutical
laboratory. The maximum potential commitment of SCOR is USD
17.5 million. |
In Europe:
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SCOR VIE, as the reinsurer of an insurance company, is involved
in a lawsuit in connection with a life insurance policy in the
amount of approximately EUR 4.5 million. The beneficiary of
the policy was killed in 1992. In June 2001, a Spanish court
ordered the ceding company to pay approximately EUR
16 million under the policy, which amount included
accumulated interest since 1992 as well as damages. Following
this decision, SCOR VIE booked a technical provision of EUR
17.7 million in its accounts for the 2001 fiscal year. In
May 2002, the Barcelona Court of Appeals found in favor of the
ceding company. The representatives of the deceased have now
appealed the case to the Spanish Supreme Court. The provision
was maintained at December 31, 2005. |
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The French Autorité des Marchés Financiers
(AMF) initiated an investigation on October 21, 2004 in
connection with the financial information and trading activity
surrounding the issue of the SCOR OCEANE bonds in July 2004. The
Company has no additional information on this matter at this
time. |
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The AMF also initiated an investigation on October 5, 2005
concerning the market for the SCOR shares as of June 1,
2005. |
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Since February 2005, the Company has been subject to a tax audit
for the period from January 1, 2002 to December 31,
2003. On December 21, 2005, this audit resulted in an
initial adjustment proposal, excluding late penalties, for an
additional assessment for the corporate income tax base for 2002
of EUR 26,870,073.77, an assessment for the withholding
stipulated by Article 119 bis 2 of the French General Tax
Code of EUR 5,788,871 and an additional assessment for the
employers payroll tax of EUR 27,891. |
118
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The Company has challenged this adjustment proposal. This
proposal, which stays the statute of limitations, will be
followed in 2006 with a definitive proposal also covering fiscal
year 2003. |
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The Autorité de Contrôle des Assurances et des
Mutuelles (A.C.A.M.) launched an audit of SCOR VIE in
January 2006. |
The Company is also involved in various other legal and
arbitration proceedings from time to time in the ordinary course
of its business. However, other than the proceedings mentioned
above, to our knowledge, there are no other litigation matters
that have had or are likely to have a material adverse impact on
the financial position, business and the operating results of
the Group.
Dividend Policy
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 did not pay any
dividends for 2002 and 2003, pursuant to decisions of the
shareholders meetings of May 15, 2003 and
May 18, 2004. Pursuant to the shareholders meeting of
May 31, 2005, the Company paid a dividend of EUR
24 million, or EUR 0.03 per share, in respect of the
financial year 2004. Pursuant to the shareholders meeting
of May 16, 2006, the Company will pay a dividend of EUR
48 million, or EUR 0.05 per share in respect of financial
year 2005.
Under French law and the Companys statuts (bylaws),
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.
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 on 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, 2005 were as follows:
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Number of | |
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Dividend per | |
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Ordinary | |
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Dividend per | |
|
Ordinary | |
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Dividend per | |
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|
Shares | |
|
Ordinary | |
|
Share including | |
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Dividend per | |
|
ADS including | |
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outstanding | |
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Share | |
|
Avoir Fiscal(1) | |
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ADS(2) | |
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Avoir Fiscal(1)(2) | |
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| |
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| |
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| |
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| |
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| |
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(Thousands) | |
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(EUR) | |
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(EUR) | |
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(USD) | |
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(USD) | |
2001
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41,244 |
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0.30 |
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0.45 |
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0.27 |
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0.40 |
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2002
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136,545 |
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0.00 |
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0.00 |
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0.00 |
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0.00 |
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2003
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136,545 |
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|
0.00 |
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0.00 |
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0.00 |
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0.00 |
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2004
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819,269 |
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0.03 |
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0.03 |
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0.04 |
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0.04 |
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2005
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968,769 |
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0.05 |
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0.05 |
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0.06 |
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0.06 |
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119
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(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 0.35 in 2001, and
the dividend per ADS including Avoir Fiscal for other
corporations was USD 0.31 in 2001. The Avoir Fiscal was
repealed and therefore will not be applicable with respect to
dividends distributed in the future. See Item 10.E.
Taxation. |
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(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. |
B. SIGNIFICANT CHANGES
Except as disclosed elsewhere in this Annual Report, there have
been no significant changes in the Groups business since
December 31, 2005, the date of the annual financial
statements included in this Annual Report.
120
Item 9. The Offer and Listing
A. OFFER AND LISTING DETAILS
The following tables set forth the highest and lowest sales
price and the average monthly trading volume of the Ordinary
Shares on the Premier Marché until February 21, 2005
and on Eurolist from such date, as reported by Euronext Paris,
and the highest and lowest sales price and the average monthly
trading volume of the ADSs, as reported on the NYSE composite
tape, for time periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euronext | |
|
New York Stock Exchange | |
|
|
| |
|
| |
|
|
|
|
Average Monthly | |
|
Price Per American | |
|
Average Monthly | |
|
|
Price Per Ordinary Share | |
|
Trading Volume | |
|
Depositary Share | |
|
Trading Volume | |
|
|
| |
|
| |
|
| |
|
| |
|
|
High | |
|
Low | |
|
Shares | |
|
High | |
|
Low | |
|
ADSs | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
2001
|
|
|
EUR 58.20 |
|
|
|
EUR 24.47 |
|
|
|
1,679,000 |
|
|
|
USD 53.75 |
|
|
|
USD 27.89 |
|
|
|
89,000 |
|
2002
|
|
|
EUR 29.09 |
|
|
|
EUR 3.42 |
|
|
|
10,812,000 |
|
|
|
USD 40.80 |
|
|
|
USD 5.28 |
|
|
|
158,000 |
|
2003
|
|
|
EUR 6.48 |
|
|
|
EUR 1.14 |
|
|
|
26,130,668 |
|
|
|
USD 7.80 |
|
|
|
USD 1.62 |
|
|
|
1,327,835 |
|
2004
|
|
|
EUR 1.74 |
|
|
|
EUR 1.00 |
|
|
|
119,620,704 |
|
|
|
USD 2.37 |
|
|
|
USD 1.23 |
|
|
|
12,707,650 |
|
First Quarter
|
|
|
EUR 1.74 |
|
|
|
EUR 1.20 |
|
|
|
224,202,079 |
|
|
|
USD 2.37 |
|
|
|
USD 1.52 |
|
|
|
34,569,666 |
|
Second Quarter
|
|
|
EUR 1.53 |
|
|
|
EUR 1.15 |
|
|
|
76,870,659 |
|
|
|
USD 1.91 |
|
|
|
USD 1.34 |
|
|
|
6,029,833 |
|
Third Quarter
|
|
|
EUR 1.39 |
|
|
|
EUR 1.00 |
|
|
|
88,322,260 |
|
|
|
USD 1.69 |
|
|
|
USD 1.23 |
|
|
|
4,088,767 |
|
Fourth Quarter
|
|
|
EUR 1.53 |
|
|
|
EUR 1.19 |
|
|
|
89,087,816 |
|
|
|
USD 2.11 |
|
|
|
USD 1.46 |
|
|
|
6,142,333 |
|
2005
|
|
|
EUR 1.89 |
|
|
|
EUR 1.38 |
|
|
|
118,532,069 |
|
|
|
USD 2.29 |
|
|
|
USD 1.83 |
|
|
|
3,444,917 |
|
First Quarter
|
|
|
EUR 1.70 |
|
|
|
EUR 1.38 |
|
|
|
77,690,765 |
|
|
|
USD 2.29 |
|
|
|
USD 1.83 |
|
|
|
5,010,133 |
|
Second Quarter
|
|
|
EUR 1.71 |
|
|
|
EUR 1.46 |
|
|
|
116,936,278 |
|
|
|
USD 2.12 |
|
|
|
USD 1.86 |
|
|
|
4,370,100 |
|
Third Quarter
|
|
|
EUR 1.84 |
|
|
|
EUR 1.57 |
|
|
|
173,557,847 |
|
|
|
USD 2.20 |
|
|
|
USD 1.92 |
|
|
|
2,522,500 |
|
Fourth Quarter
|
|
|
EUR 1.89 |
|
|
|
EUR 1.61 |
|
|
|
105,943,387 |
|
|
|
USD 2.21 |
|
|
|
USD 1.91 |
|
|
|
1,876,933 |
|
November 2005
|
|
|
EUR 1.75 |
|
|
|
EUR 1.62 |
|
|
|
98,436,676 |
|
|
|
USD 2.03 |
|
|
|
USD 1.91 |
|
|
|
1,811,800 |
|
December 2005
|
|
|
EUR 1.89 |
|
|
|
EUR 1.71 |
|
|
|
108,573,398 |
|
|
|
USD 2.21 |
|
|
|
USD 2.03 |
|
|
|
2,627,300 |
|
2006 (through June 23rd)
|
|
|
2.25 |
|
|
|
1.60 |
|
|
|
129,878,569 |
|
|
|
USD 2.61 |
|
|
|
USD 2.02 |
|
|
|
2,176,917 |
|
January 2006
|
|
|
EUR 2.11 |
|
|
|
EUR 1.81 |
|
|
|
194,052,142 |
|
|
|
USD 2.56 |
|
|
|
USD 2.21 |
|
|
|
3,161,900 |
|
February 2006
|
|
|
EUR 2.19 |
|
|
|
EUR 1.97 |
|
|
|
144,931,333 |
|
|
|
USD 2.54 |
|
|
|
USD 2.34 |
|
|
|
1,225,300 |
|
March 2006
|
|
|
EUR 2.25 |
|
|
|
EUR 1.99 |
|
|
|
131,440,902 |
|
|
|
USD 2.65 |
|
|
|
USD 2.35 |
|
|
|
2,039,000 |
|
April 2006
|
|
|
EUR 2.17 |
|
|
|
EUR 2.01 |
|
|
|
82,341,287 |
|
|
|
USD 2.61 |
|
|
|
USD 2.41 |
|
|
|
1,773,600 |
|
May 2006
|
|
|
EUR 2.08 |
|
|
|
EUR 1.75 |
|
|
|
131,746,279 |
|
|
|
USD 2.60 |
|
|
|
USD 2.27 |
|
|
|
3,425,300 |
|
June 2006 (through June 23rd)
|
|
|
EUR 1.91 |
|
|
|
EUR 1.60 |
|
|
|
94,759,472 |
|
|
|
USD 2.39 |
|
|
|
USD 2.02 |
|
|
|
1,436,400 |
|
Note: Following the capital increase of December 2002, all
numbers related to the share price shown before December 2002
must be retreated by a correcting coefficient to adjust to new
shares. This coefficient is 0.621545.
Note: Following the capital increase of December 2003, all
numbers related to the share price shown before December 2003
must be retreated by a correcting coefficient to adjust to new
shares. This coefficient is 0.45046. For quotations and volumes
before December 2002 (First capital increase), the applicable
coefficient is: 0.293495 (i.e.
0.45046 × 0.621545).
Note: For a description of the capital increase carried out
in June 2005, see Item 10.B. Bylaws
Additional Ordinary Share Issuances Authorized.
Note: The average monthly trading volume for each period
includes the average of the monthly trading volume for each
month in the period.
On June 23, 2006, the last reported sale price of the Ordinary
Shares on Euronext was EUR 1.66 and the last reported sale
price of the ADSs on the NYSE was USD 2.06.
As of June 6, 2006, there were 968,769,070 Ordinary Shares
outstanding, of which 21,112,258 shares, or 2.18% of our
capital, were held in the form of ADSs, each representing one
Ordinary Share.
Euronext Paris is the most active trading market for the SCOR
Ordinary Shares. The average monthly trading volume on Euronext
was 118,532,069 million shares from January 2005 to
December 2005 and 129,878,569 million shares from January
2006 to June 23, 2006.
121
OCEANEs Issuance and Repayment
On January 3, 2005, SCOR repaid its bonds convertible
and/or exchangeable for new or existing shares (OCEANEs) 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 OCEANE bonds, the reimbursement value of which
corresponds to EUR 37.7 million. In July 2004, we
issued EUR 200 million of OCEANE bonds, consisting of
100 million bonds having a par value of EUR 2 each.
The OCEANE bonds will be fully redeemed in 2010. We used the
proceeds from this OCEANE bond issuance, together with available
cash, to repay our OCEANE bonds originally issued in
June 1999.
The OCEANE bonds bear interest at a rate of 4.125% per annum,
payable in arrears on January 1 of each year, and are
redeemable in full at maturity on January 1, 2010 at
EUR 2 per bond. Early redemption in whole or in part is
possible, at the sole option of the Company as follows:
|
|
|
|
|
at any time, for all or a portion of the bonds, by means of
repurchases on the market or over-the-counter or by public
tender offer; |
|
|
|
at any time, for all bonds outstanding, from January 1,
2008 to December 31, 2009, subject to a minimum notice
period of at least 30 calendar days by redemption at par, plus
interest accrued from the last interest payment date preceding
the early redemption date until the date set for redemption and
if the product of (i) the applicable conversion/ exchange
ratio and (ii) the average opening price of the
Companys shares on Euronext Paris calculated over a period
of 20 consecutive trading days during which the shares are
listed on such stock exchange, as selected by the Company from
among the 40 consecutive trading days preceding the date of
publication of a notice relating to such early redemption,
exceeds 130% of the principal amount of the bonds; and |
|
|
|
at any time, for all bonds outstanding, if less than 10% of the
bonds issued remain outstanding, by redemption at par, plus
interest accrued from the last interest payment date preceding
the early redemption date until the date set for redemption. |
Bondholders may request that each bond be converted into and/or
exchanged for one ordinary share of SCOR at any time from
July 2, 2004 until the seventh day preceding their normal
or early redemption date. The Company may, at its option,
deliver new shares and/or existing shares. Any bondholder who
has not exercised his right before the final redemption date
shall receive an amount equal to the redemption price of the
bonds. As of June 23, 2006, 100 million OCEANE bonds
are outstanding.
In order to exercise such right, bondholders must forward their
request through the intermediary where their securities accounts
are registered. These transactions are centralized by BNP
Paribas Securities Services.
Any request for conversion and/or exchange of the bonds that
reaches BNP Paribas Securities Services in its capacity as
centralizing agent during the course of a calendar month shall
take effect (i) on the last working day of said calendar
month or (ii) the seventh working day that precedes the
date set for redemption. The shares shall be delivered to the
bondholders on the seventh working day following the exercise
date of the right.
The OCEANE bonds and the shares to be issued upon conversion or
delivered upon exchange have not been and will not be registered
under the U.S. Securities Act of 1933, as amended, and may
not be offered or sold in the U.S. except pursuant to an
exemption from registration. That means that holders of the
OCEANE bonds and the underlying shares will not be able to
transfer these securities readily and must be prepared to hold
them indefinitely.
122
The following table sets forth the highest and lowest sales
price and trading volume of the OCEANE bonds issued in 2004 on
Euronext Paris, as reported by Euronext Paris, for the periods
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume of | |
|
|
|
|
Year |
|
Month |
|
transactions | |
|
High | |
|
Low | |
|
|
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
(EUR) | |
|
(EUR) | |
2004
|
|
July |
|
|
93,365 |
|
|
|
2.12 |
|
|
|
2.05 |
|
|
|
August |
|
|
1,055,067 |
|
|
|
2.1 |
|
|
|
2.03 |
|
|
|
September |
|
|
675,868 |
|
|
|
2.17 |
|
|
|
2.1 |
|
|
|
October |
|
|
16,090 |
|
|
|
2.17 |
|
|
|
2.12 |
|
|
|
November |
|
|
653,151 |
|
|
|
2.23 |
|
|
|
2.05 |
|
|
|
December |
|
|
16,120 |
|
|
|
2.3 |
|
|
|
2.15 |
|
2005
|
|
January |
|
|
592,469 |
|
|
|
2.32 |
|
|
|
2.13 |
|
|
|
February |
|
|
567,257 |
|
|
|
2.36 |
|
|
|
2.16 |
|
|
|
March |
|
|
123,599 |
|
|
|
2.35 |
|
|
|
2.25 |
|
|
|
April |
|
|
660 |
|
|
|
2.35 |
|
|
|
2.27 |
|
|
|
May |
|
|
3,506 |
|
|
|
2.35 |
|
|
|
2.15 |
|
|
|
June |
|
|
225,024 |
|
|
|
2.32 |
|
|
|
2.13 |
|
|
|
July |
|
|
1,512,206 |
|
|
|
2.45 |
|
|
|
2.20 |
|
|
|
August |
|
|
1,380,156 |
|
|
|
2.40 |
|
|
|
2.30 |
|
|
|
September |
|
|
19,077 |
|
|
|
2.35 |
|
|
|
2.25 |
|
|
|
October |
|
|
66,000 |
|
|
|
2.55 |
|
|
|
2.34 |
|
|
|
November |
|
|
546,815 |
|
|
|
2.55 |
|
|
|
2.11 |
|
|
|
December |
|
|
627,689 |
|
|
|
2.43 |
|
|
|
2.22 |
|
2006
|
|
January |
|
|
52,621 |
|
|
|
2.39 |
|
|
|
2.34 |
|
|
|
February |
|
|
8,080 |
|
|
|
2.57 |
|
|
|
2.45 |
|
|
|
March |
|
|
327,850 |
|
|
|
2.58 |
|
|
|
2.53 |
|
|
|
April |
|
|
10,715 |
|
|
|
2.55 |
|
|
|
2.47 |
|
|
|
May |
|
|
85,810 |
|
|
|
2.42 |
|
|
|
2.36 |
|
|
|
June (through June 23) |
|
|
1,200 |
|
|
|
2.40 |
|
|
|
2.40 |
|
Source: Euronext
IRP
General
In December 2001, SCOR, in partnership with other investors,
created IRP Holdings Limited, (IRP Holdings), and
Irish Reinsurance Partners (Irish Reinsurance
Partners), the operating company wholly owned by IRP
Holdings. Irish Reinsurance Partners Limited has been
principally used for the retrocession in quota shares of 25% of
the part of the Non-Life business subscribed or renewed by the
SCOR Group during the 2002, 2003 and 2004 financial years. In
2004, IRP Holdings net income amounted to
EUR 50.1 million after tax, or
EUR 57.4 million before tax. The shareholders of IRP
Holdings decided not to renew the quota share agreements, which
thereby expired on January 1, 2005.
SCOR contributed 41.70% of the EUR 300 million initially
invested in IRP Holdings. On March 20, 2003, SCOR acquired
from certain of the original investors in IRP Holdings, 4.98% of
its shares for a total consideration of EUR 17.2 million,
thereby increasing its ownership to 46.68% of IRP Holdings
share capital. In June and July 2003, the SCOR Group
acquired an additional 6.67% stake in IRP Holdings, previously
held by certain other original investors, thus increasing its
ownership in IRP Holdings from 46.68% as of March 31, 2003
to 53.35% as of June 30, 2003.
Pursuant to a shareholders agreement dated
December 28, 2001 (the IRP Shareholders
Agreement) entered into in connection with the formation
of IRP Holdings, SCOR committed to acquire the minority
shareholders stake in IRP Holdings in principle no later
than May 31, 2005. SCOR had the option of acquiring these
shares for
123
an exchange of SCOR shares, for cash, or a combination of these
two options. At the beginning of 2005, SCOR held 53.35% of the
share capital of IRP Holdings, the remainder being held by
Highfields Capital Limited Funds, Highfields Capital I, L.P.,
Highfields Capital II, L.P. and Highfields Capital SPC (the
Highfields Funds).
Cash buyback of minority shareholders
Due to complexities resulting from the methods of calculating
the share exchange value provided by the IRP Shareholders
Agreement, the timetable of the procedure, as provided by the
IRP Shareholders Agreement, has been slightly modified.
The independent calculation agent, appointed pursuant to the IRP
Shareholders Agreement, provided its report to IRP
Holdings on May 17, 2005. Such report was finalized on
May 24, 2005. On June 14, 2005, within the procedural
time limit provided for by the IRP Shareholders Agreement,
but after May 31, 2005, SCOR sent to the Highfields Funds
the exchange notice provided for by the IRP Shareholders
Agreement informing them of their intention to propose a cash
payment for the acquisition of their minority interests in IRP
Holdings. On June 20, 2005, the Highfields Funds notified
SCOR of their acceptance to withdraw from IRP Holdings
share capital in response to the exchange notice sent by SCOR on
June 14, 2005. SCOR thereby acquired the minority interests
of IRP Holdings for EUR 183.1 million, corresponding to the
share of Highfields Funds in IRP Holdings as of
December 31, 2004, as calculated under U.S. GAAP.
Pursuant to the Shareholders Agreement, SCOR paid an
indemnity of EUR 1.2 million corresponding to
20 days late performance of the formalities specified
in the IRP Shareholders Agreement.
As a result of this transaction, SCOR holds 100% of the share
capital and voting rights of IRP Holdings, and, indirectly,
Irish Reinsurance Partners.
In order to refinance the acquisition of the outstanding shares
of IRP Holdings, SCOR carried out a share capital increase by
issuing 149,500,000 new shares with a nominal value of EUR
0.78769723 each, and a total share premium of
EUR 115,459,264. See Item 10.B.
Bylaws Additional Ordinary Share Issuances
Authorized.
On November 1, 2005, IRP Holdings presented a request to
the High Court of Dublin for authorization to reduce its share
capital by cancelling 299,365 ordinary shares with a nominal
value of EUR 1,000 each and the corresponding reimbursement of
EUR 299,365,000 to SCOR as the sole shareholder. By order dated
November 28, 2005, the High Court of Dublin authorized the
reduction of IRP Holdings share capital and the
reimbursement to SCOR of the corresponding sum of EUR
299,365,000. In addition, on August 2, 2005, IRP Holdings
distributed a special dividend of EUR 90 million.
Certain of the Highfields Funds have filed lawsuits against SCOR
in the United States. See Item 8.A. Consolidated
Statements and Other Financial Information Legal
Proceedings.
B. PLAN OF DISTRIBUTION
Not applicable.
C. MARKETS
The primary market for the Companys Ordinary Shares is
Euronext Paris. The Companys ADSs are listed on the NYSE.
Each ADS represents one Ordinary Share. The Ordinary Shares are
also traded on the Frankfurt over-the-counter market (the
Freiverkehrshandel).
The Companys Ordinary Shares have been listed on the Paris
Bourse and then on the premier marché of Euronext
Paris under the symbol SCO since 1989. The
premier marché of Euronext Paris has been replaced
by the Eurolist market of Euronext Paris since February 21,
2005 and the Ordinary Shares are accordingly traded on the
Eurolist market of Euronext Paris.
The Companys ADSs have been traded in the U.S. since
October 11, 1996, the date of their listing on the NYSE
under the symbol SCO. The Companys ADSs are
issued and exchanged by The Bank of New York, as Depositary.
Following the reorganization of Euronext indices on
January 3, 2005, the Ordinary Shares are now included in
the following indices: SBF 80, SBF 120, SBF 250,
CAC MID 100, CAC MID & SMALL 190,
EURONEXT PARIS
124
FINANCIERES, EURONEXT PARIS ASSURANCE, EURONEXT NEXT 150 and
EURONEXT PRIME. In the United States, the Ordinary Shares are
included in the DOW JONES EUROPE STOXX 600 INDEX, the DOW JONES
EURO STOXX INDEX, the DOW JONES EUROPE STOXX INSURANCE INDEX,
the DOW JONES EURO STOXX INSURANCE INDEX, the DOW JONES EUROPE
STOXX SMALL CAP INDEX, and the DOW JONES EURO STOXX SMALL CAP
INDEX.
The SBF 120 and 250 consist of the 120 most actively traded
French stocks and the 250 largest stocks by capitalization. The
SBF 80 is made up of the SBF120 stocks not included in the CAC40
index, which are the most traded on the continuous segments. The
CAC MID 100 index comprises the 100 next largest capitalizations
after the 60 biggest stocks. Last, the CAC MID &
SMALL 190 index combines the CAC MID 100 and some
other less intensively traded stocks.
The Paris Market
Effective September 22, 2000, Euronext was formed from the
merger of Paris Bourse SBF S.A. (which changed its name to
Euronext Paris), the Amsterdam Stock Exchange and the Brussels
Exchange, and the Portugal Exchange was included in Euronext in
January 2002. Euronext operates four subsidiary holding
companies in each of the four member countries. Each subsidiary
continues to hold an exchange license for the local capital
market. Listed companies remain listed on their original
exchange but all shares are traded on a single integrated
trading platform and listing requirements have been harmonized.
Trading is regulated with a single rulebook and the take-over
rules continue to be imposed domestically. Euronext provides
integrated trading, clearing and settlement on all four markets,
and a central counter party, netting and clearing house for all
executed trades via Clearnet.
Official trading of listed securities on Euronext Paris is
transacted through providers of investment services or
prestataires de services dinvestissements
(investment companies and other financial institutions). The
trading of SCOR Ordinary Shares takes place continuously on each
business day from 9:00 a.m. through 5:25 p.m. (Paris
time), with a pre-closing session from 5:25 p.m. to
5:30 p.m. during which transactions are recorded but not
executed, with a closing auction at 5:30 p.m. During a
pre-opening session from 7:15 a.m. through 9:00 a.m.
transactions are recorded but not executed. Any trade effected
after the close of a stock-exchange session is recorded, on the
next Euronext Paris trading day, at the closing price for the
relevant security at the end of the previous days session.
Euronext Paris is a market enterprise (entreprise de
marché) to which is entrusted the operation of
regulated markets, including the admission of financial
instruments. Euronext Paris publishes a daily Official Price
List that includes price information on each listed security.
Euronext Paris provides continuous trading by computer during
trading hours for all listed securities.
Reform of the Regulated Market of Euronext
On February 21, 2005, Euronext replaced its three regulated
markets (premier marché, second marché and
nouveau marché) by a single list called Eurolist.
Companies on this regulated market are classified by
alphabetical order and by market capitalization.
Previously, the securities of most large public companies,
including the SCOR Ordinary Shares, were listed on the
premier marché of Euronext Paris. The second
marché was available for
small- and
medium-sized companies,
the nouveau marché for companies seeking development
capital, and the EDR market for European Depositary Receipts.
Shares of certain other companies are traded on the
marché libre-OTC, an unregulated over-the-counter
type of market. In addition, shares listed on Eurolist are
placed in one of three categories depending on the volume of
transactions. The Ordinary Shares are listed in the category
known as Continu, or continuous trading, which includes the most
actively traded shares.
Trading in the listed securities of an issuer may be reserved or
suspended by Euronext Paris if changes in quoted prices exceed
certain price limits defined by its regulations.
In particular, if the quoted price of a security varies by
more than 10% from the reference price, Euronext Paris may
restrict trading in that security for up to four minutes
(réservation à la hausse ou à la baisse).
The reference price is usually the opening price, or, with
respect
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to the first quoted price of a given trading day, the last
traded price of the previous trading day, as adjusted if
necessary by Euronext Paris to take into account available
information. Further suspensions for up to four minutes are also
possible if the price again varies by more than 10% from a new
reference price equal to the price that caused the first trading
suspension. Euronext Paris may also reserve trading for a
four-minute period if the quoted price of a security varies by
more than 2% from the last traded price. However, subject to
trading conditions and appropriate and timely information,
Euronext Paris may modify the reservation period and may accept
broader fluctuation ranges than above mentioned. Euronext Paris
may also suspend trading of a listed security in certain other
limited circumstances, including, for example, the occurrence of
unusual trading activity in such security. In addition, in
exceptional cases, the Autorité des Marchés
Financiers, or AMF, may ask Euronext to suspend trading.
Trades of equity securities listed on Eurolist by Euronext are
settled on a cash-settlement basis on the third trading day
following the execution. All equity securities with a market
capitalization of EUR 1,000 million or more or minimum
daily trading volume of EUR 1 million, are eligible for a
deferred settlement service (service de règlement
différé, or SRD) in which the intermediary settles
the trade with the seller in lieu of the investor. The investor
may elect, for a fee, to decide on the determination date
(date de liquidation), which is the fifth trading day
prior to the end of the month either:
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to settle the trade no later than on the last trading day of
such month, or |
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upon payment of an additional fee, to extend to the
determination date of the following month the option either to
settle no later than the last trading day of such month or to
postpone further the selection of a settlement date until the
next determination date (a procedure known as a
report). Such purchaser may decide to renew its option on
each subsequent determination date upon payment of an additional
fee. |
The transfer of ownership of equity securities traded on
Eurolist of Euronext Paris occurs at the time of registration of
the securities in the appropriate shareholders account.
In accordance with French securities regulations, any sale of
equity securities executed on the deferred settlement service
during the month of a dividend payment date is deemed to occur
after payment of the dividend, and the purchasers account
is credited with an amount equal to the dividend paid and the
sellers account is debited in the same amount. Prior to
any transfer of securities held in registered form on Eurolist,
the securities must be converted into bearer form and
accordingly inscribed in an account maintained by an accredited
intermediary with Euroclear France S.A., a registered clearing
agency.
Trades of securities listed on Eurolist are cleared and settled
through Euroclear France S.A. A fee or commission is
payable to the broker-dealer or other agent involved in the
transaction.
The Company currently has no plans to list its securities for
trading in any other markets.
D. SELLING SHAREHOLDERS
Not applicable.
E. DILUTION
Not applicable.
F. EXPENSES OF THE ISSUE
Not applicable.
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Item 10. Additional Information
A. SHARE CAPITAL
Not applicable.
B. BYLAWS
For SCORs registry and number, please see
Item 4.B Business Overview.
For a complete discussion of directors power under French
law and SCORs bylaws, or statuts, please see
Item 6.A. Directors and Senior Management
Board of Directors.
The following summarizes certain material rights of holders of
SCORs ordinary shares under the material provisions of its
bylaws and French law. A translation of the bylaws, as of
May 16, 2006, has been filed as an exhibit to this Annual
Report. The bylaws were amended at the May 16, 2006
shareholders meeting. The amended bylaws, among other
things, will no longer contain a provision requiring one Board
member to be an employee director.
As set forth in Article 3 of the bylaws, SCORs
corporate purpose includes the following:
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a. |
insurance, reinsurance, cession or retrocession of business of
any nature in all classes and in all countries, transfer in any
form of reinsurance contracts or liabilities of any French or
foreign company, organization, entity or association, and
creation, acquisition, rental, lease, installation and operation
of any undertaking for the purpose of carrying on such business; |
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b. |
construction, rental, operation or purchase of any buildings; |
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c. |
acquisition and management of all securities and other equity
rights by any means including but not limited to subscription
for, transfer or acquisition of shares, bonds, interests in
private companies or partnerships and other equity rights; |
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d. |
acquisition of equity investments or interests in any
industrial, commercial, agricultural, financial, securities or
realty companies or other undertakings, formation of any
company, the participation in any share capital increase,
mergers, spin-off and partial contributions; |
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e. |
administration, management and control of any company or other
undertaking, direct or indirect participation in all
transactions carried out by such companies or undertakings by
any means and including but not limited to direct or indirect
participation in any company or equity investment. |
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And, generally, all industrial, commercial, financial,
securities and real property transactions as may pertain to the
above stated purposes or as may facilitate the implementation or
pursuit of such purposes. |
Changes in Share Capital
SCORs share capital currently comprises a single class of
shares.
The share capital of SCOR may be increased only with the
approval of the shareholders at an extraordinary general
meeting, following a recommendation of the Board of Directors.
Increases in share capital may be effected either by the
issuance of additional Ordinary Shares, by the issuance of
preferred shares, or by an increase in the nominal value of
existing Ordinary Shares. Shares of SCOR may be issued for cash,
in satisfaction of indebtedness incurred by SCOR or by the
exercise of a right attached to a security giving access to the
capital.
A share capital increase effected by capitalization of reserves,
profits or share premium requires a simple majority of the votes
cast.
French law permits different classes of shares to have different
liquidation, voting and dividend rights.
Any decision to increase the share capital, with the exception
of an issuance of shares in consideration for a contribution in
kind or resulting from a prior issue of securities giving access
to shares, requires that the
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shareholders, at an extraordinary shareholders meeting, be
proposed a capital increase reserved for employees through a
company sponsored mutual fund, it being understood that such
resolution does not have to be approved.
Moreover, if the shares held by the employees of SCOR and its
affiliated companies either directly or through company
sponsored mutual funds represent less than 3% of its capital, an
extraordinary general meeting must be convened every three years
to vote a capital increase reserved to employees. As of
December 31, 2005, employees of SCOR and its affiliated
companies held as a group 0.35% of its capital.
Share dividends may be distributed in lieu of payment of cash
dividends, as described under Item 8.A Consolidated
Statements and Other Financial Information
Dividends.
The share capital of SCOR may be decreased only with the
approval of the shareholders at an extraordinary general meeting.
Share capital may be reduced either by decreasing the nominal
value of the Ordinary Shares or by reducing the number of
outstanding Ordinary Shares. The conditions under which the
capital may be reduced will vary depending upon whether the
reduction is attributable to losses incurred by SCOR. Under
French company law, all shareholders of SCOR must be treated
equally.
If the reduction is not attributable to losses incurred by SCOR,
each shareholder of SCOR will be offered an opportunity to
participate in such capital reduction and may decide whether or
not to participate therein (unless the reduction is effected by
cancellation of shares repurchased pursuant to a buy-back
program).
The number of outstanding Ordinary Shares may be reduced either
by an exchange of Ordinary Shares or by the repurchase and
cancellation by SCOR of Ordinary Shares.
If, as a consequence of losses, the net assets (capitaux
propres) of the Company are reduced below one-half of the
share capital of the Company, the Board of Directors must,
within four months from the approval of the accounts showing
this loss, convene an extraordinary general meeting of
shareholders in order to decide whether the Company ought to be
dissolved before its statutory term. If the dissolution is not
declared, the share capital must, at the latest at the end of
the second fiscal year following the fiscal year during which
the losses were established, and subject to the legal provisions
concerning the minimum capital of sociétés
anonymes, be reduced by an amount at least equal to the
losses which could not be charged against reserves, if during
that period the net assets have not been restored up to an
amount at least equal to one-half of the share capital.
At December 31, 2005, SCORs share capital amounted to
EUR 763,096,713, divided into 968,769,070 ordinary shares.
SCORs bylaws have not fixed a nominal value per SCOR share.
Pursuant to decisions of the meeting of the shareholders and of
the Board of Directors on May 31, 2005, and of the Chairman
and Chief Executive Officer on June 21 and 22, 2005, the
Company proceeded to increase its share capital by issuing
149,500,000 new shares with a nominal value of EUR 0.78769723
each, plus a share premium totaling EUR 115,459,264, with the
share premium net of the share capital increase costs amounting
to EUR 105,910,795.
Additional Ordinary Share Issuances Authorized
Under French law, shareholders can delegate to the Board of
Directors, within certain limits of time defined by law, and
within a maximum amount to be defined by the shareholders
meeting, the power to issue Ordinary Shares, other classes of
shares, including preferred shares, securities convertible,
exchangeable, redeemable into or otherwise giving access to
Ordinary Shares or preferred shares.
Thereafter, the Board of Directors itself can delegate the power
to decide the increase of share capital to the Chief Executive
Officer (Directeur Général) or, with the
agreement of the Chief Executive Officer, to one or several
Chief Operating Officers (Directeur Général
Délégué).
Pursuant to the authorization of the extraordinary
shareholders meeting held on December 1, 2003, the
Board of Directors decided the same day to carry out a share
capital increase with preservation of preferential subscription
rights and subdelegated such authority to its Chairman. Pursuant
to such authorization, Mr. Kessler decided to issue
682,724,225 shares at a subscription price of EUR 1.10. This
share capital increase was completed on
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January 7, 2004 in an amount of EUR 682,724,225 with a
share premium of EUR 68,272,422.50. The same extraordinary
shareholders meeting held on December 1, 2003 also
decided a share capital decrease of an amount corresponding to
the estimated losses for financial year 2003, by reducing the
nominal value of the shares from EUR 3.81 to EUR 1. The amount
corresponding to the share capital decrease was allocated to a
reserve account to be offset by the losses for financial year
2003, once finally determined.
Moreover, the extraordinary shareholders meeting held on
May 18, 2004 decided to reduce the share capital, by
decreasing the nominal value of the shares from EUR 1 to EUR
0.78769723. The amount corresponding to the share capital
decrease was allocated to the same reserve account as the
previous capital decrease, in order to be offset by the losses
of financial year 2003 which were not be offset by (i) the
provision corresponding to the previous capital decrease,
(ii) the special provision for long-term capital gains and
(iii) the outstanding premiums related to previous capital
increases. The same extraordinary shareholders meeting
authorized the Board of Directors to increase the share capital
according to the following procedure:
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through the issuance of securities giving access to the share
capital with preservation of preferential subscription rights or
by incorporation of reserves, profits or share premiums. The
maximum total number of shares that may be issued for this
purpose amounts to six hundred million, whereas the total
principal amount of debt securities that may be issued by the
Company shall not exceed an upper limit of EUR four hundred
million. |
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through the issuance of securities giving access to the capital
without preservation of preferential subscription rights. In
this case the limits described in the previous paragraph are two
hundred million shares and EUR two hundred million, respectively. |
Pursuant to the authorization of the extraordinary
shareholders meeting held on May 18, 2004, the Board
of Directors decided on June 21, 2004 to issue bonds
convertible and/or exchangeable into new or existing shares of
SCOR, or OCEANEs, subdelegating the power to effect this issue
to its Chairman. Pursuant to such authorization,
Mr. Kessler decided on June 23 and 24, 2004 to issue
100 million OCEANEs due January 1, 2010 of
EUR 2.00 nominal value each, for an aggregate principal
amount of EUR 200,000,000 and with a 4.125% coupon. See
Item 9.A. Offer and Listing Details
OCEANEs Issuance and Repayment.
The general shareholders meeting of May 31, 2005:
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delegated its authority to the Board of Directors to decide,
solely for the purposes of the financing or the refinancing by
the Company of the repurchase of minority interests in IRP
Holdings and the improvement of the Companys capital
resources, to increase the share capital by issuing, without
preferential subscription rights, ordinary shares and/or
securities granting access to the Companys share capital.
The share capital increase(s) which could be carried out
pursuant to this delegation may not lead to the issue of more
than 150,000,000 shares, or a maximum nominal share capital
increase of EUR 118,154,584.50, included in the aggregate
maximum amount of share capital increases in a nominal amount of
EUR 148,480,927.85, or a maximum of 188,500,000 shares in a
nominal amount of EUR 0.78769723 per share. Lastly, the
total aggregate nominal amount of securities granting access to
the Companys share capital issued pursuant to this
delegation may not exceed EUR 250,000,000; |
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authorized the Board of Directors to increase the number of
shares and/or securities to be issued in the event of a share
capital increase with or without preferential subscription
rights, within a 30-day period following the closing of the
subscription of the initial issue and within a limit of 15% of
the initial issue and at the same price as such initial issue. |
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By means of such authorizations, the Board of Directors decided
on May 31, 2005 to delegate to its Chairman and Chief
Executive Officer the authority to decide on the completion of a
share capital increase, without preferential subscription rights
and, as the case may be, to increase the number of shares to be
issued. Pursuant to such authorization, Mr. Kessler decided
on June 21, 2005 to increase the share capital by a nominal
amount of EUR 102,400,640 through the issuance of
130,000,000 shares with a nominal value of EUR 0.78769723
per share, without shareholders preferential subscription
rights and without a priority subscription period. On
June 22, 2005, Mr. Kessler decided to set the
subscription price of the new shares at EUR 1.56 per share
to be issued, for a total share capital increase (including
issue premiums) of |
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EUR 202,800,000. On June 22, 2005, Mr. Kessler
decided to complete a supplementary issue of 19,500,000 new
shares at a price corresponding to the initial issue price, or
EUR 1.56 per share to be issued, with the total amount of
the share capital increase in connection with such supplementary
issue (including issue premiums) set at EUR 30,420,000. |
The general shareholders meeting of May 16, 2006:
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delegated its authority to the board of directors to decide to
increase the share capital by the issuance, on one or several
occasions, on the French market or foreign markets, in euro, or
in any other legal currency or monetary unit determined by
reference to a basket of currencies, of ordinary shares of the
Company; |
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resolved that the capital increase(s) that may be decided and
carried out by the board of directors, immediately and/or at a
future date, may not give rise to the issuance of a number of
shares (of a par value of EUR 0.78769723 each) greater than
300,000,000 (three hundred million) shares, not taking into
account the number of ordinary shares to be issued, as the case
may be, under adjustments made in accordance with the law and
applicable contractual provisions, to protect the rights of
holders of securities granting access to the Companys
capital, it being specified that the nominal amount of any
capital increase carried out pursuant to this delegation of
authority shall be deducted from the aggregate ceiling of
EUR 267,029,360.97; |
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resolved that the shareholders may exercise, under conditions
provided by law, their preferential subscription right for the
subscription on a non-reducible basis of new ordinary shares
which issuance shall be decided by the board of directors
pursuant to this delegation of authority; the board of directors
may institute to the benefit of shareholders a right for the
subscription on a reducible basis of excess ordinary shares
which shall be exercised in proportion to their rights and
within the limit of their request; if the subscriptions for new
shares on a non-reducible basis or, as the case may be, for
excess shares on a reducible basis have not absorbed all of the
ordinary shares issued, the board of directors shall have the
option, in the order that it shall determine, either to limit,
pursuant to the law, the issuance to the amount of subscriptions
received, on the condition that such amount reaches at least
three-fourths of the issuance that will have been decided, or to
freely allocate all or part of the shares not subscribed, or to
offer such shares in the same manner to the public; |
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resolved that the board of directors may, as necessary, deduct
the expenses, costs and fees brought about by the issuances,
from the amount of the issuance premiums related thereto and
deduct from such amount the sums necessary to establish the
legal reserve. |
This delegation has been granted for a period of eighteen months
as of the date of the shareholders meeting.
Preferential Subscription Rights
Holders of Ordinary Shares have preferential rights to subscribe
for additional shares issued by SCOR for cash on a pro rata
basis.
Shareholders may waive on an individual basis such preferential
subscription rights.
The shareholders meeting may also decide to withdraw the
preferential rights of shareholders with respect to any issuance
of shares, or securities giving access, through conversion,
exchange or otherwise, to the capital of SCOR. In such case,
however, the shareholders meeting has the power to grant
to shareholders a non-transferable priority right to subscribe
all or part of the issuance of shares, or of securities giving
access, through conversion, exchange or otherwise, to the
capital of SCOR.
Preferential subscription rights, if not previously waived, are
transferable during the subscription period relating to a
particular offering of shares.
Attendance and Voting at Shareholders Meetings
In accordance with French law, there are two types of general
shareholders meetings, ordinary and extraordinary.
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Ordinary general meetings of shareholders are required for
matters such as the election, replacement and removal of
directors, the appointment of statutory auditors, the approval
of the annual report prepared by the Board of Directors and of
the annual accounts and the declaration of dividends. The Board
of Directors is required to convene an annual ordinary general
meeting of shareholders, which must be held within six months of
the end of SCORs fiscal year. This period may be extended
by an order of the President of the competent French Commercial
Court. The fiscal year of SCOR begins on the first day of
January of each calendar year and ends on the last day of
December of that year.
Extraordinary general meetings of shareholders are required for
approval of matters such as amendments to SCORs bylaws,
modification of shareholders rights, approval of mergers,
increases or decreases in share capital, the creation of a new
class of shares and the authorization of the issuance of
securities giving access, by conversion, exchange or otherwise,
to the Companys capital. In particular, shareholder
approval will be required for any and all mergers in which the
Company is not the surviving entity or in which the Company is
the surviving entity but in connection with which the company is
issuing a portion of its share capital to the shareholders of
the acquired entity.
Special meetings of shareholders of a certain class of shares
(such as shares with double voting rights or preferred shares)
are required for any modification of the rights associated with
such class of shares. The resolution of the shareholders
general meeting affecting these rights are effective only after
approval by the relevant special meeting.
Other ordinary or extraordinary meetings may be convened at any
time during the year. Meetings of shareholders may be convened
by the Board of Directors or, if the Board of Directors fails to
call such a meeting, by SCORs statutory auditors, by its
liquidators in case of bankruptcy, by shareholders owning the
majority of the Companys Ordinary Shares or voting rights
after having launched a takeover bid or by an agent appointed by
a court.
The court may be requested to appoint an agent either by
shareholder(s) holding at least 5% of SCORs share capital,
or a duly authorized association of shareholders holding their
Ordinary Shares in registered form for at least two years and
holding together a certain percentage of the Companys
voting power (computed on the basis of a formula related to
capitalization which on the basis of the Companys
outstanding share capital as of December 31, 2004, would
represent 1% of SCORs voting power) or by any interested
party, including the Workers Council (Comité
dentreprise) in cases of urgency. The notice calling
such meeting must state the agenda for such meeting.
At least 15 days before the date set for any general
meeting on first call, and at least six days before any second
call, notice of the meeting must be sent by mail to holders of
Ordinary Shares who have held such Ordinary Shares in registered
form for at least one month prior to the date of the notice.
Such notice can be given by e-mail to holders of Ordinary Shares
in registered form who have accepted in writing this method of
convocation.
For all other holders of Ordinary Shares notice of the meeting
is given by publication in a journal authorized to publish legal
announcements in the département (county) in which
SCOR is registered and in the Bulletin des annonces
légales obligatoires, or BALO, with prior notice given
to the AMF.
At least 30 days prior to the date set for any ordinary or
extraordinary general meeting, a preliminary written notice
(avis de réunion), containing, among other things,
the agenda for the meeting and a draft of the resolutions to be
considered, must also be published in the BALO.
The AMF also recommends that such preliminary written notice be
published in a newspaper of French national circulation.
One or several shareholder(s), holding at least 5% of the
Companys share capital, the Workers council or a
duly authorized association of shareholders holding their
Ordinary Shares in registered form for at least two years and
holding together a certain percentage of the Companys
voting power (computed on the basis of a formula related to
capitalization which on the basis of the Companys
outstanding share capital as of December 31, 2004, would
represent 1% of SCORs voting power) may, within
10 days after such publication, propose resolutions to be
submitted for approval by the shareholders at the meeting.
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The meetings take place at corporate headquarters, or elsewhere
as indicated in the meeting notice.
Attendance and exercise of voting rights at ordinary general
meetings and extraordinary general meetings of shareholders are
subject to certain conditions. In accordance with French law and
the Companys statuts, in order to have the right to
attend or be represented at a general meeting of shareholders
and vote, a holder of Ordinary Shares held in registered form
or, under certain conditions for holders who are not French
residents, its intermediary, must have them registered in its
name in a shareholder account maintained by or on behalf of SCOR
within a number of days (that cannot exceed 5 days) before
the meeting fixed by the Board of Directors.
A holder of Ordinary Shares (or its intermediary, where
applicable) held in bearer form must deposit with the Company,
within a number of days (that cannot exceed 5 days) before
the meeting fixed by the Board of Directors, a certificate
(certificat dimmobilisation de titres au porteur)
issued by an accredited financial intermediary (French broker,
bank or authorized financial institution) evidencing the holding
of the Ordinary Shares until the time fixed for the meeting.
All shareholders who have properly registered their Ordinary
Shares or have duly deposited at the Companys corporate
headquarters a certificate of an accredited financial
intermediary have the right to participate in general meetings,
either in person, by proxy, or by mail, and to vote according to
the number of Ordinary Shares they hold.
Each Ordinary Share confers on the shareholder the right to one
vote. There is no provision in the statuts for double or
multiple voting rights for SCOR shareholders. Under French
company law, Ordinary Shares held by entities controlled
directly or indirectly by SCOR are not entitled to any voting
rights.
Proxies may be granted by a shareholder or, under certain
conditions, by its intermediary, to his or her spouse, to
another shareholder, or by sending a proxy in blank to the
Company without nominating any representative. In the latter
case, the chairman of the meeting of shareholders will vote the
Ordinary Shares covered by such blank proxy in favor of all
resolutions proposed or approved by the Board of Directors and
against all others.
Voting by mail is also allowed under French company law. Forms
for voting by mail or proxy forms must be addressed to the
Company, either by regular mail or, pursuant to a decision of
the Board of Directors, in electronic format. Mail voting forms
must be addressed to the Company within a period prior to the
meeting as established by the Board of Directors. Such period
may not exceed 3 days before the meeting date. Proxy forms
must be received by the Company no later than 3:00 p.m. on
the day prior to the meeting.
The Board of Directors can also decide to allow the shareholders
to participate in and vote at any shareholders meeting by
videoconference or by any means of telecommunication that allows
them to be identified and in compliance with the conditions set
by applicable regulations.
The presence in person (including those voting by
correspondence) or by proxy of shareholders holding not less
than one fourth (in the case of an ordinary general meeting or
an extraordinary general meeting where an increase in our share
capital is proposed through incorporation of reserves, profits
or share premium) or one-third (in the case of any other
extraordinary general meeting) of the Ordinary Shares entitled
to vote is necessary for a quorum. If a quorum is not present at
any meeting, then the meeting is adjourned. On a second call,
there is no quorum requirement in the case of an ordinary
general meeting or an extraordinary general meeting where an
increase in our share capital is proposed through incorporation
of reserves, profits or share premium and the presence in person
(including those voting by correspondence) or by proxy of
shareholders holding not less than one fourth of the Ordinary
Shares entitled to vote is necessary for a quorum in the case of
any other extraordinary general meeting.
At an ordinary general meeting, a simple majority of the votes
cast is required to pass a resolution. At an extraordinary
general meeting, a two-thirds majority of the votes cast is
required, except for an extraordinary general meeting where an
increase in our share capital is proposed through incorporation
of reserves, profits or share premium, in which situation, a
simple majority is sufficient.
However, a unanimous vote is required to increase liabilities of
shareholders.
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Abstention by those present in person or by correspondence or
represented by proxy is deemed a vote against the resolution
submitted to a vote.
The rights of a holder of shares of a class of capital stock of
SCOR, including the Ordinary Shares, can be amended only after
an extraordinary general meeting of all shareholders of such
class has taken place and the proposal to amend such rights has
been approved by a two-thirds majority vote of shares of such
class present in person (including those voting by
correspondence) or represented by proxy. As of December 31,
2005, the Ordinary Shares constitute the Companys only
class of capital stock.
In addition to rights to certain information regarding SCOR, any
shareholder may, between the convocation of the meeting and the
date of the meeting, submit to the Board of Directors written
questions relating to the agenda for the meeting. The Board of
Directors is required to respond to such questions during the
meetings, subject to confidentiality concerns.
Dividend and Liquidation Rights
Net income in each fiscal year (after deduction for legal
reserves), as increased or reduced, as the case may be, by any
net income or loss of SCOR carried forward from prior years, is
available for distribution to the shareholders of SCOR as
dividends, subject to the requirements of French law and
SCORs statuts.
SCOR is required by law to establish and maintain a legal
reserve at a level equal to 10% of the aggregate nominal value
of its share capital and, if necessary to maintain such legal
reserve, to make a minimum transfer of 5% of its net income each
year to the legal reserve. The legal reserve is distributable
only upon the liquidation of SCOR. SCORs statuts
also provide that profits available for distribution of SCOR
(after deduction of any amounts required to be allocated to the
legal reserve) can be allocated to one or more optional reserves
or distributed as dividends, as may be determined by the general
meeting of shareholders.
Dividends may also be distributed from optional reserves of the
Company, subject to approval by the shareholders and certain
limitations, either as an addition to an annual dividend
distribution or as an exceptional dividend distribution.
The payment of dividends is fixed by the ordinary general
meeting of shareholders at which the annual accounts are
approved following recommendation of the Board of Directors. If
SCOR has distributable profits (as shown on the interim balance
sheet audited by SCORs statutory auditors), the Board of
Directors has the authority, subject to French law and
regulations, without shareholder approval, to distribute interim
dividends. Dividends are distributable to shareholders pro rata
their respective holdings of Ordinary Shares. Dividends are
payable to holders of Ordinary Shares outstanding on the date of
the shareholder meeting approving the distribution of dividends
or, in the case of interim dividends, on the date of the meeting
of the Board of Directors approving the distribution of interim
dividends. The actual dividend payment date and the modalities
of such payment are determined by the shareholders at the
ordinary general meeting approving the declaration of the
dividends or by the Board of Directors in the absence of such
determination by the shareholders. The payment of the dividends
must occur within nine months of the end of SCORs fiscal
year. Dividends not claimed within five years of the date of
payment revert to the French State. According to the
statuts of the Company, shareholders may decide in an
ordinary general meeting to give each shareholder the option of
receiving all or part of a dividend or interim dividend in the
form of Ordinary Shares. The determination of the portion, if
any, of the annual dividend that each shareholder will have the
option to receive in Ordinary Shares is also made at the
ordinary general meeting of shareholders following a
recommendation by the Board of Directors.
In the event that SCOR is liquidated, the assets of SCOR
remaining after payment of its debts, liquidation expenses and
all of its remaining obligations will be distributed first to
repay in full the nominal value of the Ordinary Shares, then the
surplus, if any, will be distributed pro rata among the holders
of Ordinary Shares in proportion to the nominal value of their
shareholdings and subject to any special rights granted to
holders of preferred shares, if any.
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Form, Holding and Transfer of Ordinary Shares
Form of Shares. SCORs statuts provide
that Ordinary Shares may be held in registered or bearer form,
at the option of the shareholder.
Holding of Ordinary Shares. In accordance with
French law concerning
dématérialisation of securities,
the ownership rights of holders of the Ordinary Shares are not
represented by share certificates but by book entries. Equity
securities, such as the Ordinary Shares, may be held in either
bearer or registered form, and a holder of equity securities may
change from one form of holding to the other.
The Company maintains a share account with Euroclear France in
respect of all Ordinary Shares in registered form (the
Company Share Account), which, in France, is
administered by BNP Paribas (BNP) acting on
behalf of the Company as its agent. Ordinary Shares held in
registered form are inscribed in the name of each shareholder
(either directly, or, at the shareholders request, through
such shareholders accredited intermediary) in separate
accounts (the Shareholder Accounts) maintained by
BNP on behalf of the Company. Each Shareholder Account shows the
name of the holder and such shareholders shareholdings
and, in the case of Ordinary Shares inscribed through an
accredited intermediary, shows that they are so held. BNP, as a
matter of course, issues confirmations as to holdings of
Ordinary Shares inscribed in the Shareholder Accounts to the
persons in whose names the shareholdings are inscribed, but
these confirmations do not constitute documents of title.
In the case of Shares held in bearer form, the Ordinary Shares
can be held on the Shareholders behalf by an accredited
intermediary and are inscribed in an account maintained by such
accredited intermediary with Euroclear France separately from
the Company Share Account. Ordinary Shares held in this manner
are referred to as being in bearer form. Each accredited
intermediary maintains a record of Ordinary Shares held through
it and will issue certificates of inscription in respect
thereof. Transfers of Ordinary Shares held in bearer form may
only be effected through accredited intermediaries.
SCORs statuts permit it to request from Euroclear
France at any time the identity, address and citizenship of the
holders of Ordinary Shares held in bearer form, as well the
number of Ordinary Shares held by such persons and information
regarding any restrictions that may be attached to the Ordinary
Shares.
The Ordinary Shares held by
non-French residents
can be inscribed in an account, either maintained by an
accredited intermediary or the Company, under the name of their
intermediary, who can represent several holders. These
intermediaries, acting on behalf of shareholders living outside
of France, are required to declare their capacity as
intermediaries as soon as the account is opened. If requested by
SCOR, they must also provide the identity of the actual
shareholder(s).
Also, SCOR may request any legal entity who holds more than 2.5%
of its shares, to disclose the name of any person who owns,
directly or indirectly, more than a third of such entitys
share capital or voting rights. An entity not timely providing
the complete requested information may be deprived by a French
court of its voting rights, its right to dividends, or both for
a period of up to five years.
Requirements for Holdings Exceeding Certain Percentages of
Shares. French law provides that any individual or
entity, directly or indirectly, acting alone or in concert with
others, that becomes the owner of more than 5%, 10%, 20%, 33
1/3%, 50%,
662/3%,
90% or 95% of the outstanding shares or the voting rights
thereof of the Company, or whose holding decreases below any
such thresholds, must notify the Company, within five trading
days of the date such threshold has been crossed, of the number
of Ordinary Shares it holds and the voting rights attached
thereto. Such individual or entity must also notify the AMF,
within five trading days of the date such threshold has been
crossed. In the event of failure to comply with such
notification requirement, the Ordinary Shares in excess of the
relevant threshold will be deprived of voting rights for all
shareholders meetings until the end of a
two-year period
following the date on which the owner thereof has complied with
such notification requirements. In addition, any shareholder who
fails to comply with the above requirements may have all or part
of its voting rights suspended for up to five years by the
commercial court at the request of the Companys Chairman,
any shareholder or the AMF, and may be subject to criminal
penalties.
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To permit shareholders to comply with these requirements, SCOR
must publish in the BALO, within 15 calendar days after its
annual meeting, information regarding the total number of votes
outstanding as of the date of its annual meeting. In addition,
if the number of outstanding votes changes by 5% or more since
the previous ordinary shareholders meeting, SCOR must
publish the revised number of outstanding votes in the BALO
within 15 calendar days of the change and notify the AMF.
French law also requires any individual or entity, acting alone
or in concert with others, that acquires more than 10% or 20% of
SCORs voting rights, to file a report with SCOR and the
AMF, disclosing its intentions for the
12-month period
following the acquisition. The acquirer must disclose first
whether it is acting alone or in concert with other persons, and
whether it intends to continue purchasing shares, acquire
control, or seek nomination to SCORs Board of Directors.
The acquirer must file the report within 10 calendar days of
crossing either threshold. The AMF will publish the notice, and
the acquirer must publish a press release stating its intention
in a financial newspaper of French national circulation. A
shareholder who fails to comply with these requirements will
lose the voting rights attached to the shares exceeding the 10
or 20% threshold and will only regain them two years after
complying with the notification requirements. In addition, any
shareholder who fails to comply with the above requirements may
have all or part of their voting rights suspended for up to five
years by the commercial court at the request of the
Companys Chairman, any shareholder or the AMF, and may be
subject to criminal penalties.
Regulations of the AMF generally require, subject to limited
exemptions granted by the AMF, any individual or entity that
acquires, alone or in concert with others, shares representing
one-third or more of
SCORs share capital or voting rights, to initiate a public
tender offer for all remaining outstanding shares of SCOR
(including, for these purposes, all securities convertible into
or exchangeable for or otherwise giving access to equity
securities).
In addition, Article 7 of the Companys statuts
provides that every shareholder, including holders of ADSs, who,
directly or indirectly, acting alone or in concert with others,
becomes the owner of Ordinary Shares resulting in crossing,
upwards or downwards, a 2.5% threshold of the Companys
share capital shall be required to notify the Company of such
fact by registered letter with return receipt requested within
five working days of the date of such crossing. In the event of
failure to comply with such notification, the shareholder(s)
may, at the request of a shareholder holding more than 2.5% of
the Companys share capital, be deprived of voting rights
attached to the shares exceeding the 2.5% threshold of the
Companys share capital for all shareholders meetings
until the end of a
two-year period
following the date on which the owner thereof has complied with
such notification requirements. In addition, any shareholder who
fails to comply with the above requirements may have all or part
of their voting rights suspended for up to five years by the
commercial court at the request of the Companys Chairman,
any shareholder or the AMF.
Transfer of Ordinary Shares. An owner of Ordinary
Shares residing outside France may trade such shares on
Euronext. Should such owner, or the broker or other agent
through whom a sale is effected require assistance in this
connection, an accredited intermediary should be contacted.
Prior to any transfer of Ordinary Shares held in registered form
on Euronext, such shares must be inscribed in an account
maintained by an accredited intermediary. Dealings in Ordinary
Shares are initiated by the owner giving instructions (through
an agent, if appropriate) to the relevant accredited
intermediary. For dealings on Euronext, a tax on stock exchange
transactions, or tax assessed on the price at which the
securities were traded, is payable, at a rate of 0.3% on
transactions up to EUR 153,000 and at a rate of 0.15%
thereafter. The tax is subject to a rebate of EUR 23 per
transaction and to a maximum assessment of EUR 610 per
transaction.
Non-residents of France
are not subject to this tax.
A fee or commission is payable to the French broker, accredited
intermediary or other agent involved in the transaction (whether
within or outside France).
No registration duty is normally payable in France, unless a
transfer instrument has been executed in France.
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Ownership of Shares by
Non-French Persons
Under current French law, there is no limitation on the right of
non-residents or
non-French shareholders
to own or to vote securities of a French company.
A French law dated February 14, 1996 abolished the
requirement that a person who is not a resident of the European
Union obtain an autorisation préalable or
preliminary authorization prior to acquiring a controlling
interest in a French company, except under special circumstances.
Under current French foreign direct investment regulations, a
notice (déclaration administrative) must be filed,
however, with the French Ministry of the Economy in connection
with the acquisition of an interest in the Company by any person
not residing in France or any group of
non-French residents
acting in concert or by any foreign controlled French resident
if such acquisition would result in (i) the acquisition of
a controlling interest in the Company or (ii) the increase
of a controlling interest in the Company unless such person not
residing in France or group of
non-French residents
already controls more than
one-third of the
Companys share capital or voting rights prior to such
increase. Ownership of
331/3
% or more of a listed companys share capital or
voting rights is regarded as a controlling interest, but a lower
percentage may be held to be a controlling interest in certain
circumstances (depending upon such factors as the acquiring
partys intentions, its ability to elect directors or
financial reliance by the French company on the acquiring party).
C. MATERIAL CONTRACTS
The Group was not a party to any material contract during the
two years immediately preceding publication of this document
outside the ordinary course of business, except the following:
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Our credit agreements with certain banks concerning credit lines
and letters of credit described in Item 5. B.
Liquidity and Capital Resources; |
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Our agreements with certain related parties described in
Item 7. B. Related Party Transactions; |
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The lease agreement on the Groups headquarters described
in Item 4.C Property, Plants and Equipment. |
D. EXCHANGE CONTROLS
Exchange Controls
Under current French exchange control regulations, there are no
limitations on the amount of payments that may be remitted by a
French company to
non-residents. Laws and
regulations concerning foreign exchange controls do require,
however, that all payments or transfers of funds made by a
French resident to a
non-resident be handled
by an accredited intermediary. In France, all registered banks
and substantially all credit establishments are accredited
intermediaries. The accredited intermediary must declare the
transfer of any funds exceeding EUR 12,500 to the Bank of
France for statistical purposes.
E. TAXATION
The following describes the principal French and United States
federal income tax consequences of the ownership of Ordinary
Shares or ADSs by a U.S. Holder (as defined below). This
summary does not purport to address all potential tax
consequences of the ownership of Ordinary Shares or ADSs and
does not apply to special classes of holders subject to special
rules, including pension funds, banks or other financial
institutions,
tax-exempt entities,
life insurance companies,
pass-through entities,
dealers in currencies or securities, traders in securities that
elect a mark-to-market
method of accounting, United States expatriates, investors
liable for alternative minimum tax, investors that actually or
constructively own 10% or more of the capital of the Company,
persons who acquired their shares pursuant to the exercise of
employee stock options or otherwise as compensation, investors
that hold Ordinary Shares or ADSs as part of a straddle or a
hedging or conversion transaction and investors whose functional
currency is not the U.S. dollar. In addition, this
discussion does not cover the treatment of shares that are held
in connection with a permanent establishment or fixed base
through which a holder carries on business or performs personal
services in France.
136
This section is based in part upon the representations of the
Depositary and the assumption that each obligation in the
Deposit Agreement and any related agreement will be performed in
accordance with its terms. In addition, this section is based on
the tax laws of the United States (including the Internal
Revenue Code of 1986, as amended, its legislative history,
existing and proposed regulations there under, published rulings
and court decisions) and France as in effect on the date hereof,
as well as on the Convention Between the United States of
America and France for the Avoidance of Double Taxation and the
Prevention of Fiscal Evasion with Respect to Taxes on Income and
Capital dated August 31, 1994 (the Treaty) and
on the Convention Between the United States of America and
France for the avoidance of Double Taxation and the Prevention
of Fiscal Evasion with Respect to Taxes on Estates, Inheritance
and Gifts of November 24, 1978 (the Estate Tax
Treaty), all of which are subject to change (or changes in
interpretation), possibly with retroactive effect.
The discussion does not address any aspects of United States
taxation other than federal income taxation or any aspects of
French taxation other than income taxation, gift and inheritance
taxation, transfer taxation, and wealth taxation.
U.S. Holders (as defined below) are urged to consult their
tax advisors regarding the United States federal, state and
local, French and other tax consequences of owning and disposing
of Ordinary Shares and ADSs in their particular circumstances.
In particular, U.S. Holders are urged to confirm their
status as Eligible U.S. Holders (as defined below) with
their advisors and to discuss with their advisors any possible
consequences of their failure to qualify as Eligible
U.S. Holders.
For purposes of this discussion, a U.S. Holder
is any beneficial owner of Ordinary Shares or ADRs that is:
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a citizen or resident of the United States; |
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a corporation organized under the laws of the United States or
any State or other entity treated as a United States domestic
corporation for United States federal income tax purposes; |
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an estate the income of which is subject to United States
federal income tax without regard to its source; or |
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a trust if a court within the United States is able to exercise
primary supervision over the administration of the trust and one
or more United States persons have the authority to control all
substantial decisions of the trust. |
If a partnership (including for this purpose an entity treated
as a partnership for United States federal income tax purposes)
holds Ordinary Shares or ADSs, the tax treatment of a partner
generally will depend upon the status of the partner and the
activities of the partnership. Partners in such a partnership
are urged to consult their tax advisors regarding the specific
tax consequences of purchasing, owning and disposing of these
shares.
Exchanges of ADRs for Ordinary Shares performed by a U.S.
resident
In general, and taking into account the earlier assumptions,
holders of ADRs evidencing ADSs will be treated as the owners of
the Ordinary Shares represented by such ADSs and exchanges of
Ordinary Shares for ADRs, and ADRs for Ordinary Shares, will not
be subject to United States federal income or French tax.
Taxation of Dividends
French Taxation. In France, dividends are paid out of
after-tax income. Under
French tax law, dividends paid by French companies to
non-residents of France
are generally subject to French withholding tax at a 25% rate
and are not eligible for the benefit of the French tax credit
(called the Avoir Fiscal) equal to (i) 50% of the
amount of the dividend for individuals and corporations owning
at least 5% of the Companys capital and (ii) 10% for
other shareholders.
However, under the Treaty, dividends paid by a French
corporation, such as the Company, to shareholders who are
U.S. residents under the Treaty are generally subject to
French withholding tax at a 15% or 5% rate (a) and are
eligible for a refund of the Avoir Fiscal (b). As
explained below, the 2004 French Finance Act abolished the
Avoir Fiscal with respect to dividends distributed to
corporations on or after January 1, 2004 and to individuals
on or after January 1, 2005.
137
(a) Withholding tax
Under the Treaty, payments of dividends to Eligible
U.S. Holders, as defined below, are subject to French
withholding tax at the rate of 15% or 5%.
An Eligible U.S. Holder is a U.S. Holder
whose ownership of Ordinary Shares or ADSs is not effectively
connected with a permanent establishment in France and who is
for purposes of the Treaty:
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an individual or other
non-corporate holder
that is a resident of the United States for Treaty purposes (15%
withholding tax rate); |
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a United States corporation, other than a regulated investment
company, that owns, directly or indirectly, 10% or more of the
capital of the Company (5% withholding tax rate); or |
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a United States corporation that does not own, directly or
indirectly, 10% or more of the capital of the Company (15%
withholding tax rate). |
To benefit from the reduced withholding tax rate of 15% or 5%
immediately upon payment of a dividend on or after
January 1, 2005, Eligible U.S. Holders must
(i) complete and deliver to the French tax authorities the
French Treasury Form entitled Certificate of
Residence which establishes that they are a resident of
the U.S. under the Treaty, (ii) have the form
certified either by the Internal Revenue Service or the
financial institution that is in charge of the administration of
the Ordinary Shares or ADSs, and (iii) send the form before
the date of payment of the dividend. An Eligible
U.S. Holder who does not benefit from the reduced
withholding tax rate of 15% or 5% immediately upon the payment
of the dividend may claim a refund of the excess 10% or 20%,
respectively, withholding tax by filing a French Treasury
form RF 1A.EU No. 5052 with the French tax
authorities by December 31 of the year following the
calendar year in which the related dividend was received. The
Depositary will arrange for the filing with the French tax
authorities of all forms completed by U.S. Holders
registered with the Depositary and returned to the Depositary in
sufficient time so they may be filed with the French tax
authorities by December 31 of the year following the
calendar year in which the related dividend was received. The
French Treasury form RF IA EU No. 5052 (or
any other relevant form to be issued by the French tax
authorities) as well as the form of the certificate of residence
and the U.S. financial institution certification, together
with instructions, will be provided by the Depositary to all
U.S. Holders registered with the Depositary and is also
available from the United States internal Revenue Service or
from the Centre des Impôts des Non Residents, 9 rue
dUzès, 75094 Paris Cedex 02, France.
(b) Tax Credit
Under the Treaty, dividends paid by a French corporation, such
as the Company, to shareholders who are U.S. residents
under the Treaty were generally eligible for a refund of the
Avoir Fiscal. However, the 2004 French Finance Act
abolished the Avoir Fiscal with respect to dividends
distributed to corporations on or after January 1, 2004 and
to individuals on or after January 1, 2005.
With respect to French resident individuals, the Avoir
Fiscal is replaced, for dividends received in 2005 and for
those received as from January 1, 2006, by a taxation on,
respectively, only 50% and 60% of the amount of dividends. In
addition, French resident shareholder benefits from a fixed
rebate of EUR 1220/1525 for 2005 and EUR 2440/3050 for
2006 according to the familial situation of the tax payer.
Finally, such individuals benefit from a tax credit (Tax Credit)
equal to 50% of the distributed amounts, subject however to a
maximum credit amount of EUR 115 or EUR 230 according to the
familial situation of the taxpayer. With respect to French legal
entities subject to corporation tax, the possibility of
offsetting the Avoir Fiscal against the tax for which
such entities are liable, is eliminated with respect to tax
credits which can be utilized on or after January 1, 2005.
The 2004 French Finance Act does not clarify the situation of
nonresident recipients entitled to the Tax Credit described
above, under a bilateral treaty concluded with France, such as
the Treaty. However, pursuant to the provisions of
SOP 5I-2-05, dated
August 11, 2005, qualifying
non-resident
individuals who were previously entitled to a refund of the
Avoir Fiscal pursuant to a tax treaty may benefit, under
the same conditions as for the Avoir Fiscal, from a
refund of the Tax Credit (net of applicable withholding tax).
138
Due to the recent changes in the French dividend distribution
legislation and to the presently uncertain French treatment of
nonresident dividend recipients, U.S. Holders are urged to
consult their tax advisors with respect to the tax consequences
of the above-mentioned
new rules on their own situation.
United States Federal Income Taxation. Subject to the
passive foreign investment company and the related person
insurance income rules discussed below, the gross amount of any
dividend paid and any payment on account of a French tax credit
(before reduction for French withholding taxes) to a
U.S. Holder by the Company out of its current or
accumulated earnings and profits (as determined for United
States federal income tax purposes) is subject to United States
federal income taxation. Dividends paid to a noncorporate
U.S. Holder with respect to the Ordinary Shares or ADSs in
taxable years beginning before January 1, 2011, generally
will constitute qualified dividend income taxable to the holder
at a maximum tax rate of 15% provided that the Ordinary Shares
or ADSs are held for more than 60 days during the 121
period beginning 60 days before the
ex-dividend date and
the holder meets other holding period requirements (and provided
that the Company is not a passive foreign investment company as
defined below).
The gross amount of the dividend and any payment on account of a
French tax credit is taxable to the U.S. Holder when it is
actually or constructively received by the U.S. Holder, in
the case of Ordinary Shares, or by the Depositary, in the case
of ADSs. The dividend will not be eligible for the
dividends-received
deduction generally allowed to United States corporations with
respect to dividends received from other United States
corporations. The amount of the dividend distribution includible
in income of a U.S. Holder will be the U.S. dollar
value of the euro payment made, determined at the spot
U.S. dollar/euro rate on the date such dividend
distribution is includible in the income of the
U.S. Holder, regardless of whether the payment is in fact
converted into U.S. dollars. If the U.S. Holder
converts the euros so received into U.S. dollars on the
date of receipt, the U.S. Holder generally should not
recognize foreign currency gain or loss on such conversion. If
the U.S. Holder does not convert the euros, the
U.S. Holder will have a basis in the euros equal to their
U.S. dollar value on the date of receipt. Generally, any
gain or loss resulting from currency exchange fluctuations
during the period from the date the dividend payment is
includible in income to the date such payment is converted into
U.S. dollars will be treated as ordinary income or loss and
will not be eligible for the special tax rate applicable to
qualified dividend income. Such gain or loss generally will be
income from sources within the United States for foreign
tax credit limitation purposes. Distributions in excess of
current and accumulated earnings and profits, as determined for
United States federal income tax purposes, will be treated
as a return of capital to the extent of the
U.S. Holders basis in the Ordinary Shares or ADSs and
thereafter as capital gain.
Subject to certain limitations, the French tax withheld in
accordance with the Treaty and paid over to France will be
creditable against the U.S. Holders United States
federal income tax liability. Special rules apply in determining
the foreign tax credit limitation with respect to dividends that
are subject to the maximum 15% tax rate. To the extent a refund
of tax withheld is available to a U.S. Holder (for example,
because the Holder does not establish before the date of payment
that it is a resident of the United States under the Treaty),
the amount of tax withheld that is refundable will not be
eligible for credit against the U.S. Holders
United States federal income tax liability. See
French Taxation, above, for the
procedures for obtaining a refund of tax withheld in excess of
the 15% or 5% treaty rates. The rules relating to the
determination of the United States foreign tax credit are
complex, and U.S. Holders should consult their own tax
advisers about applicable limitations on claiming a foreign tax
credit or, alternatively, a deduction for any French tax
withheld.
Distributions of additional Ordinary Shares to U.S. Holders
with respect to their Ordinary Shares or ADSs that are made as
part of a pro rata distribution to all shareholders of the
Company generally will not be subject to United States
federal income tax.
Taxation of Capital Gains
French Taxation. Under the Treaty, no French tax is
levied on any capital gain derived from the sale of Ordinary
Shares or ADSs by a U.S. Holder who (i) is a resident
of the United States under the Treaty, (ii) is
entitled to Treaty benefits under the limitation on benefits
provisions of Article 30 thereof, and (iii) does not
have a permanent establishment in France to which the Ordinary
Shares or ADRs are effectively connected or, in the
139
case of an individual, who does not maintain a fixed base in
France to which the Ordinary Shares or ADSs are effectively
connected.
If a Holder of Ordinary Shares or ADSs transfers shares using a
written agreement, that agreement must generally be registered.
The holder will be required to pay a registration duty of 1.1%
of either the purchase price or the market value of the shares
transferred, whichever is higher. The maximum duty is
EUR 4,000 per transfer. However, if the agreement is
executed outside France, the holder of Ordinary Shares or ADSs
will not be required to pay this duty.
United States Federal Income Taxation. Subject to the
passive foreign investment company and related person insurance
income rules discussed below, upon a sale or other disposition
of Ordinary Shares or ADSs, a U.S. Holder will recognize
gain or loss for United States federal income tax purposes in an
amount equal to the difference between the U.S. dollar
value of the amount realized and the U.S. Holders tax
basis (determined in U.S. dollars) in such Ordinary Shares
or ADSs. Such gain will generally be capital gain if the
U.S. Holder holds the Ordinary Shares or ADSs as a capital
asset. The deductibility of capital losses is subject to
significant limitations.
Long-term capital gain
of a non-corporate
U.S. Holder that is recognized before January 1, 2011,
is generally taxed at a maximum rate of 15% where the holder has
a holding period greater than one year. The gain or loss will
generally be income or loss from sources within the
United States for foreign tax credit limitation purposes.
French Estate and Gift Taxes
France imposes estate and gift tax where an individual or entity
acquires real and personal property from a non-resident of
France by way of inheritance or gift. France has entered into
estate and gift tax treaties with a number of countries. Under
these treaties, residents of those countries may be exempted
from this tax or obtain a tax credit, assuming specified
conditions are met. Holders of Ordinary Shares or ADSs should
consult their own tax advisors about whether French estate and
gift tax will apply and whether they may claim an exemption or
tax credit.
Under the Estate Tax Treaty, a transfer of ADSs or Ordinary
Shares by gift or by reason of the death of a U.S. Holder
that would otherwise be subject to French gift or inheritance
tax, respectively, will not be subject to such French tax unless
(i) the donor or the decedent is domiciled in France at the
time of making the gift or of his or her death, or (ii) the
ADSs or Ordinary Shares were used in, or held for use in, the
conduct of a business or profession through a permanent
establishment or a fixed place of business based in France.
French Wealth Tax
Non-resident individuals are taxable only on their assets which
are located in France. However, financial investments made by
non-resident
individuals, other than in real property companies, are exempt
from wealth tax under certain conditions.
The French wealth tax generally does not apply to a
U.S. Holder with respect to Ordinary Shares or ADSs if such
U.S. holder is a resident of the
United-States for
purposes of the Treaty and own, alone or with related persons,
directly or indirectly, Ordinary Shares or ADSs which give
rights to less than 25 per cent of SCORs
earnings.
Passive Foreign Investment Company Rules
PFIC Rules. The Company believes that Ordinary Shares and
ADSs should not be treated as stock of a passive foreign
investment company (a PFIC) for United States
federal income tax purposes, but this conclusion is a factual
determination made annually and thus may be subject
to change.
In general, the Company will be a PFIC with respect to a
U.S. Holder if, for any taxable year in which the
U.S. Holder held ADSs or Ordinary Shares, either:
|
|
|
|
|
at least 75% of the gross income of the Company for the taxable
year is passive income, or |
|
|
|
at least 50% of the value (determined on the basis of a
quarterly average) of the Companys assets is attributable
to assets that produce or are held for the production of passive
income. |
140
For this purpose, passive income generally includes dividends,
interest, royalties, and rents, as well as certain other
categories of income, but generally does not include income
derived in the active conduct of an insurance business by a
corporation predominantly engaged in an insurance business. This
insurance income exception is intended to ensure that income
derived by a bona fide insurance company does not constitute
passive income, except to the extent of income attributable to
financial reserves in excess of the reasonable needs of the
insurance business. The Company believes that this exception
applies to the income earned through the reinsurance businesses
conducted by its subsidiaries. However, no regulatory guidelines
have been issued interpreting this exception. Thus, there can be
no assurance that we will not be considered a PFIC for the
current year or any future years.
If the Company were treated as a PFIC, a U.S. Holder would
be subject to special rules with respect to:
|
|
|
|
|
any gain realized on the sale or other disposition of Ordinary
Shares or ADSs, and |
|
|
|
any excess distribution by the Company to the
U.S. Holder (generally, any distributions to the
U.S. Holder with respect to the Ordinary Shares or ADSs
during a single taxable year that are greater than 125% of the
average annual distributions received by the U.S. Holder
with respect to the Ordinary Shares or ADSs during the three
preceding taxable years or, if shorter, the
U.S. Holders holding period for the Ordinary Shares
or ADSs). |
Under these rules:
|
|
|
|
|
the gain or excess distribution would be allocated ratably over
the U.S. Holders holding period for the Ordinary
Shares or ADSs, beginning in the year the Company became
a PFIC, |
|
|
|
the amount allocated to the taxable year in which the gain or
excess distribution was realized would be taxable as ordinary
income, |
|
|
|
the amount allocated to each prior year, with certain
exceptions, would be subject to tax at the highest tax rate in
effect for that year, and |
|
|
|
the interest charge generally applicable to underpayments of tax
would be imposed with respect to the tax attributable to each
such year. |
If a company is treated as a PFIC, U.S. Holders may choose
to mitigate these tax consequences by making a
mark-to-market election. If a U.S. Holder makes
a mark-to-market election for Ordinary Shares or ADSs, the
U.S. Holder will include in income each year an amount
equal to the excess, if any, of the fair market value of the
Ordinary Shares or ADSs as of the close of the taxable year over
the U.S. Holders adjusted basis in such Ordinary
Shares or ADSs. A U.S. Holder may deduct the excess, if
any, of the U.S. Holders adjusted basis in the
Ordinary Shares or ADSs over the fair market value of the
Ordinary Shares or ADSs as of the close of the taxable year only
to the extent of any net mark-to-market gains on such Ordinary
Shares or ADSs included in the U.S. Holders income
for prior taxable years. Amounts included in the
U.S. Holders income under a mark-to-market election,
as well as gain on the actual sale or other disposition of the
U.S. Holders Ordinary Shares or ADSs are treated as
ordinary income. These amounts of ordinary income will not be
eligible for the favorable tax rates applicable to qualified
dividend income or long-term capital gains. Ordinary loss
treatment also applies to the deductible portion of any
mark-to-market loss on the U.S. Holders Ordinary
Shares or ADSs, as well as to any loss realized on the actual
sale or other disposition of the U.S. Holders
Ordinary Shares or ADSs, to the extent that the amount of such
loss does not exceed the net mark-to-market gains previously
included for the U.S. Holders Ordinary Shares or
ADSs. A U.S. Holders basis in its Ordinary Shares or
ADSs will be adjusted to reflect any such income or loss
amounts. The tax rules that apply to distributions by
corporations which are not PFICs would apply to distributions by
the Company.
The mark-to-market election is available only for stock which is
regularly traded on a national securities exchange that is
registered with the Securities and Exchange Commission or on the
Nasdaq Stock Market, or an exchange or market that the
U.S. Secretary of the Treasury determines to have rules
sufficient to ensure that the market price represents a
legitimate and sound fair market value. Under the
U.S. Treasury Regulations, the Companys Ordinary
Shares or ADSs would generally be considered regularly traded if
the Ordinary Shares or ADSs are traded in more than de minimis
quantities on at least 15 days during each calendar quarter
of the
141
relevant calendar year. You should consult your tax advisor as
to whether a mark-to-market election is available or advisable
for your particular circumstances.
Although a U.S. Holder may also mitigate the consequences
of PFIC status by making a qualified electing fund election, the
Company does not anticipate making information available to
shareholders necessary to make this election.
In addition, notwithstanding any election made with regard to
the Ordinary Shares or ADSs, dividends received from the Company
will not constitute qualified dividend income to a
U.S. Holder if the Company is a PFIC either in the taxable
year of the distribution or the preceding taxable year.
Dividends that do not constitute qualified dividend income are
not eligible for taxation at the 15% maximum rate applicable to
qualified dividend income. Instead, U.S. Holders must
include the gross amount of any such dividend paid by the
Company out of its accumulated earnings and profits (as
determined for United States federal income tax purposes) in
their gross income, and it will be subject to tax at rates
applicable to ordinary income. A U.S. Holder that owns
Ordinary Shares or ADSs during any year that the Company is a
PFIC must file Internal Revenue Service Form 8621.
The rules concerning PFICs and PFIC elections are highly
technical and complex. Therefore, U.S. Holders should
consult their own tax advisors regarding the potential
application of the PFIC rules and elections to the ownership of
our shares.
Related Person Insurance Income for U.S. Holders
Certain United States income and tax reporting rules may apply
to U.S. Holders who, directly or indirectly, own stock of a
non-United States
corporation that earns related person insurance
income (RPII), if 25% or more of the
non-United States corporations direct or indirect
shareholders are United States persons. RPII is income from the
direct or indirect insurance or reinsurance of the risk of any
United States person who owns shares of the
non-United States corporation (directly or indirectly
through foreign entities) or the risk of a person related to
such a United States person. If applicable, these rules would
require U.S. Holders to include in taxable income each year
their pro rata share of any RPII for the year, regardless of
whether such income is distributed, and also to file Internal
Revenue Service Form 5471, disclosing certain information
regarding their direct or indirect ownership of the
non-United States corporation. For organizations that are
otherwise exempt from United States federal income tax, any
such income would constitute unrelated business taxable
income. These rules could also apply to convert some or
all of the gain recognized from the sale or disposition of
shares from capital gain to ordinary income and to require such
gain to be reported on Internal Revenue Service Form 5471.
Under de minimis exceptions, these rules do not apply if less
than 20% of the non-United States corporations
insurance income consists of RPII or if less than 20% of the
non-United States corporations stock is owned,
directly or indirectly, by insureds (or persons related to such
insureds). The Company does not believe that United States
persons will own, directly or indirectly, 25% of its shares. In
addition, the Company believes that the de minimis exceptions
should apply. Accordingly, although no assurance can be given,
the Company does not expect that the RPII rules will apply.
U.S. Holders should consult their own tax advisors
regarding the potential application of the RPII rules to the
ownership of Ordinary Shares or ADSs.
United States Information Reporting and Backup Withholding
for U.S. Holders
Dividend payments made to U.S. Holders and the proceeds
paid from the sale or disposal of a U.S. Holders
Ordinary Shares or ADSs may be subject to information reporting
to the Internal Revenue Service and possible United States
federal backup withholding at the appropriate rate (currently
28%). Backup withholding will not apply to a U.S. Holder
who furnishes a correct taxpayer identification number and makes
any other required certification or who is otherwise exempt from
backup withholding. United States persons who are required to
establish their exempt status generally must provide Internal
Revenue Service
Form W-9 (Request
for Taxpayer Identification Number and Certification). Backup
withholding is not an additional tax. Amounts withheld as backup
withholding may be credited against the taxpayers United
States federal income tax liability. Taxpayers may obtain a
refund of any excess amounts withheld under the backup
withholding rules by filing the appropriate claim for refund
with the Internal Revenue Service in a timely manner and
furnishing any required information.
142
F. DIVIDENDS AND PAYING AGENTS
Not applicable.
G. STATEMENT BY EXPERTS
Not applicable.
H. DOCUMENTS ON DISPLAY
We are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, or the Exchange
Act, as they apply to foreign private issuers, and file reports
and other information with the SEC. As a foreign private issuer,
we are exempt from Exchange Act rules regarding the content and
furnishing of proxy statements to shareholders and rules
relating to short swing profit and liability.
Our SEC filings are available to the public over the Internet at
the SECs website at http://www.sec.gov. You may also read
and copy any document we file at the public reference facilities
of the SEC located at:
450 Fifth Street, N.W.,
Washington, D.C. 20549, United States.
You may obtain more information concerning the operation of the
public reference section of the SEC by calling the SEC at
1-800-SEC-0330.
In addition, the reports and other information we file with the
SEC are also available for reading and copying at the offices of
the NYSE, 11 Wall Street, New York,
New York 10005, United States.
We also maintain an Internet site at http://www.scor.com. Our
website and the information contained therein or connected
thereto shall not be deemed to be incorporated into or to form a
part of this Annual Report.
Under French law, all shareholders have the right to obtain such
documents in order to make an informed judgment concerning the
management and activities of SCOR. The nature of such documents
and the means by which they are made available are determined by
applicable law.
I. SUBSIDIARY INFORMATION
Not applicable.
143
Item 11. Quantitative and Qualitative Disclosures About
Market Risk
SCOR is exposed to market risk from changes in foreign currency
exchange rates, interest rates and equity security prices that
have an adverse effect on the fair value of financial
instruments and derivative financial instruments. SCOR manages
its market risks as well as risk exposure relating to
non-financial assets, liabilities and transactions by defining
centralized investment policy guidelines, using derivatives to
protect its investment portfolio or rebalancing its existing
asset and liability portfolio.
Market risk sensitive instruments are divided into two
categories: instruments entered into for trading purposes and
instruments entered into for non-trading purposes.
Foreign currency exchange rate risk
Foreign currency exchange rate risk arises from the possibility
that changes in foreign currency exchange rates will impact the
value of revenues, expenses, assets and liabilities denominated
in foreign currencies. The Groups financial position,
results of operations and cash flows are directly dependent on
the periodic monitoring and adjustment of the balance of assets
and liabilities in each of its main operating currencies.
At December 31, 2005, 57% of consolidated net technical
reserves were denominated in currencies other than those
participating in the European Economic and Monetary Union,
primarily the U.S. dollar (40% of net technical reserves),
the Pound sterling (4% of net technical reserves) and the
Canadian dollar (4% of net technical reserves).
The impact of fluctuations in exchange rates is mitigated to a
large extent by the fact that the Group generally invest in
assets denominated in the same currencies as its corresponding
technical reserves, in order to ensure that its investments on
the one hand and reinsurance liabilities on the other are
matched on a currency-by-currency basis. The Group attempts to
match its assets and liabilities on a currency-by-currency basis
in each currency for which an organized financial or foreign
exchange market is available, including the currencies noted
above, primarily by investing in assets that are denominated in
the currency of the Groups corresponding reinsurance
liabilities. Management adjusts open positions in specific
currencies, generally on a quarterly basis, to manage any excess
or deficit of assets compared to liabilities in a particular
currency. Total currency exposure, other than with respect to
the euro, is limited to the excess (or deficiency) of assets
over liabilities in each currency.
See Item 3.D. Risk Factors We are exposed
to the risk on foreign exchange rates.
Interest rate risk
SCOR has exposure to economic losses due to interest rate risk
arising from changes in the level of interest rates. Generally,
a sustained period of lower interest rates will reduce the
investment income yield of the Groups investment portfolio
over time as higher yielding investments are called, mature or
are sold and proceeds are reinvested at lower rates. However, on
significant portions of the investment portfolio, declining
interest rates will generally increase unrealized gains, as well
as realized gains to the extent securities are sold. Conversely,
rising interest rates should, over time, increase investment
income but reduce the market value of certain of the investments
in the Groups investment portfolio. The diversity of the
Groups investment portfolio, developed as a result of the
geographic spread of its reinsurance businesses and a
corresponding strategy of matching, to the extent possible,
investments and reinsurance liabilities by currency, tends to
diminish the effect of movements in interest rates in any one
market. See Item 3.D. Risk Factors We are
exposed to the impact of changes in interest rates and
developments in the debt and equity markets.
Equity security price risk
SCOR has exposure to equity security price risk as a result of
its investment in equity securities and equity derivatives, due
to volatility. SCOR mitigates this risk by diversifying its
equity portfolio and applying conservative investment guidelines.
SCOR prefers investments for long periods of time, and is not
necessarily troubled by
short-term price
volatility when economics and management remain strong. Equity
securities accounted for approximately 9% of our
144
investments at December 31, 2005. See Item 3.D.
Risk Factors We are exposed to the impact of changes
in interest rates and developments in the debt and equity
markets.
Sensitivity analysis
SCORs exchange rate sensitivity analysis assumes an
instantaneous 10% change in the exchange rates of currencies
other than the currencies irrevocably fixed against the euro,
from their levels at December 31, 2004 and 2005, with all
other variables held constant. At December 31, 2005,
appreciation of the euro against other currencies would result
in a before-tax
decrease in the market value of financial instruments of
EUR 530 million (EUR 570 million at
December 31, 2004). A depreciation at December 31,
2005 of the euro against other currencies would result in a
before-tax increase in
the market value of financial instruments of
EUR 530 million (EUR 570 million at
December 31, 2004).
The interest rate sensitivity analysis estimates the change in
the market value of the Groups interest-sensitive
financial instruments that were held on December 31, 2005
due to instantaneous parallel changes in the year-end yield
curve. The interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag
behind changes in market rates. Accordingly, the analysis may
not be indicative of, is not intended to provide and does not
provide a precise forecast of the effect of changes of market
interest rates on the Companys income or
stockholders equity. Furthermore, the computations do not
contemplate any actions SCOR would undertake in response to
changes in interest rates.
The interest rate sensitivity analysis assumes an instantaneous
shift in market interest rates, with scenarios of interest rates
increasing and decreasing 100 basis points from their
levels at December 31, 2004 and 2005, with all other
variables held constant. A 100 basis point increase in
market interest rates would have resulted in a
before-tax decrease in
the value of SCORs financial instrument position of
EUR 204 million at December 31, 2005
(EUR 226 million at December 31, 2004). A
100 basis point decrease in market interest rates would
have resulted in a
before-tax increase in
the value of SCORs financial instrument position of
EUR 204 million at December 31, 2005
(EUR 226 million at December 31, 2004).
Equity price risk was measured assuming an instantaneous 10%
change in the most pertinent index for the most significant
equity instruments held by the Group (the Indexes)
from their levels at December 31, 2005, with all other
variables held constant. The Indexes are primarily the Standard
& Poors 500 Index for U.S. equity
instruments, the S&P Toronto Stock Exchange Composite Index
for Canadian equity instruments, and the FTSEurofirst 300 Index
for European equity instruments. The Groups equity
holdings were assumed to be positively correlated with those
indexes. At December 31, 2005, a 10% decrease in the
Indexes would have resulted in a EUR 111 million
decrease in the market value of the Groups equity
investments (EUR 52 million at December 31,
2004). A 10% increase in the Indexes would have resulted in a
before-tax increase of
EUR 111 million in the market value of the
Groups equity investments at December 31, 2005
(EUR 52 million at December 31, 2004).
145
The following tables set forth the estimated effect on the
market value of the Groups financial instruments available
for sale and for trading at December 31, 2004 and 2005,
assuming changes of 10% in foreign currency:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 | |
|
|
|
|
| |
|
|
|
|
|
|
Currency Risk | |
|
Interest Rate Risk | |
|
|
|
|
|
|
| |
|
| |
|
Equity Risk | |
|
|
|
|
10% change in | |
|
100 basis point | |
|
| |
|
|
|
|
foreign currency | |
|
change in | |
|
10% change in | |
|
|
Market Value | |
|
exchange rates | |
|
interest rate | |
|
Indexes | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Increase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
|
5,237 |
|
|
|
392 |
|
|
|
(201 |
) |
|
|
|
|
Equity securities
|
|
|
769 |
|
|
|
20 |
|
|
|
|
|
|
|
77 |
|
Trading equity securities
|
|
|
335 |
|
|
|
13 |
|
|
|
(3 |
) |
|
|
34 |
|
Cash and cash equivalents
|
|
|
1,666 |
|
|
|
105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,007 |
|
|
|
530 |
(1) |
|
|
(204 |
) |
|
|
111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
|
5,237 |
|
|
|
(392 |
) |
|
|
201 |
|
|
|
|
|
Equity securities
|
|
|
769 |
|
|
|
(20 |
) |
|
|
|
|
|
|
(77 |
) |
Trading equity securities
|
|
|
335 |
|
|
|
(13 |
) |
|
|
3 |
|
|
|
(34 |
) |
Cash and cash equivalents
|
|
|
1,666 |
|
|
|
(105 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,007 |
|
|
|
(530 |
)(1) |
|
|
204 |
|
|
|
(111 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004 | |
|
|
|
|
| |
|
|
|
|
|
|
Currency Risk | |
|
Interest Rate Risk | |
|
|
|
|
|
|
| |
|
| |
|
Equity Risk | |
|
|
|
|
10% change in | |
|
100 basis point | |
|
| |
|
|
|
|
foreign currency | |
|
change in | |
|
10% change in | |
|
|
Market Value | |
|
exchange rates | |
|
interest rate | |
|
Indexes | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Increase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
|
5,272 |
|
|
|
439 |
|
|
|
(210 |
) |
|
|
|
|
Equity securities
|
|
|
265 |
|
|
|
10 |
|
|
|
|
|
|
|
26 |
|
Trading equity securities
|
|
|
778 |
|
|
|
8 |
|
|
|
(16 |
) |
|
|
26 |
|
Cash and cash equivalents
|
|
|
1,798 |
|
|
|
113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,113 |
|
|
|
570 |
(1) |
|
|
(226 |
) |
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
|
5,272 |
|
|
|
(439 |
) |
|
|
210 |
|
|
|
|
|
Equity securities
|
|
|
265 |
|
|
|
(10 |
) |
|
|
|
|
|
|
(26 |
) |
Trading equity securities
|
|
|
778 |
|
|
|
(8 |
) |
|
|
16 |
|
|
|
(26 |
) |
Cash and cash equivalents
|
|
|
1,798 |
|
|
|
(113 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
8,113 |
|
|
|
(570 |
)(1) |
|
|
226 |
|
|
|
(52 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
The effect of changes of currency exchange rates on investments
was offset by the technical reserves and debts expressed in USD. |
Item 12. Description of Securities Other than Equity
Securities
Not applicable.
146
PART II
Item 13. Defaults, Dividend Arrearages and
Delinquencies
None.
Item 14. Material Modifications to the Rights of
Security Holders and Use of Proceeds
None.
Item 15. Controls and Procedures
Overview
SCOR is aware of the importance of maintaining controls and
procedures and is working towards improving its controls and
procedures. Beginning with the fiscal year ending
December 31, 2006, Section 404 of the
U.S. Sarbanes-Oxley
Act of 2002, or Section 404, will require us to include an
internal control report of management with our annual report on
Form 20-F. The
internal control report must contain (1) a statement of
managements responsibility for establishing and
maintaining adequate internal control over financial reporting
for SCOR, (2) a statement identifying the framework used by
management to conduct the required evaluation of the
effectiveness of our internal control over financial reporting,
(3) managements assessment of the effectiveness of
our internal control over financial reporting as of the end of
our most recent fiscal year, including a statement as to whether
or not our internal control over financial reporting is
effective and (4) a statement that our independent auditors
have issued an attestation report on managements
assessment of our internal control over financial reporting. In
addition, pursuant to
article L.225-37
of the French Commercial Code, the Chairman and Chief Executive
Officer is required to deliver a special report in connection
with the annual shareholders meeting regarding the
boards governance practices and the status of the
Groups internal control procedures, the text of which is
reproduced below.
Internal control procedures
The purposes of SCORs internal control procedures are:
|
|
|
|
|
first, to ensure that management actions, or the conduct of
transactions, as well as the conduct of employees are consistent
with the policies of the Companys as established by
management, with applicable laws and regulations, and with the
Companys internal values, standards, and rules; |
|
|
|
second, to verify that accounting, financial, and management
information provided to SCORs corporate governance bodies
accurately reflects the conduct of the Companys operations
and its financial condition. |
The purpose of the internal control system is to prevent and
manage all of the risks resulting from the Companys
business, errors, or fraud, in particular in the accounting and
finance sectors. Like any internal control system, it cannot,
however, absolutely guarantee that such risks will be totally
eliminated. Among the various limitations inherent in the
effectiveness of internal controls relating to the preparation
of financial documents, those involving
decision-making errors
based on human judgment are particularly high in a Group such as
SCOR, since accounting data is subject to numerous estimations.
The internal control system is the responsibility of the
Groups General Management.
The Groups internal control relating to the preparation of
financial and accounting data has been evolving since 2003 based
on the COSO reference document. The three general objectives
sought through this frame of reference are to ultimately achieve
better operating efficiency and protection of assets, ensure
compliance with applicable laws, and disclose reliable financial
statements and statistical information. SCOR focused on
complying with the internal control system relating to the
reliability of financial information of the COSO reference
document. The use of this reference requires us to cover the
five components set forth by the COSO reference
document, i.e., define the control environment, evaluate
risks, survey and formalize control activities, present the
process of information and communication, and ensure supervision
of internal controls.
147
This report was prepared with the contribution of the Internal
Audit Department, the Office of the Company Secretary
(Secrétariat Général) and the Finance
Department. It was presented to the Audit Committee and to the
Board of Directors.
Brief description of the controls implemented
a) General Organization of the Participants
Involved in the System of Internal Control
General Organization:
The SCOR Group consists of SCOR and its subsidiaries, branches,
and representation offices throughout the world. SCOR, whose
corporate headquarters are located in Paris, has the following
responsibilities:
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holding company; |
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operating company for financial management and various
reinsurance operations, the business of which is located in
Paris; and |
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functional responsibilities. |
These functional responsibilities cover a broad field and relate
to all of SCORs operations. They involve the Groups
Risk Control Department (Direction du Contrôle des
Risques Groupe), Finance and Accounting Department
(Direction Financière), Management Information
Systems Department (Direction des Systèmes
dInformation), Office of the Company Secretary and
Legal Department (Secrétariat Général et
Direction des Affaires Juridiques Groupe), Human Resources
Department (Direction des Ressources Humaines), Public
Affairs Department (Direction des Affaires Publiques),
and the Internal Audit Department (Direction de lAudit
Interne).
Following a reorganization completed in July 2005, the Group
Claims and Commutation department (Direction des Sinistres
Groupe) was consolidated with the
Non-Life business
segment, comprising the two former business segments:
Non-Life treaties and
facultatives in large corporate accounts (see comments below).
In connection with the New SCOR project, some reinsurance
property and casualty business activities in France and overseas
were contributed to SCOR Global P&C, as approved by
SCORs Extraordinary Shareholders Meeting held on
May 16, 2006. SCOR Global P&C thus became the
subsidiary specializing in the Groups
Non-Life reinsurance
business.
With regard to the Finance and Accounting Department, it
includes the Planning, Budgets, and Results Department (PBR), as
well as the Financial Communication, Capital Adequacy &
Ratings and the Treasury and Asset Management Departments.
The Group Risk Control Department includes the Group Actuarial
Department (Direction de lActuariat Groupe), the
Group Retrocession and the Catastrophic Risk Control Department
(Direction des Rétrocessions Groupe et du Contrôle
des Risques Catastrophiques), and the
Non-Life Group
Technical Department (Direction Technique Groupe Non Vie).
SCOR Groups reinsurance business was organized until
June 30, 2005 around three business segments reporting
directly to the Chief Operating Officer. Since July 1,
2005, two business segments,
Non-Life treaties
(including the
Credit-Sureties
business) and facultative business in Large Corporate Accounts
(Business Solutions), were merged in the SCOR Global P&C
business segment. The scope of the second business segment, Life
Reinsurance (SCOR VIE), did not change.
In connection with the internal procedures adopted by SCOR, the
subsidiaries manage one or more businesses in the areas that may
fall within one or more business segments. Nevertheless, after
the finalization of SCOR VIE in 2003, a legal and operational
distinction is ensured by the creation of branch offices
covering the Life Reinsurance business outside France falling
directly under the responsibility of SCOR VIE.
148
Participants in Internal Controls
As summarized in the preceding structure chart, the SCOR
Groups internal control system is organized as follows:
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Operating companies located in Paris and subsidiaries provide an
initial level of control of all operations under their
organizational responsibility; |
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The Reinsurance Business Segments, the Treasury and Asset
Management department and the Group functional departments
provide a second level of control in their respective areas over
transactions and operations conducted by the operating entities; |
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The Internal Audit Department provides a third level of control
by checking the effectiveness and relevance of the internal
control mechanisms of the first two levels in all areas and for
all of the Groups French and
non-French companies. |
Within this environment, control responsibilities are exercised
as described below by the following principal participants:
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The Board of Directors relies on various Board Committees, in
particular the Accounts and Audit Committee, to exercise its
control responsibility over the policies it has set for the
Company. |
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The Groups functional Departments or areas having control
responsibility define and oversee the implementation of rules
for which they are responsible that apply to all of the
Groups entities. Thus: |
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the Chief Actuary (Group Actuarial Department), reports directly
to the Chief Risk Officer, who, in turn, reports to the Chairman
and Chief Executive Officer, conducts centralized control of the
methods, tools, and results of calculations of claims reserves
funding for all
non-life operations.
His task is to implement standardized methods for funding claims
reserves for the entire Group, except for life insurance
operations, and to ensure the consistency of the Groups
reserve policies, working with internal actuaries and, when
appropriate, external actuaries. The Chief Risk Officer,
assisted by the Chief Actuary, supervises the establishment of
reserves for all subsidiaries and branches and reports to the
Accounts and Audit Committee of the Board of Directors; |
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the Group Retrocession and the Catastrophic Risk Control
Department, reporting to the Chief Risk Officer, prepares and
implements the plan of internal and external retrocession for
non-life businesses.
This Department is responsible for proper application of this
plan and monitoring the solvency of retrocessionnaires; |
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control of the Groups information systems is provided by
the Group Management Information Systems Department, which has a
Security manager. This Department reports to the
Chief Operating Officer; |
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the Planning, Budget, and Results Department (PBR), reporting to
the Chief Financial Officer, is responsible for financial and
accounting reporting and for verification and supervision of
aggregate monthly and consolidated quarterly results of
operations and the preparation of financial statements for the
French companies and the consolidated financial statements under
IFRS and U.S. GAAP; and |
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the control of all financial information intended for the
market, investors, financial analysts, Security Committees of
brokers and rating agencies falls under the responsibility of
the Financial Communication, Capital Adequacy & Ratings
Department, reporting to the Chief Financial Officer. |
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The general management of the two reinsurance business segments,
reporting to the Chairman and Chief Executive Officer and to the
Chief Operating Officer, jointly with the Group Risk Control
Department, reporting to the Chairman and Chief Executive
Officer, are responsible for drafting common guidelines for
underwriting policies throughout the world within their areas of
responsibility and overseeing their proper application. The
reinsurance business segments are also responsible for defining
claim management policy. |
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The Treasury and Asset Management Department, within the Finance
and Accounting Department, manages the assets of SCOR and of its
European and Asian subsidiaries. It supervises the application
of the investment strategy decided by the Groups General
Management and Chief Financial Officer, and is responsible for
reporting on investments for the entire Group, as well as
reviewing all
off-balance sheet
commitments. |
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The subsidiaries, as well as the Paris underwriting departments
and their branches or offices, must implement rules defined by
the reinsurance business segments, the Treasury and Asset
Management Department, and the functional departments. The
subsidiaries implement all
first-level controls
relating to business management and ensure compliance with local
regulatory, tax, and accounting requirements. |
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The Internal Audit Department, reporting to the Chairman and
Chief Executive Officer, has the primary responsibilities below: |
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inform General Management and the operating units and functional
departments of operating irregularities through the
implementation of an annual audit plan adopted by the Accounts
and Audit Committee; |
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advise managers of the operating companies on the preparation of
their internal control plans and work with them on
implementation of the procedures and tools necessary for
effective risk control; and |
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supervise relevance and compliance by the operating units and
functional departments with internal control procedures. |
As the internal control formalization plan is managed by the
Internal Audit Department, numerous resources of this Department
have been dedicated to this plan.
The Chief Internal Auditor reports to the Accounts and Audit
Committee of the Board of Directors.
b) Summary Information on Internal Control Procedures
Implemented by SCOR
The practical steps for implementing the strategy decided by the
Board of Directors, the underwriting policy, the financial
policy, the retrocession policy and the claims management
policy, are defined by the Groups General Management.
Periodic meetings of the general managers of the subsidiaries,
reinsurance business segments, and functional departments make
it possible to supervise and verify their proper application.
Furthermore, the parent company is present in the governance
bodies of each of its subsidiaries.
A detailed analysis and charting of risks was completed by SCOR
in 2003 for Paris, and then broadened in 2004 to include all
Group subsidiaries. This charting was supplemented where
applicable based on detailed analyses of the operational
processes conducted in 2005. SCORs risks and control
procedures are listed and organized in the following business
areas:
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issuance and management of reinsurance policies and claim
management; |
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accounting management (see c) below); |
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asset management; and |
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support functions. |
A monitoring tool linking risks to controls was implemented in
2005. This tool first covers risks that may place the
reliability of financial data in question.
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The management and control procedures relating to the
underwriting and management of reinsurance policies and claim
management are defined by each business segment and apply to all
underwriting departments, regardless of their location. The
following steps strengthen internal controls in this area: |
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SCOR uses a model for determining financial capital managed by
the Group Risk Control Department, which is necessary to
implement its underwriting policy. Financial capital is
allocated to each reinsurance business segment and constitutes
the reference for deciding and verifying the profitability
expected for each of them; |
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underwriting plans, by business segment, are approved annually
by the Groups General Management; |
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operating budgets are prepared annually; |
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a quarterly review of technical results by market/ subsidiary is
carried out and provides for technical results by underwriting
period. The formalization of this review was reinforced in 2005
through meetings referred to as FAO (Finance, Actuary and
Operationals) and QBR (Quarterly Business Review) meetings; |
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underwriting guidelines, defined by the Group Risk Control
Department, or reinsurance business segments, specify the
underwriting capabilities delegated to each entity, as well as
the underwriting rules to be followed. Cases that go beyond this
scope are subject to special authorization procedures. These
cases are examined by the Group Technical Department and/or the
Technical Department of SCOR Global P&C for the
Non-Life Reinsurance
business segment, by the Underwriting Committee or the market
manager for the SCOR VIE business segment. The Group Risk
Control Department or the reinsurance business segments update
the underwriting guidelines concerning pricing methods
and tools; |
151
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the definition of a global claim management policy for all of
the cases falls under the responsibility of the SCOR Global
P&C business segment, and a major claim management policy is
provided by SCOR Global P&Cs Claims and Commutations
Department. A SCOR Global P&C Major Claim Committee makes it
possible to be informed quickly of major claims. In addition,
audits of client claim departments are conducted by claim
experts (adjusters) of the major SCOR companies. With regard to
the SCOR VIE business segment, management of claims presenting a
risk of disputed claims was overseen by this business
segments Strategy Department until December 2005. Since
that date, it has been handled by the Market Departments in
question and overseen by SCOR VIEs Underwriting Department; |
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aggregation of catastrophic risks is monitored by each of the
reinsurance business segments and verified by the Group
Retrocession and the Catastrophic Risk Control Department within
the Group Risk Control Department using various methods and
tools. The principal earthquakes risks are managed by a specific
tool based on the Groups reinsurance management
information system. As for storm risks, they are managed
with a commercial tool (Eqecat) in the areas considered to be
the most exposed; |
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the risks specific to the management of reinsurance contracts
are subject to audits and verifications at the level of the
subsidiaries and branches based on the use of a system common to
the Group and including multiple automatic controls. Formalized
and systematic review systems have been implemented since 2005
and numerous control tools have been developed by the Management
Information Systems Department; and |
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furthermore, a procedure specific to Life reinsurance has been
installed for the purpose of combating money laundering. It
falls under the responsibility of the Fraud Prevention and
Security Department, which reports to SCOR VIEs General
Management. |
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Relating to asset management: |
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investment guidelines are established and verified annually by
SCORs General Management or the general management of each
of its subsidiaries for the financial assets recorded on the
balance sheet of the company in question. These guidelines are
applied to both the asset management teams based in Paris and
the management delegated to an external service provider for our
North American companies; |
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investment decisions are made during monthly Investment
Committee meetings. Such meetings decide on the options to be
followed regarding the type of investments and to manage market
risks (interest rates, exchange rate fluctuations,
consideration) and options regarding asset/ liability management; |
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monthly reporting of operations allows tracking of changes in
assets under management; |
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regular tracking of financial flows and the Groups cash
flow situation is centralized by the Treasury and Asset
Management Department; and |
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the systems used allow oversight of transactions in publicly
traded securities (audit trail, valuation of securities). |
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the support functions include both
budgeting-forecasting activities and those relating to
disclosure of non-financial information, plus management
information systems, human resources, general services, and
legal matters. Among these areas: |
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the area of information systems is crucially important for SCOR,
which, since 1995, has instituted and updated a worldwide
information system including underwriting operations, accounting
(technical, general, consolidated), financial administration and
marketing (creation of a data base of SCOR clients).
A Group manager is specifically responsible for all
management information security matters. Periodic audits of
computer and management information security procedures are
conducted. An IT contingency plan has been established,
including an emergency and
back-up center |
152
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located outside of SCORs headquarters. In 2005, SCOR
improved its control procedures by basing them on the COBIT
reference documents (Control objectives for information
and technology) to cover risks, listed in the
12 major processes of COBIT, relating to the development of
programs, changes in programs, and operation and access to data
programs; |
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the budget control system is organized as follows: an
orientation letter is sent by General Management to each unit
setting forth the general guidelines to be followed under the
strategy adopted for the Group. Forecast validation meetings
then take place involving the managers of the Group companies,
General Management and the PBR Department, which is in charge of
drafting a validation report. This Department is also
responsible for verifying the consistency of the assumptions
used, accounting items monitored, the proper use of budget
worksheets, and the application of the selected schedule; |
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regarding SCORs offices, very demanding regulations
applicable to high-rise buildings require periodic verifications
and audits, conducted either internally or by outside service
providers; and |
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the Groups Office of the Company Secretary
Legal Department provides a control function at various levels.
It is especially responsible for ensuring compliance, both with
applicable laws and regulations, and with internal rules,
decisions, commitments, practices and policies of SCOR. This
task particularly affects the legal organization of the
Groups companies, the entering into of agreements, and
supervision of major litigation. |
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In addition, SCOR has adopted: |
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since 1996, a Code of Ethics sent to all employees. This Code
sets forth the Groups fundamental values and principles
and is a guide for resolving issues of ethics and law with which
an employee may be confronted. It covers, among other things,
business confidentiality, use of confidential and privileged
information, financial disclosure, relations with our clients
and our competitors, and conflicts of interest; |
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since April 2003, an Audit Charter, setting forth the role,
scope, principles and methods of operation of the Internal Audit
Department and stating the responsibilities of the Groups
operating and functional units in controlling and supervising
their operations; and |
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since July 2004, a Data Management Charter that sets forth the
importance of computer data for SCOR and establishes the basis
for using information technology resources. It especially sets
forth the applicable security measures and the legal
considerations involved in using information technology
resources. The other purposes of this Charter are to avoid
misuse of professional and personal information and guarantee
compliance with the confidentiality of such information. |
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These documents are available on SCORs Intranet. |
c) Internal Controls Relating to Preparation of
SCORs Financial and Accounting Information
153
The accounting and finance function reports to the Chief
Financial Officer, who manages all of the departments providing
an overall view of the Groups technical and financial
results, oversight of its asset management policy, and the means
for improving matching of the Groups assets and
liabilities, as well as maximizing cash flow management. The
Chief Financial Officer is also responsible for financial
disclosure and investor relations, as well as relationships with
rating agencies and broker Security Committees.
The Chief Financial Officer, however, does not exercise direct
control over all accounting information systems and relies on
the finance and accounting departments of each subsidiary, or
the technical accounting services in Paris and the various
reinsurance business segments.
SCORs general accounting department in Paris relies on
various auxiliary accounting functions:
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technical reinsurance accounting: premiums, claims, commissions,
technical reserves; |
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accounting for securities assets: securities, bank accounts,
financial revenues and charges; |
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auxiliary cash flow accounting; |
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accounting for real estate assets; and |
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accounting for general and administrative expenses. |
154
These auxiliary accounting functions do not report to the PBR
Vice President, but are managed by the technical accounting
services located in Paris, in the subsidiaries, or in the
Treasury and Asset Management Department (Direction des
Placements et Trésorerie).
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Regarding reinsurance accounting services, several regular
controls are conducted (automatic and systematic, or for
consistency, or by testing) by the technical accounting groups
that are located in Paris and in the subsidiaries by using both
Group techniques and control formats developed either at the
Group level or specifically. Quarterly inventories are also
specifically verified. At the time of an inventory, the
calculation of technical reserves (including IBNRs), largely
based on contractual and accounting information, the relevance
of which is verified at the source, has a significant impact on
the balance sheet and income statement. |
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It is subject to the following successive controls for SCOR
Global P&Cs business: |
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by the reserving actuaries, through control statements whose
proper application is verified by the Group Actuarial
Department; and |
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by the Chief Actuary, in particular, in respect of methods,
tools, and results. |
A Major Claim Committee, chaired by the Chief
Operating Officer, meets monthly to examine the Groups
major claims, which are monitored by the Claim and Commutations
Department within the SCOR Global P&C business segment.
Technical reinsurance results are analyzed quarterly by the PBR
Department, which checks its analysis against that conducted by
the control units of SCOR Global P&C and the Group Actuarial
Department.
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With regard to the SCOR VIE business segment: |
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Reinsurance treaties are subject to either individual review or
pooling within an affiliation treaty according to certain
criteria defined in advance; |
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The treaties are then subject to appraisals; and |
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These appraisals are reviewed systematically at each quarterly
closing during meetings to which underwriters, managers and
possibly the Technical Department members are invited. |
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Monitoring of current assets and cash flow is provided through
various operating methods making it possible to limit risks. The
computer systems used provide an audit path for completed
transactions and have automatic alert systems. In the North
American companies, accounting activities are performed by
external service providers. Controls implemented by these
companies make it possible to verify the proper consolidation of
accounting data and compatibility of the figures. In addition,
these service providers can transmit an external evaluation of
the internal control systems on the delegated activities. This
evaluation is commonly called SAS 70 type II. |
Cash reconciliations are made on a daily basis, for
the most part, and securities are reconciled on a regular basis
with statements from depositaries. Shares having a book value
greater than market are reviewed quarterly.
To reduce the risk of fraud, the principle of segregating tasks
of ordering and payment (claims, payments of invoices, etc.) is
applied. Furthermore, the systems used limit the risk of
internal fraud by electronic transmission of
non-modifiable files,
and the risk of embezzlement of funds by a third party is
minimized by using secure internal payment systems.
Regarding the process of aggregating and consolidating
accounting data by the PBR Department, present internal control
is ensured:
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by using general accounting and consolidation software common to
all companies of the Group; |
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by defining the financial statement plan decided upon and
verified by the PBR Department, which also establishes and
updates the financial statement closing schedule and the tax
schedule; and |
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by defining responsibilities for controlling the inclusion and
consolidation of auxiliary accounts. |
155
Control of the quarterly consolidation procedure under IFRS is
provided in particular through:
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use of a tool common to the Group making it possible to limit
the number of entries and the risk of errors; |
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automated and formalized controls applicable to all Group
companies (with regard to these first two points, see the
comments below relating to the tools limitations); |
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at least two levels of control of consistency and exhaustiveness
of consolidation forms, one by the company or unit involved, the
other by the PBR Department; |
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an exact schedule for, and definition of, the responsibilities
of each party involved in the process; |
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controls and verification of the consolidation process at
various stages; |
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documentation of restatements; |
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final verification of entries affecting income and consolidated
reserves; and |
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internal monitoring of changes in the law and in accounting
standards, together with the Groups outside counsel and
statutory auditors. |
Since the consolidation software is old and cannot be upgraded,
the changeover to IFRS demonstrated its limitations and required
the accounting teams to have to
re-enter data. They
were not able to benefit fully from the automated and formalized
controls. In order to ensure the quality of the consolidated
figures, a system largely inspired by cross-checking was
implemented in 2005. A project to refine the system is planned
for 2006 (see below).
Furthermore, and without challenging the internal control rules
of SCOR and its officers and senior management, the Groups
General Management, during 2004, refined the procedure for
quarterly reporting and consolidation by requesting all local
general managers of companies owned or controlled by SCOR, as
well as the managers of the reinsurance business segments, to
make certain statements to the Chairman and Chief Executive
Officer and to the Chief Financial Officer of the Group in
management representation letters relating to the
reliability and accuracy of the financial statements of the
companies and units they manage, as well as the effectiveness of
internal controls.
Balance sheet activity for 2005 and action plan for 2006
SCOR plans to evaluate its internal controls relating to the
preparation of financial and accounting information of certain
companies and/or processes in 2006 and to gradually expand this
evaluation. This evaluation will be the completion of efforts to
improve and formalize internal control systems conducted since
2003. In fact, in 2003 SCOR established its risks and controls
mapping, and thereby enhanced their management. These efforts
were extended in 2004 to all companies of the Group.
In addition thereto, and to involve SCORs employees in the
effort to formalize financial internal controls and bring them
into compliance with the COSO framework, General Management
decided that this project was a matter of strategic importance
for the Group. In this context, in 2004 General Management
initiated, and in 2005 it carried on, the drafting of most of
the internal control procedures involving the significant
entities of the Group and the documentation of the principal
processes generating accounting and financial data.
The steps planned by SCOR in 2006 are as follows:
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Finalization of drafting procedures in the companies considered
to be significant; |
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Deployment and implementation in Paris and in the significant
subsidiaries of standardized control procedures
reflecting the best internal control practices used within the
Group; |
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Definition of the evaluation system and the internal testing
plans that make it possible to verify the proper application of
control procedures and their effectiveness; and |
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Evaluation of financial internal control, of processes retained
in a first coverage scope, based on a testing plans and
consolidation of the results in a tool for monitoring risk
control. |
In the preparation of our U.S. GAAP financial statements for the
year ended December 31, 2004, certain errors were
identified, because of two reportable conditions identified by
our auditors under standards established by the PCAOB involving
control and its operation, that they considered to be material
weaknesses. These two material weaknesses related to the
U.S. GAAP financial statements closing process and resulted
in:
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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; and |
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an error in accounting for derivatives at December 31, 2003. |
In Ernst & Youngs view, these errors were caused by
inadequate controls relating to the financial statement closing
process under U.S. GAAP and did not involve the financial
statement closing process under French GAAP. The 20-F 2004
report indicated that the following measures would be taken:
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Strengthening of the teams with individuals familiar with U.S.
GAAP and training of staff in U.S. accounting issues; |
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Strengthening of existing controls relating to the process of
preparing consolidation forms; |
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Improvement in the standard reconciliation formats between
French GAAP, IFRS and U.S. GAAP; and |
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Review and obligatory approval by certain managers of
transactions that have an impact on SCORs financial
position or on the consolidated operating results above certain
thresholds. |
This situation relating to U.S. GAAP, as well as the changeover
to IFRS in 2005 and the need to change the
information-processing tool, demonstrated the need for an
in-depth review of the financial statement consolidation
process. This project, planned for 2006, is widespread since it
involves the implementation of new regulations and a new
consolidation tool.
In connection with their audit of our 2005 fiscal year financial
statements, in June 2006 our auditors, Ernst & Young,
notified us that they had identified certain matters involving
internal control and its operation that they consider to be a
material weakness under standards established by the United
States Public Company Accounting Oversight Board. As our
auditors did not notice any significant improvement in the
financial statement closing process under U.S. GAAP discussed
above with respect to the preparation of our U.S. GAAP financial
statements for the year ended December 31, 2004, they
consider that the material weakness identified with respect to
the fiscal year ended December 31, 2004 continues to exist.
An evaluation was performed under the supervision and with the
participation of our management, including our Chairman and
Chief Executive Officer and Chief Financial Officer, of the
effectiveness, as of December 31, 2005, the end of the
period covered by this report, of our disclosure controls and
procedures, within the meaning of Rule 13a-15(e) of the
U.S. Securities Exchange Act of 1934, as amended, which we refer
to as the Exchange Act. Based on this evaluation, and as a
result of the foregoing material weakness that was identified as
continuing to exist, our Chairman and Chief Executive Officer
and our Chief Financial Officer concluded that, as of such date,
our disclosure controls and procedures were not effective for
recording, processing, summarizing and reporting the material
information we are required to disclose in the reports we file
or submit under the Exchange Act, within the time periods
specified in the rules and forms of the SEC. Except as described
above, there were no significant changes in our internal control
over financial reporting that occurred during the period covered
by this annual report that have materially affected, or that are
reasonably likely to materially affect, our internal control
over financial reporting.
Item 16.
A. AUDIT COMMITTEE FINANCIAL EXPERT
Our Board of Directors has determined that one of the members of
our Accounts and Audit Committee, Mr. Helman le Pas de
Sécheval, qualifies as an audit committee financial
expert as defined in Item 16A (b) and
157
(c) of the requirements of
Form 20-F of the
SEC. Helman Le Pas de Sécheval is a
non-voting member of
our Accounts and Audit Committee. The SEC has determined that
the audit committee financial expert designation does not impose
on the person with that designation any duties, obligations or
liability that are greater than the duties, obligations or
liabilities imposed on such person as a member of the audit
committee of the Board of Directors in the absence of such
designation.
From 1998 to 2001, Mr. Le Pas de Sécheval directed the
financial information and operations department at the COB
(Commission des Opérations de Bourse, now the
Autorité des Marchés Financiers), 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.
As Chief Financial Officer of Groupama, SCORs largest
shareholder which held approximately 16.03% of the share capital
and 16.18% of the voting rights of SCOR as of January 1,
2006, Mr. le Pas de Sécheval may be considered an
affiliate of the issuer pursuant to Exchange Act
Rules 10A-3(e)(i)
and 10A-3(e)(iii)(A).
Consequently, pursuant to Exchange Act
Rule 10A-3(b)(ii)(B),
Mr. Le Pas de Sécheval would not meet the independence
requirements for
non-investment company
issuers provided by Exchange Act
Rule 10A-3(b)(ii).
Mr. le Pas de Sécheval may rely on the exemption
provided by Exchange Act
Rule 10A-3(b)(1)(iv)(D)
since (1) he is an affiliate of SCOR, a foreign private
issuer; (2) he has only observer status on, and is not a
voting member or the chair of, the Accounts and Audit committee;
and (3) neither he nor the affiliate is an executive
officer of SCOR.
B. CODE OF ETHICS
The NYSE listing standards require each U.S. listed company to
adopt, and post on its website, a code of business conduct and
ethics for its directors, officers and employees. There is no
similar requirement or recommendation under French law. However,
under the SECs rules and regulations, all companies
required to submit periodic reports to the SEC, including SCOR,
must disclose in their annual reports whether they have adopted
a code of ethics for their principal executives and senior
financial officers. In addition, they must file a copy of the
code with the SEC, post the text of the code on their website or
undertake to provide a copy upon request to any person without
charge. SCOR adopted a Code of Ethics in 1996. This Code of
Ethics is applicable to all members of personnel. A copy is
available on SCORs corporate website. In addition, SCOR
undertakes to provide to any person without charge, upon
request, a copy of such code of ethics by writing to:
Investor Relations and Financial Communications Department
Immeuble SCOR
1, Avenue du Général de Gaulle
92074 Paris La Défense Cedex
Attention: Stéphane Le May, Investor Relations Office
C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate audit fees;
audit-related fees; tax
fees; and all other fees (i.e. other than audit fees,
audit-related fees and
tax fees) billed for products and services provided by our
principal accountants for each of the 2005 and 2004 financial
years. All amounts are in euros.
|
|
|
|
|
|
|
|
|
Ernst & Young |
|
2005 | |
|
2004 | |
|
|
| |
|
| |
Audit Fees
|
|
|
4,331,500 |
|
|
|
3,591,759 |
|
Audit-Related
Fees(1)
|
|
|
624,520 |
|
|
|
383,173 |
|
Tax
Fees(2)
|
|
|
346,000 |
|
|
|
515,618 |
|
All Other
Fees(3)
|
|
|
0 |
|
|
|
43,715 |
|
|
|
|
|
|
|
|
Total
|
|
|
5,302,020 |
|
|
|
4,534,265 |
|
|
|
|
|
|
|
|
158
|
|
(1) |
Audit-Related Fees are fees generally related to due diligence
investigations, audits of combined financial statements prepared
for purposes of the contemplated disposal of certain of our
activities or of combined financial statements of companies that
we acquired, review of prospectuses issued by us, and to other
assignments relating to internal control functions and
procedures. |
|
(2) |
Tax Fees are fees for professional services rendered by our
auditors for tax compliance, tax advice on actual or
contemplated transactions, tax consulting associated with
international transfer prices and employee tax services. |
|
(3) |
All Other Fees mainly relate to internal control and process
reviews. |
Audit Committee Pre-Approval Policies and
Procedures
SCORs Accounts and Audit Committee organizes the procedure
for selecting the independent auditors and provides a
recommendation to the Board of Directors regarding their
appointment and their terms of compensation. The Accounts and
Audit Committee also monitors compliance with principles and
rules relating to auditor independence.
In addition, all audit and non-audit services provided by
independent auditors must be pre-approved by SCORs
Accounts and Audit Committee. In March 2004, our Board of
Directors ratified a pre-approval policy recommended by the
Accounts and Audit Committee pursuant to which audit engagements
will be deemed approved if the payment for each individual
service is less than EUR 20,000 and the total payment for
all services provided in connection with the engagements is less
than EUR 150,000. In connection with these rules, all
external services performed by external auditors were
preapproved pursuant to such policies in 2005.
During 2004 and 2005, no services were provided by the
independent auditors pursuant to the de minimis exception to the
pre-approval requirement provided by paragraph (c)(7)(i)(C)
of Rule 2-01 of
Regulation S-X.
D. EXEMPTIONS FROM THE LISTINGS STANDARDS FOR AUDIT
COMMITTEES
As Chief Financial Officer of Groupama, SCORs largest
shareholder which held approximately 16.03% of the share capital
and 16.18% of the voting rights of SCOR as of January 31,
2006, Mr. Le Pas de Sécheval, a member of our Accounts
and Audit committee, may be considered an affiliate of the
issuer pursuant to Exchange Act
Rules 10A-3(e)(i)
and 10A-3(e)(iii)(A).
Consequently, pursuant to Exchange Act
Rule 10A-3(b)(ii)(B),
Mr. Le Pas de Sécheval would not meet the independence
requirements for
non-investment company
issuers provided by Exchange Act
Rule 10A-3(b)(ii).
Mr. Le Pas de Sécheval may rely on the exemption
provided by Exchange Act
Rule 10A-3(b)(1)(iv)(D)
since (1) he is an affiliate of SCOR, a foreign private
issuer; (2) he has only observer status on, and is not a
voting member or the chair of, the Accounts and Audit committee;
and (3) neither he nor the affiliate is an executive
officer of SCOR.
E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
AFFILIATED PURCHASERS
Legal framework
Under French law, SCOR may not acquire its own shares, except:
|
|
|
|
1. |
to reduce its share capital if this reduction is not motivated
by losses with the approval of the shareholders at an
extraordinary general meeting; |
|
|
2. |
to provide shares for distribution to employees under a
profit-sharing plan managed by a Company sponsored mutual fund,
a stock option plan or a share award plan after obtaining
approval of the shareholders at an extraordinary general
meeting; and |
|
|
3. |
to implement a share repurchase program for specific purposes
approved by the shareholders at an ordinary general meeting,
such shareholders authorization being given for a period
to be decided by the shareholders resolution and which may
not exceed 18 months. The Board of Directors may delegate
to the Chief Executive Officer, or with the approval of the
Chief Executive Officer, to one or several Chief Operating
Officers (directeur général
délégué) powers to carry out such a
repurchase program. |
159
The amounts repurchased under (2) and (3) may not, in
either case, result in SCOR holding more than 10% of its own
shares. In the event that such repurchases result in the Company
holding more than 10% of its issued shares, SCOR would be
required to transfer any shares in excess of the 10% threshold
within one year. Shares which have not been transferred within
such one-year period shall be cancelled.
The overall amount that the Company may use to purchase its own
shares may not exceed (i) the difference between
(x) shareholders equity and (y) the total of the
amount of the share capital and the amount of the mandatory
reserves and (ii) the amount of the overall reserves
(mandatory and non-mandatory), excluding the mandatory legal
reserve, of the Company. The reserves corresponding to the value
of the treasury shares may not be distributed during the time
such shares are held by the Company.
When SCOR purchases its own shares, the shares must be fully
paid. SCOR must hold repurchased shares in registered form.
Repurchased shares are deemed to be outstanding under French
law, but are not entitled to any dividends or voting rights, and
SCOR may not exercise preferential subscription rights. The
shareholders, at an extraordinary general meeting, may decide
not to take these shares into account in determining the
preferential subscription rights attached to the other shares.
In the absence of such a decision, the rights attached to any
shares held by SCOR must either be sold on the market before the
end of the subscription period or distributed to other
shareholders on a pro rata basis.
Shares repurchased under (3) may be cancelled by an
extraordinary general shareholders meeting, although no
more than 10% of SCORs registered capital may be cancelled
in any 24-month period.
Share repurchase program
If it intends to purchase its own shares under (3) above, a
French listed company must also implement a share repurchase
program in compliance with AMF general regulations and
Regulation (EC) 2273/2003, as amended.
Pursuant to Regulation (EC) 2273/2003, a repurchase program
aiming either at reducing the share capital of an issuer or at
fulfilling obligations arising from either of the following:
|
|
|
|
|
debt financial instruments exchangeable into equity instruments;
or |
|
|
|
employee share option programs or other allocations of shares to
employees of the issuer or of an affiliate of the issuer; |
benefit from a safe harbor and are automatically deemed valid.
A share repurchase program may also be implemented in connection
with market practice recognized by the AMF. As of
the date hereof, the AMF has recognized two market practices:
(i) the repurchase of shares in order to exchange them or
use them as a means of payment in the context of external growth
transactions, the total value of the shares that can be held for
such purpose being limited to 5% of the issued share capital of
the issuer and (ii) the repurchase of shares in the context
of liquidity agreements. In such cases, the program is deemed to
be valid unless the AMF demonstrates that such practices are
illegitimate.
Finally, SCOR may trade on its own shares in order to stabilize
the market. However, this trading can be carried out only for a
limited time period after a securities offering. Detailed
information must then be disclosed to the market. Such trading
may not in any circumstances be executed above the price of the
offering.
Moreover, any trade executed in the context of a repurchase
program is valid if it meets the following three requirements:
|
|
|
|
|
The issuer must not, when executing trades under a repurchase
program, purchase shares at a price higher than the higher of
the price of the last independent trade and the highest current
independent bid on the trading markets where the purchase is
carried out; |
|
|
|
When SCOR carries out the purchase of own shares through
derivative financial instruments, the exercise price of those
derivative financial instruments may not be above the higher of
the price of the last independent trade and the highest current
independent bid; |
160
|
|
|
|
|
SCOR must not purchase more than 25% of the average daily
trading volume of the shares in any one day on the regulated
market on which the purchase is carried out. |
There are two periods during which SCOR is not permitted to
trade in its own securities: (i) during the period where
the issuer has decided to delay the public disclosure of inside
information and (ii) during the period of fifteen days
preceding the publication of consolidated annual accounts,
quarterly or half-yearly accounts.
French law requires SCOR to inform the public by filing a
description of the program with the Autorité des
Marchés Financiers. SCOR must then declare to the AMF
every share repurchase no later than seven trading days after
each such transaction. SCOR must also file with the AMF on a
monthly basis all share repurchase transactions made during the
24 month period preceding such filing.
Share repurchase program for 2005
On May 31, 2005, after having received the Board of
Directors report and the information notice drafted in
connection with the repurchase program, approved by the
Autorité des Marchés Financiers on May 11,
2005 under
no. 05-374, the
shareholders meeting of SCOR:
|
|
|
|
|
authorized the Board of Directors, which may delegate this
authority under the conditions provided by law, to purchase and
sell the Companys shares under applicable legal provisions; |
|
|
|
decided that purchases and sales could be carried out for all
allowed purposes as authorized pursuant to applicable laws and
regulations, and notably in view of the following objectives: |
|
|
|
|
|
trading on the secondary market or ensuring the liquidity of the
market of the Companys shares by entering into a liquidity
agreement with an investment services provider; |
|
|
|
implementation of any of the Companys stock option plans; |
|
|
|
implementation of the share award plan to employees and/or
officers; |
|
|
|
distribution of shares to employees and, as the case may be, to
corporate officers pursuant to a profit sharing scheme or a
company sponsored mutual fund; |
|
|
|
purchase of shares to be used as consideration in potential
mergers and/or acquisitions; |
|
|
|
payment of shares in connection with the exercise of rights
attached to securities granting access to share capital; |
|
|
|
cancellation of shares, within the limits provided by law as
authorized under the seventeenth resolution of the extraordinary
shareholders meeting; |
|
|
|
|
|
decided that the acquisition, sale or transfer of such shares
could be done by any means, on a regulated market or over the
counter, including block purchases or sales (without limiting
the part of the purchase plan that may be completed through this
means), or by using derivative financial instruments, traded on
a regulated market or by OTC transactions, or the development of
option strategies under the conditions authorized by the market
regulators. These transactions may be carried out at any time,
including during the public offering period, in compliance with
applicable regulations; |
|
|
|
set the maximum purchase price at EUR 2.20 per share
(excluding acquisition costs), provided that, in the event of a
share capital increase through the capitalization of reserves
and the share award to shareholders, as well as in the event of
a share-split or reverse
share-split, such
maximum purchase price shall be adjusted by a multiplier
coefficient equal to the ratio between the number of securities
comprising the share capital before the transaction and the
number of shares after the transaction; |
|
|
|
decided that the maximum number of shares to be purchased under
this authorization is set at 10% of the share capital, provided
that such limit applies to a number of shares, which will, if
applicable, be adjusted in order to take into account the
transactions affecting the share capital after the
shareholders meeting and that the amount of shares
purchased by the Company may in no case result in it holding,
directly or indirectly, more than 10% of the share capital,
provided that the overall amount that the |
161
|
|
|
|
|
Company may use to purchase its own shares may not exceed
(i) the total amount of the share capital in addition to
the amount of mandatory reserves and (ii) the amount of the
overall reserves, excluding the mandatory legal reserve, of the
Company; |
|
|
|
duly noted that shareholders will be informed at the next annual
shareholders meeting of the precise allocation of the
purchased shares to the different objectives pursued under the
share repurchase program, and of the procedures for the
repurchases completed during the financial year; |
|
|
|
with regard to the shares acquired before October 13, 2004,
granted all necessary powers to the Board of Directors to: |
|
|
|
|
|
either allocate such shares to an objective entitling the
Company to benefit from the exemption set forth by Regulation
(EC) No. 2273/2003 of December 22, 2003 as described
below; or |
|
|
|
allocate such shares to one of the two market practices accepted
by the Autorité des Marchés Financiers
(liquidity agreement with an investment service provider acting
under the conditions determined for that practice, holding, and
for exchange or payment in connection with possible merger and
acquisition transactions); |
|
|
|
|
|
conferred all powers to the Board of Directors, which may
delegate this authority, to place all stock market orders, enter
into all agreements, particularly with a view to keeping share
purchase and sale registers, to prepare all documents, including
but not limited to information reports, carry out all
disclosures and formalities with the Autorités des
Marchés Financiers and any other regulator and, in
general, to complete all necessary actions to implement such
share repurchase program; |
|
|
|
decided that this authorization is granted for a period that
will end at the 2006 annual shareholders meeting approving
the 2005 financial statements, provided that such period shall
not exceed a maximum of eighteen months as from May 30,
2005; and |
|
|
|
decided that this authorization supersedes the authorization
granted by the fourteenth resolution of the combined
shareholders meeting of May 18, 2004. |
In addition, on May 31, 2005, the shareholders, after
receiving the report of the Board of Directors and the Statutory
Auditors special report, authorized the Board of Directors
to reduce the share capital, in one or several transactions, in
such amounts and at such times as it shall determine, by
cancelling any quantity of treasury shares. The maximum number
of shares that may be canceled by the Company under this
authorization is 10% of the shares comprising the Companys
share capital, per 24 month period, provided that this
limit applies to a number of shares that will be adjusted, as
the case may be, to take into account transactions affecting the
share capital subsequent to the May 31, 2005
shareholders meeting.
The authorization to cancel its own shares acquired through the
repurchase program was granted to the Board, which may delegate
such authority, for an 18 month period as from May 31,
2005, to complete all acts, formalities, and disclosures in
order to cancel shares and to finalize share capital decreases,
and consequently to modify the Companys bylaws
accordingly. Share repurchases must not have the effect of
reducing the share capital to an amount less than the sum of the
issuers share capital and its
non-distributable
reserves. Therefore, when the authorization was voted on
May 31, 2005, given the level of reserves and the number of
shares already owned by the Company, it was limited to a number
of shares representing 9.4% of the share capital.
Moreover, SCOR signed a liquidity agreement with Exane on
July 25, 2005. The purpose of this agreement was to
intervene on SCOR shares on behalf of SCOR. Through an amendment
dated October 21, 2005, this liquidity contract was
suspended as of October 11, 2005.
The share repurchases between January 2005 and July 2005 were
completed by Exane based on the previous liquidity agreement
signed on December 8, 2004. There have been no share
repurchases since October 11, 2005, the date on which the
liquidity agreement was suspended.
162
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average price per | |
|
|
|
|
|
|
|
|
|
|
|
|
share transferred | |
|
(c) Total number of | |
|
|
|
|
|
|
(b) Average | |
|
|
|
(excluding | |
|
shares purchased as | |
|
(d) Maximum number of | |
|
|
(a) Total number | |
|
price paid per | |
|
|
|
allocation of | |
|
part of publicly | |
|
shares that might still be | |
|
|
of shares | |
|
share | |
|
Total number of | |
|
bonus shares) | |
|
announced share | |
|
acquired under the | |
MONTH |
|
purchased | |
|
(in EUR) | |
|
shares sold | |
|
(in EUR) | |
|
repurchase plans | |
|
program(1)(2)(3)(6) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Jan-05
|
|
|
783,396 |
|
|
|
1.46 |
|
|
|
5,914,001 |
|
|
|
1.50 |
|
|
|
783,396 |
|
|
|
28,513,498 |
|
Febr-05
|
|
|
875,000 |
|
|
|
1.56 |
|
|
|
700,000 |
|
|
|
1.59 |
|
|
|
875,000 |
|
|
|
28,338,498 |
|
March-05
|
|
|
1,287,498 |
|
|
|
1.59 |
|
|
|
750,000 |
|
|
|
1.65 |
|
|
|
1,287,498 |
|
|
|
27,801,000 |
|
Apr-05
|
|
|
1,537,000 |
|
|
|
1.60 |
|
|
|
1,019,947 |
|
|
|
1.62 |
|
|
|
1,537,000 |
|
|
|
27,283,947 |
|
May-05
|
|
|
485,000 |
|
|
|
1.57 |
|
|
|
1,359,757 |
|
|
|
1.61 |
|
|
|
485,000 |
|
|
|
28,158,704 |
(4) |
June-05
|
|
|
900,000 |
|
|
|
1.60 |
|
|
|
685,000 |
|
|
|
1.62 |
|
|
|
900,000 |
|
|
|
92,139,633 |
(5) |
July-05
|
|
|
3,073,686 |
|
|
|
1.64 |
|
|
|
813,482 |
|
|
|
1.70 |
|
|
|
3,073,686 |
|
|
|
89,879,429 |
|
Aug-05
|
|
|
600,000 |
|
|
|
1.69 |
|
|
|
280,500 |
|
|
|
1.73 |
|
|
|
600,000 |
|
|
|
89,559,929 |
|
Sept-05
|
|
|
2,373,933 |
|
|
|
1.67 |
|
|
|
575,000 |
|
|
|
1.68 |
|
|
|
2,373,933 |
|
|
|
87,760,996 |
|
Oct-05
|
|
|
1,775,000 |
|
|
|
1.74 |
|
|
|
225,000 |
|
|
|
1.75 |
|
|
|
1,775,000 |
|
|
|
86,210,996 |
|
Nov-05
|
|
|
0 |
|
|
|
0 |
|
|
|
1,515,795 |
|
|
|
0 |
|
|
|
0 |
|
|
|
87,726,791 |
|
Dec-05
|
|
|
0 |
|
|
|
0 |
|
|
|
39,201 |
|
|
|
0 |
|
|
|
0 |
|
|
|
87,765,992 |
|
|
|
(1) |
2004 share repurchase program. The 2004 share repurchase program
was publicly announced on April 28, 2004 and was subject
only to the approval of the shareholders at the 2004 annual
shareholders meeting approving the financial statements
for 2003. Such approval was granted by the shareholders. In May
2004, the shareholders of the Company authorized, within the
limits of French law relating to the level of reserves and
shares held by the Company at the time, the purchase of a
maximum of 28,755,773 shares. As the repurchase of shares
was authorized until the Annual Shareholders Meeting to
approve the financial statements for 2004, which was held on
May 31, 2005, the authorization for the repurchase of
shares expired on that date. |
|
(2) |
2005 share repurchase program. In May 2005, the shareholders of
the Company authorized, within the limits of French law relating
to the level of reserves and number of treasury shares, the
repurchase of a maximum of 76,722,376 shares. This amount
has been adjusted in June 2005 to take into account the share
capital increase of 149,500,000 shares. |
|
(3) |
Under the terms of the 2004 and 2005 share repurchase programs,
the shares could be purchased in open market transactions or
privately negotiated transactions. Repurchases were made by the
Company in one-off
transactions, prior to the expiration of the plan, based on the
Companys evaluation of market conditions and other
factors. The Company has used and continues to use existing cash
to fund the repurchase of shares. All of the shares repurchased
during the months identified above were purchased in open market
transactions through this program. |
|
(4) |
These repurchases were made under the 2004 share repurchase
program. The program expired at the date of the
shareholders meeting approving the financial statements
for 2004. At that time, although there were still
28,158,704 shares remaining that could be repurchased under
the terms of the 2004 share repurchase program, the
authorization was cancelled. However, the annual
shareholders meeting approving the financial statements
for 2004 has authorized the repurchase of
76,722,376 shares, as referenced in footnote (2) above. |
|
(5) |
These repurchases were made under the 2005 share repurchase plan. |
|
(6) |
During 2005, the Company repurchased 13,690,513 shares
(including 7,466,580 under the liquidity agreement), and resold
13,877,683 shares (including 7,936,686 under the liquidity
agreement). |
During 2005, the Company made net repurchases of
13,690,513 SCOR shares for the amount of
EUR 22,343,724.32 at an average weighted price of
EUR 1.63 each. The Company sold 7,938,686 shares under
the liquidity agreement at an average price of EUR 1.62
each. 7,305,000 shares were awarded to certain officers and
executives of the Groups companies under the 2005 share
award plan authorized by the shareholders meeting dated
May 31, 2005 and by the Board of Directors on
August 31, 2005.
As of December 31, 2005, the Company held 9,110,915 of its
own shares.
163
PART III
Item 17. Financial Statements
Not applicable.
Item 18. Financial Statements
The following financial statements and financial statements
schedules, together with the report of Ernst & Young
thereon, are filed as part of this Annual Report:
|
|
|
|
|
|
|
Pages | |
|
|
| |
Financial Statements
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
F-1 |
|
Consolidated Balance Sheets as of December 31, 2005
and 2004
|
|
|
F-2 F-3 |
|
Consolidated Statements of Operations for the Years Ended
December 31, 2005, 2004 and 2003
|
|
|
F-4 |
|
Consolidated Statements of Comprehensive Income for the Years
Ended December 31, 2005, 2004, and 2003
|
|
|
F-5 |
|
Consolidated Statements of Changes in Shareholders Equity
for the Years Ended December 31, 2005, 2004, and 2003
|
|
|
F-6 |
|
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2005, 2004, and 2003
|
|
|
F-7 |
|
Notes to Consolidated Financial Statements
|
|
|
F-8 F-57 |
|
Schedules
|
|
|
|
|
Schedule I Summary of Investments
Other than Investments in Related Parties
|
|
|
S-1 |
|
Schedule III Supplementary Insurance Information
|
|
|
S-2 |
|
Schedule IV Reinsurance
|
|
|
S-3 |
|
Schedule V Valuation and Qualifying Accounts
|
|
|
S-4 |
|
Schedule VI Supplemental Information Concerning
Property-Casualty Insurance Operations
|
|
|
S-5 |
|
All other schedules have been omitted because they are not
required under the applicable instructions.
Item 19. Exhibits
The following documents are filed as exhibits to this annual
report:
|
|
|
|
|
Exhibit | |
|
|
Number | |
|
Description |
|
1.1 |
|
|
Translation from French into English of the Companys
statuts, or bylaws, as last amended on May 16, 2006 |
|
2.1 |
|
|
Form of Deposit Agreement dated as of October 8, 1996, as
amended and restated as of December 1, 2003, among the
Company, The Bank of New York, as Depositary, and all
Owners and Beneficial Owners from time to time of American
Depositary Receipts issued thereunder, including the form of
American Depositary Receipt (Incorporated by reference to
Exhibit 1 to the Registration Statement on Form F-6 of
the Company, as filed with the Securities and Exchange
Commission on February 19, 2004 (File No. 333-112953))
(1) |
164
|
|
|
|
|
Exhibit | |
|
|
Number | |
|
Description |
|
4.1 |
|
|
Summary in the English Language of Amendment no. 3 to the credit
line agreement, dated December 26, 2002, as amended on
November 13, 2003 entered into by and among SCOR, a
syndicate of banks and BNP Paribas as agent and as Issuing Bank
(Incorporated by reference to Exhibit 4.4 to the
Registration Statement on Form 20-F of the Company, as
filed with the Securities and Exchange Commission on May 4,
2005 (File No.
001-14518))(1) |
|
4.2 |
|
|
Summary in the English Language of Amendment no. 4 to the credit
line agreement, dated December 26, 2002 as amended on
November 13, 2003 entered into by and among SCOR, a
syndicate of banks and BNP Paribas as Agent and as Issuing Bank
(Incorporated by reference to Exhibit 4.5 to the
Registration Statement on Form 20-F of the Company, as
filed with the Securities and Exchange Commission on May 4,
2005 (File
No. 001-14518))(1) |
|
4.3 |
|
|
Stand-By Letter of Credit Facility, dated October 11, 2004,
entered into by SCOR VIE and Deutsche Bank AG, Paris Branch
(Incorporated by reference to Exhibit 4.6 to the
Registration Statement on Form 20-F of the Company, as
filed with the Securities and Exchange Commission on May 4,
2005 (File
No. 001-14518))(1) |
|
4.4 |
|
|
Stand-By Letter of Credit Facility, dated October 11, 2004,
entered into by SCOR and Deutsche Bank AG, Paris Branch
(Incorporated by reference to Exhibit 4.7 to the
Registration Statement on Form 20-F of the Company, as
filed with the Securities and Exchange Commission on May 4,
2005 (File
No. 001-14518))(1) |
|
4.5 |
|
|
Amendment dated November 16, 2005 to Stand-By Letter of
Credit Facility, dated October 11, 2004, entered into by
SCOR VIE and Deutsche Bank AG, Paris Branch |
|
4.6 |
|
|
Amendment dated November 16, 2005 to Stand-By Letter of
Credit Facility, dated October 11, 2004, entered into by
SCOR and Deutsche Bank AG, Paris Branch |
|
4.7 |
|
|
Term-sheet of the Stand-By Letter of Credit Facility, dated
December 14, 2005, entered into by SCOR, CALYON and Caisse
Régionale de Crédit Agricole Mutuel de Paris et
dIle-de-France |
|
8 |
|
|
Subsidiaries |
|
12.1 |
|
|
Certification of chief executive officer pursuant to 17 CFR
240.13a-14(a), promulgated under Section 302 of the
Sarbanes-Oxley Act of 2002 |
|
12.2 |
|
|
Certification of chief financial officer pursuant to 17 CFR
240.13a-14(a), promulgated under Section 302 of the
Sarbanes-Oxley Act of 2002 |
|
13.1 |
|
|
Certification of chief executive officer furnished pursuant to
Rule 13a-14(b) (17 CFR 240.13a-14(b)) or
Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350
of Chapter 63 of Title 18 of the United States Code
(18 U.S.C. 1350), promulgated under Section 906 of the
Sarbanes-Oxley Act of 2002 |
|
13.2 |
|
|
Certification of chief financial officer furnished pursuant to
Rule 13a-14(b) (17 CFR 240.13a-14(b)) or
Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350
of Chapter 63 of Title 18 of the United States Code
(18 U.S.C. 1350), promulgated under Section 906 of the
Sarbanes-Oxley Act of 2002 |
|
15 |
|
|
Consent of Ernst & Young relating to incorporation by
reference of auditors report |
|
|
(1) |
Incorporated by reference. |
165
SIGNATURES
The registrant hereby certifies that it meets all of the
requirements for filing on Form 20-F and that it has duly
caused and authorized the undersigned to sign this annual report
on its behalf.
|
|
|
|
|
Name: Denis Kessler |
|
Title: Chairman and Chief Executive Officer |
Dated: June 29, 2006
166
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of
SCOR as of December 31, 2005 and 2004, and the related
consolidated statements of operations, comprehensive income,
changes in shareholders equity, and cash flows for each of
the three years in the period ended December 31, 2005. Our
audits also included the financial statement schedules listed in
the Index at Item 18. These financial statements and
schedules are the responsibility of the Companys
management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. We were not engaged to perform an
audit of the Companys internal control over financial
reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of
the Companys internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of SCOR at December 31, 2005 and 2004,
and the consolidated results of its operations and its cash
flows for each of the three years in the period ended
December 31, 2005, in conformity with U.S. generally
accepted accounting principles. Also, in our opinion, the
related financial statement schedules, when considered in
relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set
forth therein.
As discussed in Note 3.24 to the consolidated financial
statements, in 2004 the Company changed its method of accounting
for certain life and annuity contracts.
|
|
|
ERNST & YOUNG |
|
/s/ Pierre Planchon
|
|
Represented by Pierre Planchon |
Paris, France
June 29 2006
F-1
SCOR
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, | |
|
|
|
|
| |
|
|
Notes | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
|
|
(EUR, in millions) | |
ASSETS |
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, available for sale, at fair value (amortized
cost: EUR 5,207 in 2004 and EUR 5,231 2005)
|
|
|
3,4,14 |
|
|
|
5,272 |
|
|
|
5,237 |
|
|
Equity securities, available for sale, at fair value (cost EUR
220 in 2004 and EUR 746 in 2005)
|
|
|
3,4,14 |
|
|
|
265 |
|
|
|
769 |
|
|
Trading investments, at fair value
|
|
|
3,4,14 |
|
|
|
778 |
|
|
|
335 |
|
|
Other long-term investments
|
|
|
3,4 |
|
|
|
322 |
|
|
|
317 |
|
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
|
|
|
|
6,637 |
|
|
|
6,658 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
3,14 |
|
|
|
1,798 |
|
|
|
1,666 |
|
|
|
|
|
|
|
|
|
|
|
Accrued interest income
|
|
|
|
|
|
|
184 |
|
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
Reinsurance balances receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Life
|
|
|
3 |
|
|
|
282 |
|
|
|
544 |
|
|
Life
|
|
|
3 |
|
|
|
42 |
|
|
|
170 |
|
|
|
|
|
|
|
|
|
|
|
|
Total reinsurance balances receivable
|
|
|
|
|
|
|
324 |
|
|
|
714 |
|
|
|
|
|
|
|
|
|
|
|
Accrued premiums receivable, net of commissions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Life
|
|
|
3,5 |
|
|
|
588 |
|
|
|
620 |
|
|
Life
|
|
|
3,5 |
|
|
|
218 |
|
|
|
208 |
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued premiums receivable, net of commissions
|
|
|
|
|
|
|
806 |
|
|
|
828 |
|
|
|
|
|
|
|
|
|
|
|
Non-Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance recoverable on unpaid losses and LAE
|
|
|
3,5 |
|
|
|
536 |
|
|
|
566 |
|
|
Prepaid reinsurance premium
|
|
|
3,5 |
|
|
|
40 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Non Life
|
|
|
|
|
|
|
576 |
|
|
|
595 |
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance recoverable on reserves for future policy benefits
|
|
|
3,5 |
|
|
|
331 |
|
|
|
375 |
|
|
|
|
|
|
|
|
|
|
|
Deferred policy acquisition costs, net
|
|
|
3 |
|
|
|
518 |
|
|
|
549 |
|
Credits for deposits with ceding companies
|
|
|
3 |
|
|
|
1,387 |
|
|
|
1,199 |
|
Deferred income tax assets
|
|
|
3,10 |
|
|
|
150 |
|
|
|
242 |
|
Derivative financial instruments
|
|
|
3,15 |
|
|
|
29 |
|
|
|
33 |
|
Fixed assets, net
|
|
|
3 |
|
|
|
86 |
|
|
|
82 |
|
Intangible assets
|
|
|
3 |
|
|
|
9 |
|
|
|
34 |
|
Advances to and investments in affiliates
|
|
|
3,4 |
|
|
|
39 |
|
|
|
39 |
|
Goodwill
|
|
|
3 |
|
|
|
209 |
|
|
|
228 |
|
Other assets
|
|
|
|
|
|
|
317 |
|
|
|
408 |
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
13,400 |
|
|
|
13,829 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
F-2
SCOR
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, | |
|
|
|
|
| |
|
|
Notes | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
|
|
(EUR, in millions) | |
LIABILITIES AND SHAREHOLDERS EQUITY |
Non Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expenses reserves
|
|
|
3,18 |
|
|
|
6,470 |
|
|
|
6,439 |
|
|
Unearned premium reserves
|
|
|
3 |
|
|
|
627 |
|
|
|
693 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
7,097 |
|
|
|
7,132 |
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve for future policy benefits
|
|
|
3,17 |
|
|
|
2,677 |
|
|
|
2,719 |
|
|
|
|
|
|
|
|
|
|
|
Funds held under reinsurance treaties
|
|
|
3,5 |
|
|
|
427 |
|
|
|
379 |
|
|
|
|
|
|
|
|
|
|
|
Reinsurance balances payable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Life
|
|
|
3 |
|
|
|
78 |
|
|
|
239 |
|
|
Life
|
|
|
3 |
|
|
|
93 |
|
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
Total reinsurance balances payable
|
|
|
|
|
|
|
171 |
|
|
|
413 |
|
|
|
|
|
|
|
|
|
|
|
Convertible subordinated debentures
|
|
|
9,14 |
|
|
|
200 |
|
|
|
200 |
|
Other long term debt including obligations under capital Leases
|
|
|
9 |
|
|
|
761 |
|
|
|
755 |
|
Notes payable
|
|
|
9,14,15 |
|
|
|
34 |
|
|
|
34 |
|
Debt due within one year
|
|
|
|
|
|
|
244 |
|
|
|
61 |
|
Derivative financial instruments
|
|
|
15 |
|
|
|
6 |
|
|
|
6 |
|
Other liabilities
|
|
|
|
|
|
|
317 |
|
|
|
344 |
|
Deferred income tax liabilities
|
|
|
3,10 |
|
|
|
72 |
|
|
|
84 |
|
Minority interest
|
|
|
2 |
|
|
|
183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
12,189 |
|
|
|
12,127 |
|
|
|
|
|
|
|
|
|
|
|
Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, 819,269,070 shares in 2004 and 968,769,070 shares
in 2005 authorized and issued
|
|
|
3,12 |
|
|
|
645 |
|
|
|
763 |
|
|
Additional paid-in capital
|
|
|
|
|
|
|
1,402 |
|
|
|
1,523 |
|
|
Retained deficit
|
|
|
|
|
|
|
(673 |
) |
|
|
(545 |
) |
|
Accumulated other comprehensive loss
|
|
|
3,8 |
|
|
|
(151 |
) |
|
|
(24 |
) |
|
Treasury stock, at cost (9,298,085 shares in 2004 and 9,110,915
shares in 2005)
|
|
|
|
|
|
|
(12 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
|
|
|
|
1,211 |
|
|
|
1,702 |
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
|
|
|
|
|
13,400 |
|
|
|
13,829 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
F-3
SCOR
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
|
|
| |
|
|
Notes | |
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(EUR, in millions) | |
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life premiums earned, net of premiums ceded totaling EUR 66
in 2003, EUR 20 in 2004 and EUR 28 in 2005
|
|
|
3,5,17 |
|
|
|
517 |
|
|
|
524 |
|
|
|
520 |
|
|
Non Life premiums earned, net of premiums ceded totaling
EUR 292 in 2003, EUR 165 in 2004 and EUR 125 in
2005
|
|
|
3,5,17 |
|
|
|
2,807 |
|
|
|
1,703 |
|
|
|
1,566 |
|
|
Net investment income
|
|
|
3,4,17 |
|
|
|
326 |
|
|
|
282 |
|
|
|
301 |
|
|
Net realized gains on investments
|
|
|
3,4,17 |
|
|
|
117 |
|
|
|
42 |
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
|
|
3,767 |
|
|
|
2,551 |
|
|
|
2,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life claims, net of reinsurance recoveries totaling EUR 88
in 2003,
EUR 3 in 2004 and EUR 31 in 2005
|
|
|
3,5,17 |
|
|
|
421 |
|
|
|
451 |
|
|
|
414 |
|
|
Non Life claims and loss adjustment expenses, net of reinsurance
recoveries totaling EUR 99 in 2003, EUR 65 in 2004 and
EUR 87 in 2005
|
|
|
3,5,17 |
|
|
|
2,739 |
|
|
|
1,176 |
|
|
|
1,168 |
|
|
Policy acquisition costs and commissions
|
|
|
3,17 |
|
|
|
742 |
|
|
|
568 |
|
|
|
521 |
|
|
Underwriting and administration expenses
|
|
|
3,17 |
|
|
|
160 |
|
|
|
135 |
|
|
|
141 |
|
|
Foreign exchange (gain) loss, net
|
|
|
|
|
|
|
(147 |
) |
|
|
(37 |
) |
|
|
81 |
|
|
Impairment of goodwill
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 |
|
|
Interest expense
|
|
|
|
|
|
|
33 |
|
|
|
49 |
|
|
|
48 |
|
|
Other operating expenses, net
|
|
|
|
|
|
|
19 |
|
|
|
14 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
|
|
|
|
3,967 |
|
|
|
2,356 |
|
|
|
2,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes, minority interests, income
(loss) from investments accounted for by the equity method and
cumulative effect of change in accounting principle
|
|
|
|
|
|
|
(200 |
) |
|
|
195 |
|
|
|
93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (expense) benefit
|
|
|
3,10 |
|
|
|
(287 |
) |
|
|
73 |
|
|
|
72 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before minority interests, income (loss) from
investments accounted for by the equity method and cumulative
effect of change in accounting principle
|
|
|
|
|
|
|
(487 |
) |
|
|
268 |
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
|
|
|
|
(26 |
) |
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income (loss) from investments accounted
for by the equity method and cumulative effect of change in
accounting principle
|
|
|
3,4 |
|
|
|
(513 |
) |
|
|
244 |
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from investments accounted for by the equity method
|
|
|
|
|
|
|
1 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of change in accounting
principle
|
|
|
|
|
|
|
(512 |
) |
|
|
243 |
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of change in accounting principle, net of tax
|
|
|
3 |
|
|
|
|
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
|
|
|
(512 |
) |
|
|
247 |
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(EUR, except number of | |
|
|
|
|
shares in thousands) | |
Basic earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of change in accounting
principle
|
|
|
|
|
|
|
(3.76 |
) |
|
|
0.30 |
|
|
|
0.18 |
|
|
Cumulative effect of a change in accounting principle, net of tax
|
|
|
|
|
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share available to common stockholders
|
|
|
3,12 |
|
|
|
(3.76 |
) |
|
|
0.31 |
|
|
|
0.18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of change in accounting
principle
|
|
|
|
|
|
|
(3.76 |
) |
|
|
0.29 |
|
|
|
0.17 |
|
|
Cumulative effect of a change in accounting principle, net of tax
|
|
|
|
|
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share available to common stockholders
|
|
|
3,12 |
|
|
|
(3.76 |
) |
|
|
0.30 |
|
|
|
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding, in thousands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,12 |
|
|
|
136,300 |
|
|
|
803,152 |
|
|
|
887,626 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
3,12 |
|
|
|
136,300 |
|
|
|
857,189 |
|
|
|
989,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
F-4
SCOR
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
|
|
| |
|
|
Notes | |
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(EUR, in millions) | |
Net income (loss)
|
|
|
|
|
|
|
(512 |
) |
|
|
247 |
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
3,8 |
|
|
|
(127 |
) |
|
|
(101 |
) |
|
|
107 |
|
|
Minimum Pension Liability Adjustment
|
|
|
3,8 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
(6 |
) |
|
Unrealized appreciation (depreciation) on investments during
period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
|
3,8 |
|
|
|
(45 |
) |
|
|
14 |
|
|
|
(22 |
) |
|
|
Equity securities
|
|
|
3,8 |
|
|
|
5 |
|
|
|
3 |
|
|
|
23 |
|
|
|
Less: reclassification adjustment for appreciation included
in net income (loss)
|
|
|
3,8 |
|
|
|
(41 |
) |
|
|
(9 |
) |
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
(207 |
) |
|
|
(94 |
) |
|
|
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
|
|
|
|
|
(719 |
) |
|
|
153 |
|
|
|
292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
F-5
SCOR
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Ordinary Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
520 |
|
|
|
136 |
|
|
|
645 |
|
|
Issuance of Ordinary Shares Public issue
|
|
|
|
|
|
|
683 |
|
|
|
118 |
|
|
Change in Ordinary Shares Par
Value(1)
|
|
|
(384 |
) |
|
|
(174 |
) |
|
|
|
|
|
Cancellation of Ordinary Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
136 |
|
|
|
645 |
|
|
|
763 |
|
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
811 |
|
|
|
1,195 |
|
|
|
1,398 |
|
|
Issuance of Ordinary Shares Public issue
|
|
|
|
|
|
|
68 |
|
|
|
115 |
|
|
Stock Award Plan
|
|
|
|
|
|
|
4 |
|
|
|
19 |
|
|
Other
|
|
|
|
|
|
|
(39 |
) |
|
|
(9 |
) |
|
Change in Ordinary Shares Value
|
|
|
384 |
|
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
1,195 |
|
|
|
1,402 |
|
|
|
1,523 |
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
|
|
150 |
|
|
|
(57 |
) |
|
|
(151 |
) |
|
Unrealized appreciation (depreciation) on investments, net of
reclassification adjustment
|
|
|
(81 |
) |
|
|
8 |
|
|
|
26 |
|
|
Currency translation adjustments
|
|
|
(127 |
) |
|
|
(101 |
) |
|
|
107 |
|
|
Minimum pension liability adjustment
|
|
|
1 |
|
|
|
(1 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
(57 |
) |
|
|
(151 |
) |
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
Catastrophe reserve
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
Allocation during year
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
(410 |
) |
|
|
(916 |
) |
|
|
(669 |
) |
|
Net (loss) income
|
|
|
(512 |
) |
|
|
247 |
|
|
|
165 |
|
|
Allocation to catastrophe reserve
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
(24 |
) |
|
Treasury stock sales
|
|
|
|
|
|
|
|
|
|
|
(4 |
) |
|
Deferred compensation expense
|
|
|
|
|
|
|
(4 |
) |
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
(916 |
) |
|
|
(673 |
) |
|
|
(545 |
) |
|
|
|
|
|
|
|
|
|
|
Treasury stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
|
|
|
|
(2 |
) |
|
|
(12 |
) |
|
Purchase of treasury shares
|
|
|
(2 |
) |
|
|
(10 |
) |
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
(2 |
) |
|
|
(12 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
Total Shareholders equity
|
|
|
356 |
|
|
|
1,211 |
|
|
|
1,702 |
|
|
|
|
|
|
|
|
|
|
|
Ordinary Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year
|
|
|
136,544,845 |
|
|
|
136,544,845 |
|
|
|
819,269,070 |
|
|
Issuance of Ordinary Shares
|
|
|
|
|
|
|
682,724,225 |
|
|
|
149,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
|
136,544,845 |
|
|
|
819,269,070 |
|
|
|
968,769,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
In 2003 the Company reduced the par value of the ordinary share
from EUR 3.85 per share to EUR 1 per share. In 2004
the Company reduced the par value of the ordinary shares from
EUR 1 per share to EUR 0.79 per share. |
F-6
SCOR
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before minority interests
|
|
|
(486 |
) |
|
|
271 |
|
|
|
165 |
|
|
Adjustments to reconcile net income (loss) before minority
interest to net cash used in operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in reinsurance recoverable on unpaid losses
|
|
|
287 |
|
|
|
111 |
|
|
|
27 |
|
|
|
Change in prepaid insurance premiums
|
|
|
40 |
|
|
|
66 |
|
|
|
15 |
|
|
|
Change in losses and LAE reserves, gross
|
|
|
(230 |
) |
|
|
(662 |
) |
|
|
(447 |
) |
|
|
Change in Life reserves for future policy benefits, net
|
|
|
533 |
|
|
|
336 |
|
|
|
(223 |
) |
|
|
Change in unearned premium reserves, gross
|
|
|
(375 |
) |
|
|
(167 |
) |
|
|
19 |
|
|
|
Deferred policy acquisition costs
|
|
|
(66 |
) |
|
|
(23 |
) |
|
|
(27 |
) |
|
|
Net realized gains on investments
|
|
|
(117 |
) |
|
|
(42 |
) |
|
|
(99 |
) |
|
|
Other amortization and change in other provisions
|
|
|
60 |
|
|
|
56 |
|
|
|
48 |
|
|
|
Change in deferred tax
|
|
|
233 |
|
|
|
(116 |
) |
|
|
(107 |
) |
|
|
Unrealized foreign exchange gains or losses
|
|
|
(102 |
) |
|
|
13 |
|
|
|
(47 |
) |
|
|
Premium and loss balances, net
|
|
|
(35 |
) |
|
|
312 |
|
|
|
(133 |
) |
|
|
Change in reinsurance balances payable / receivable
|
|
|
232 |
|
|
|
(107 |
) |
|
|
(50 |
) |
|
|
Change in deposits with ceding companies
|
|
|
13 |
|
|
|
(194 |
) |
|
|
206 |
|
|
|
Change in funds held under reinsurance treaties
|
|
|
(53 |
) |
|
|
(72 |
) |
|
|
(99 |
) |
|
|
Change in sundry debtors and creditors
|
|
|
(7 |
) |
|
|
30 |
|
|
|
19 |
|
|
|
Other
|
|
|
(25 |
) |
|
|
(41 |
) |
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(98 |
) |
|
|
(229 |
) |
|
|
(742 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales, maturities or redemptions of fixed maturities available
for sale
|
|
|
6,145 |
|
|
|
2,788 |
|
|
|
3,067 |
|
|
Sales of equity securities
|
|
|
159 |
|
|
|
575 |
|
|
|
680 |
|
|
Net sales (purchases) of short-term investments
|
|
|
169 |
|
|
|
|
|
|
|
|
|
|
Investments in fixed maturities available for sale
|
|
|
(6,112 |
) |
|
|
(3,045 |
) |
|
|
(2,146 |
) |
|
Investments in equity securities
|
|
|
(165 |
) |
|
|
(778 |
) |
|
|
(1,031 |
) |
|
Acquisitions of fixed assets, including capital lease
|
|
|
(15 |
) |
|
|
(4 |
) |
|
|
|
|
|
Disposals of fixed assets
|
|
|
46 |
|
|
|
|
|
|
|
18 |
|
|
Investment in consolidated affiliates
|
|
|
5 |
|
|
|
14 |
|
|
|
(2 |
) |
|
Investment in reinsurance companies
|
|
|
|
|
|
|
(3 |
) |
|
|
(3 |
) |
|
Long term loans
|
|
|
26 |
|
|
|
3 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
258 |
|
|
|
(450 |
) |
|
|
584 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
|
|
|
|
|
|
|
|
(24 |
) |
|
Repayment of borrowings
|
|
|
(114 |
) |
|
|
(39 |
) |
|
|
(258 |
) |
|
Proceeds from borrowings, including capital lease
|
|
|
209 |
|
|
|
200 |
|
|
|
9 |
|
|
Issuance of shares
|
|
|
(3 |
) |
|
|
708 |
|
|
|
224 |
|
|
Decrease on minority interests
|
|
|
(40 |
) |
|
|
(13 |
) |
|
|
(183 |
) |
|
Purchase of treasury stock
|
|
|
(2 |
) |
|
|
(10 |
) |
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
50 |
|
|
|
846 |
|
|
|
(242 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
21 |
|
|
|
(135 |
) |
|
|
171 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
231 |
|
|
|
32 |
|
|
|
(229 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year
|
|
|
1,788 |
|
|
|
1,824 |
|
|
|
1,798 |
|
|
|
Effect of changes in exchange rates on beginning cash
|
|
|
(195 |
) |
|
|
(58 |
) |
|
|
97 |
|
|
|
Cash and cash equivalents at end of year
|
|
|
1,824 |
|
|
|
1,798 |
|
|
|
1,666 |
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Financial Statements
F-7
SCOR
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business overview
SCOR (the Company) is organized as a
société anonyme, or stock company, under the
laws of the Republic of France. SCOR and its subsidiaries
(together, the Group) provide Property-Casualty and
Life & Accident/ Health reinsurance. Property-Casualty
operations include reinsuring to primary insurers of property,
casualty, marine, space and transportation, construction and
credit and surety risks. Life & Accident/ Health operations
include providing a full range of Life and Health reinsurance
products and related services to primary Life insurers
throughout the world.
Note 2. Significant Events
General
In December 2001, SCOR, in partnership with other investors,
created IRP Holdings Limited, (IRP Holdings), and
Irish Reinsurance Partners (Irish Reinsurance
Partners), the operating company wholly owned by IRP
Holdings. Irish Reinsurance Partners Limited has been
principally used for the retrocession in quota shares of 25% of
the part of the Property Casualty business
subscribed or renewed by the SCOR Group during the 2002, 2003
and 2004 financial years. In 2004, IRP Holdings net income
amounted to EUR 50.1 million after tax, or
EUR 57.4 million before tax. The shareholders of IRP
Holdings decided not to renew the quota share agreements, which
thereby expired on January 1, 2005.
At December 31, 2004, SCOR held 53.35% of the voting shares
of IRP Holdings. Pursuant to the shareholders agreement
entered into in connection with the formation of IRP Holdings,
SCOR acquired the minority shareholders stake in IRP
Holdings for EUR 183.1 million in cash in 2005.
As a result of this transaction, SCOR holds 100% of the share
capital and voting rights of IRP Holdings, and, indirectly Irish
Reinsurance Partners.
In order to refinance the acquisition of the outstanding shares
of IRP Holdings, SCOR carried out a share capital increase by
issuing 149,500,000 new shares with a nominal value of
EUR 0.78769723 each, with a total share premium of
EUR 115,459,264.
Note 3. Summary of Significant Accounting
Policies
3.1. Basis of presentation
The consolidated financial statements include the accounts of
the Group and its majority-owned and controlled domestic and
foreign subsidiaries as well as variable interest entities in
which the Group is considered the primary beneficiary, and those
partnerships and joint ventures in which the Group has a
majority financial interest. The consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
(U.S. GAAP).
3.2. Principles of consolidation
The Group and its domestic subsidiaries maintain their books in
conformity with French generally accepted accounting principles,
and its foreign subsidiaries in conformity with those of the
countries of their domicile. The financial statements of those
consolidated entities have been adjusted to conform with
U.S. GAAP.
Investment in 20% to 50% owned affiliates are accounted for by
the equity method. The consolidated financial statements are
prepared and presented in euro.
3.3. Use of estimates
The preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements
F-8
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
and the reported amounts of revenues and expenses during the
period. Actual results could differ from these estimates.
3.4. Foreign currency translation
The functional currency of each entity of the Group is the
currency in which that entity primarily conducts its business.
For most of the Groups foreign subsidiaries the local
currency is the functional currency. In accordance with
FAS 52, Foreign Currency Translation, financial
statements of subsidiaries whose functional currency is not euro
are translated into euro equivalents using the current rate of
exchange existing at period-end for assets and liabilities, and
the average yearly exchange rate for revenues and expenses.
Related translation adjustments are reported as a separate
component of shareholders equity.
Transactions denominated in currencies other than the
entitys functional currency are translated into the
functional currency using exchange rates in effect at the
transaction date. Resulting gains or losses are included in the
statement of operations, except for amounts relating to
available for sale debt securities which are recorded in other
comprehensive income, as foreign currency translation adjustment
in the amount, net of tax, of EUR 61 million and
EUR (39) million for the year ended December 31,
2005 and December 31, 2004.
3.5. Investments
Statement of Financial Accounting Standard (FAS)
No. 115, Accounting for Certain Investments in Debt
and Equity Securities, requires that debt and marketable
equity securities be classified in one of three categories:
trading, available-for-sale, or held to maturity.
The Group accounts for its investments in fixed-maturity and
marketable equity securities in accordance with FAS 115.
Management determines the appropriate classification of
securities at the time of purchase.
Trading securities are held to meet short term investment
objectives. These securities are recorded on a trade date basis
and are carried at fair value. Movements in unrealized gains and
losses are reported in net investment income currently.
Securities that are held to meet long term investment objectives
are accounted for as available-for-sale. Available-for-sale
securities are recorded on a trade date basis and are carried at
fair value. Unrealized gains and losses from valuing these
securities are reported in shareholders equity, net of any
related deferred income taxes as well as the effect on deferred
policy acquisition costs, present value of future profits and
future policy benefits that would result from the realization of
unrealized gains and losses. The cost of debt and equity
securities is written down to fair value when a decline in value
is considered to be other than temporary. The factors considered
in making such a determination are described in 3.6.
Realized gains and losses from sale of investments, determined
on the specific identification method and declines in value of
securities below cost or amortized cost determined to be other
than temporary, are included in earnings.
For mortgage-backed securities and any other holdings for which
there is prepayment risk, prepayment assumptions are evaluated
and revised as necessary. Any necessary adjustments to the
amortization of premium or discount as a result of the change in
effective yields and maturities are recognized prospectively in
the Groups income statement.
Other invested assets consist primarily of investments by the
Groups insurance operations in joint ventures and
partnerships, and other investments not classified elsewhere
herein. Joint ventures and partnerships are carried at equity or
cost depending on the equity ownership position. Other
investments are carried at cost or fair value depending upon the
nature of the underlying assets.
The significant accounting polices relating to other long term
investments are described in 3.11.
F-9
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
3.6. Other than temporary impairments in
investments
The Groups process for identifying declines in the fair
value of investments that are other than temporary involves
consideration of several factors. These factors include
(i) the time period during which there has been a
significant decline in value, (ii) an analysis of the
liquidity, business prospects and overall financial condition of
the issuer, (iii) the significance of the decline,
(iv) an analysis of the collateral structure and other
credit support, as applicable, of the securities in question,
(v) the Groups intent and ability to hold the
investment for a sufficient period of time for the value to
recover, and (vi) for asset backed securities, the
estimated cash flows. When the analysis of the above factors
results in a conclusion that declines in fair values are other
than temporary, the cost of the security is written down to fair
value with the resulting charge reported in income.
3.7. Derivatives
The Group recognizes all derivatives in the consolidated balance
sheet at fair value. The financial statement recognition of the
change in the fair value of a derivative depends on a number of
factors, including the intended use of the derivative and the
extent to which it is effective as part of a hedge transaction.
On the date the derivative contract is entered into, the Group
designates the derivative as: (i) a hedge of the subsequent
changes in fair value of a recognized asset or liability or of
an unrecognized firm commitment (fair value
hedge); (ii) a hedge of a forecasted transaction, or the
variability of cash flows to be received or paid related to a
recognized asset to liability (cash flow hedge); or
(iii) a hedge of a net investment in a foreign operation.
Fair value and cash flow hedges may involve foreign currencies
(foreign currency hedges). The Group did not
designate any derivative as cash flow hedges. See Note 15
for a discussion of the Groups hedging activities.
The gain or loss in the fair value of a derivative that is
designated, qualifies and is highly effective as a fair value
hedge is reported in current period earnings, along with the
offsetting loss or gain on the hedged item attributable to the
hedged risk.
The gain or loss in the fair value of a derivative that is
designated, qualifies, and is highly effective as a hedge of a
net investment in a foreign operation is reported in the foreign
currency translation adjustments account within other
comprehensive income.
Changes in the fair value of derivatives used for other than
hedging activities are reported in current earnings.
The Group documents all relationships between hedging
instruments and hedged items, as well as its risk management
objectives and strategy for undertaking various hedge
transactions. This process includes linking all derivatives that
are designated as hedges to specific assets or liabilities on
the balance sheet, or specific firm commitments or forecasted
transactions. The Group also assesses, both at the hedges
inception and on an ongoing basis, whether the derivatives used
in hedging transactions are highly effective in offsetting
changes in fair values or cash flows of hedged items.
In addition to hedging activities, the Group also uses
derivative instruments with respect to investment operations,
which include, among other things, writing option contracts, and
purchasing investments with embedded derivatives, such as equity
linked notes and convertible bonds. All changes in the market
value of these derivatives are recorded in earnings.
3.8. Cash and cash equivalents
Cash and cash equivalents include cash on hand, short term
marketable securities and time deposits with banks with original
maturities of three months or less.
F-10
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
3.9. Premiums earned
Premiums from short duration contracts are recognized as revenue
evenly as insurance protection is provided. That part of
premiums estimated to be billable but which has not been
notified by ceding companies upon the financial statement date
is estimated and booked as accrued premiums receivable. Unearned
premium reserves represent the portion of premiums written that
relates to the unexpired terms of contracts and policies in
force. Such reserves are computed by pro rata methods based on
statistical data or reports received from ceding companies.
Premiums for long-duration contracts are recognized as revenue
when due from policyholders. To the extent that the Groups
contracts permit a retrospective charge to the ceding Group for
additional premiums, such premiums are accrued as premiums
receivable based on experience under the contract.
The Group calculates earned not yet issued and unearned
premiums, in a manner whereby premiums are computed for their
estimated ultimate amount.
The Group accounts for retrospective contracts in accordance
with Financial Accounting Standards Boards Emerging Issues
Task Force No. 93-6, Accounting for Multiple-Year
Retrospectively Rated Contracts by Ceding and Assuming
Enterprises (EITF 93-6). EITF 93-6 requires
that multi-year retrospectively-rated reinsurance contracts, in
which past events create rights or obligations for the parties,
be accounted as an asset or liability immediately, instead of at
contract termination. Rights or obligations include, but are not
limited to, return of an experience balance, additional or
return premiums and/or reduction in coverage of future events.
3.10. Deferred policy acquisition costs
Life reinsurance deferred policy acquisition costs
Costs that vary with and are directly related to the acquisition
of new business, principally commissions and brokerage expenses
incurred at the time a contract is issued, are deferred when
paid, to the extent recoverable. For policies accounted for in
accordance with FAS 60, Accounting and Reporting by
Insurance Enterprises, acquisition costs related to
traditional life insurance and certain long-duration accident
and health insurance, to the extent recoverable from future
policy revenues, would be deferred and amortized over the
premium-paying period of the related policies using assumptions
consistent with those used in computing policy benefit reserves.
The deferred policy acquisition costs relating to the life
reinsurance business accounted for under FAS 97,
Accounting and Reporting by Insurance Enterprises for
Certain Long-Duration Contracts and for Realized Gains and
Losses from the Sale of Investments are amortized based on
a percentage of our expected gross profits (EGPs)
over the life of the underlying policies. 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 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 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 costs 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 an estimate 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, the cumulative
amortization is adjusted for the revised EGPs in the period the
revision was determined to be necessary.
Non Life reinsurance deferred policy acquisition
costs
Acquisition costs, principally representing commissions,
brokerage expenses, and other underwriting expenses, net of
allowances from retrocessionaires, which vary with and are
directly related to the production of new business, are deferred
and amortized over the period in which the related written
premiums are earned. Deferred policy acquisition costs are
periodically reviewed to determine that they do not exceed
recoverable amounts.
F-11
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Premium deficiency reserves
Premium deficiency reserves are established for the amount of
the anticipated losses, loss adjustment expenses, commissions
and other acquisition costs and maintenance costs that have not
previously been expensed in excess of the recorded unearned
premium reserve and future installment premiums on existing
policies.
Present value of future profits (PVFP)
As a result of certain acquisitions and the application of
purchase accounting, the Group reports a financial asset
representing the present value of future profits (PVFP) embedded
in acquired insurance, annuity and investment-type contracts.
PVFP is determined by estimating the net present value of future
cash flows from the contracts in force at the date of
acquisition. The Group amortizes PVFP over the effective life of
the acquired contracts. Amounts relating to PVFP are included in
intangible assets.
3.11. Other long-term investments
Other long term investments consist of buildings and interests
in unlisted real estate companies. Real estate which the Group
has the intent to hold for the production of income is carried
at depreciated cost less any write-downs to fair value for
impairment losses and is reviewed for impairment whenever events
or circumstances indicate that the carrying value may not be
recoverable. Buildings are depreciated using the straight-line
method over 30 to 50 years with depreciation expense
included in Net investment income.
Real estate held for disposal is carried at the lower of
depreciated cost or fair value less estimated selling costs and
is not further depreciated once classified as such. An
impairment loss is recognized when the carrying value of the
investment real estate exceeds the estimated undiscounted future
cash flows (excluding interest charges) from the investment. At
that time, the carrying value of the investment real estate is
written down to fair value. Decreases in the carrying value of
investment real estate and impairments are recorded in
Realized investment gains (losses), net.
3.12. Fixed assets
Property, furniture and equipment and leasehold improvements are
recorded at cost less accumulated depreciation and amortization.
Depreciation is computed using the straight-line method over the
estimated useful lives of the related assets, which range from
three to 30 years. Computer software purchased is
depreciated over 12 to 60 months. Furniture and equipment
held under capital leases and leasehold improvements are
amortized over the shorter of the estimated useful lives of the
assets or the related lease term.
3.13. Impairment or disposal of long-lived
assets
The Group accounts for long-lived assets in accordance with the
requirements of FAS 144, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. FAS 144 requires that long-lived assets and certain
identifiable intangibles held and used be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets or intangibles may not be
recoverable. No impairment charges were recorded in 2003, 2004
and 2005.
3.14. Goodwill
The excess of purchase price over the fair value of the net
assets acquired of a company at the date of purchase, is
recorded as goodwill. Under FAS 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. Goodwill related to foreign companies
is recorded as an asset in the functional currency of the
subsidiary.
F-12
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
3.15. Uncollectible reinsurance balances
The Group establishes provisions for uncollectible reinsurance
balances based on managements assessment of the
collectibility of the outstanding balances. Such provisions were
EUR 13 million and EUR 11 million as of
December 31, 2005 and December 31, 2004, respectively.
3.16. Losses and loss expenses and Life future policy
benefits
Reserves for losses and loss adjustment expenses include
reserves for unpaid losses and loss expenses and for losses
incurred but not reported (IBNR). This liability for
unpaid claims is established by management based on information
received from ceding companies corrected for estimated errors
and omissions, as necessary, using managements industry
experience and judgment. The methods used to estimate the
reserves are periodically reviewed to insure that the
assumptions made continue to be appropriate and any adjustments
resulting therefrom are reported in income in the period in
which they become known and are accounted for as changes in
estimates.
The Group discounts certain reserves for losses and loss
adjustment expenses relating for the most part to workers
compensation claims, over the estimated payment period of the
liabilities. The discount rate is based on risk-free rates of
return for investments of similar duration, and the discount
rate is a locked in rate unless there are indications that the
assets supporting the liabilities are returning a significantly
lower rate. Loss and loss adjustment reserves were discounted at
rates ranging from 4.2% to 5% at December 31, 2005 and
2004, and the amount of those discounted reserves were
EUR 358 million and EUR 357 million, at
December 31, 2005 and 2004, respectively. The impact of the
discount on reserves as at December 31, 2005 amounts to EUR
83 million compared to EUR 92 million at
December 31, 2004.
Management believes that the reserve for losses is adequate to
cover the ultimate net cost incurred. However, the reserve is
necessarily an estimate and the amount ultimately paid may be
more or less than the estimate.
The Group has to place significant reliance on the information
obtained from its cedants to develop assumptions to estimate its
ultimate liability. The subsequent development of these
liabilities might not conform to the assumptions inherent in
their determination. As a result, the amounts ultimately settled
could vary significantly from the estimates included in the
accompanying consolidated financial statements.
Estimated Life future policy benefits to be paid to or on behalf
of ceding companies, less estimated future net premiums to be
collected from ceding companies, are accrued when premium
revenue is recognized. Future policy benefits under long term
Life reinsurance contracts have been computed based upon
expected investment yields, mortality, morbidity and withdrawal
rates and other assumptions. These assumptions include for Life
business a margin for adverse deviation and vary with the
characteristics of the plan of reinsurance, year of issue, age
of the insured and other appropriate factors. Mortality,
morbidity and withdrawal assumptions are based on the
Groups experience as well as industry experience and
standards.
3.17. Stock-based compensation
The Group accounts for its employee stock option plans in
accordance with Accounting Principles Board Opinion No. 25
(APB 25), Accounting for Stock Issued to
Employees and discloses below pro forma net income loss
and earnings per share as if the
fair-value based method
of accounting defined in FAS 123, Accounting for
Stock Based Compensation were applied. FAS 123
establishes financial accounting and reporting standards for
stock-based employee
compensation plans. The Statement defines a
fair-value based method
of accounting for
stock-option plans
whereby compensation cost is measured at the grant date based on
the value of the award and is recognized over the service
period. It encourages all entities to adopt that method of
accounting for all of their employee stock compensations plans,
but also allows an entity to continue to measure compensations
costs for those plans using the intrinsic value based method of
accounting prescribed by APB 25.
F-13
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company has elected to follow APB 25 and related
Interpretations in accounting for its employees stock options.
Under APB 25, when the exercise price of the Companys
employee stock options is lower than the market price of the
underlying stock on the date of grant, a compensation expense is
recognized.
Pro forma information regarding net income and earnings per
share is required by FAS 123, and has been determined as if
the Company had accounted for its employee stock options under
the fair value method of that Statement. The fair value method
was estimated at the date of grant using a binomial option
pricing model with the following weighted average assumptions
for September 2005, August 2004, June 2003, and February 2003
respectively: risk-free
interest rates of 3.24% 4.20%, 3.77%, and 4.10%;
expected dividend yields of 3.57%, 2.50%, 2.39%,
and 2.84%; volatility factors of the expected market price
of the Companys Ordinary Shares of 0.297, 0.396,
0.446, and 0.430; and a weighted-average expected life of
the option of 10 years. The dividend yield is based on
consensus estimates of dividends per share until 2005 and
thereafter assumes a dividend growth rate proportional to the
increase in the 10 year Interbank swap yield. The fair
value of options granted during the year was EUR 0.49
per share.
For purposes of pro forma disclosures, the estimated fair
value of the options is recognized to expense over the vesting
period of five or four years for plans established after
December 31, 1996. An adjustment to eliminate compensation
cost previously recognized for options that were subsequently
forfeited is recognized when the forfeiture occurs. Had
compensation expense for the Companys stock option plans
been recognized in accordance with FAS 123, the
Companys net income (loss), basic earnings per share and
diluted earnings per share would have been as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31/12/03 | |
|
31/12/04 | |
|
31/12/05 | |
|
|
| |
|
| |
|
| |
|
|
In Eur Millions | |
|
|
(except per share data) | |
Net Income (loss) as reported
|
|
|
(512 |
) |
|
|
247 |
|
|
|
165 |
|
Total compensation determined under the intrinsic value method
|
|
|
|
|
|
|
3 |
|
|
|
4 |
|
Less: Total employee stock option compensation expense
determined under the fair value based method for all awards
|
|
|
(5 |
) |
|
|
(8 |
) |
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
Pro forma Net Income (loss) basic
|
|
|
(517 |
) |
|
|
242 |
|
|
|
161 |
|
|
|
|
|
|
|
|
|
|
|
Interest on convertible bonds
|
|
|
|
|
|
|
6 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Net Income (loss) diluted
|
|
|
(517 |
) |
|
|
248 |
|
|
|
166 |
|
|
|
|
|
|
|
|
|
|
|
Earnings Per
Share(a):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share As reported
|
|
|
(3.76 |
) |
|
|
0.31 |
|
|
|
0.18 |
|
|
Basic earnings per share Pro forma
|
|
|
(3.79 |
) |
|
|
0.30 |
|
|
|
0.18 |
|
|
|
Diluted earnings per share As reported
|
|
|
(3.76 |
) |
|
|
0.30 |
|
|
|
0.17 |
|
|
|
Diluted earnings per share Pro forma
|
|
|
(3.79 |
) |
|
|
0.29 |
|
|
|
0.17 |
|
|
|
(a) |
The weighted average number of shares used to calculate basic
EPS (expressed in thousands) were 136,300, 803,152 and 887,626
for 2003, 2004, and 2005, respectively. The weighted average
number of shares used to calculate diluted EPS (expressed in
thousands) were 136,300, 857,189 and 989,325 for 2003, 2004, and
2005, respectively. The effects of applying FAS 123 for
pro forma disclosures are not likely to be representative
of the effects on reported net income in future years. |
3.18. Accounting for income taxes
The Group accounts for income taxes in accordance with the
requirements of FAS 109 Accounting for Income
Taxes. FAS 109 provides for a liability approach
under which deferred income taxes are calculated based upon
enacted tax laws and rates, applicable in the various
jurisdictions in which the Group operates, to the periods in
which the tax becomes payable. Under FAS 109, valuation
allowances are recorded against deferred tax assets that are
more likely than not to be not realizable in the
future. The realization of these assets is based upon
F-14
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
estimates of future taxable income. In preparing estimates of
future taxable income, the Group used the same assumptions and
projections utilized in internal forecasts.
3.19. Post retirement benefits
Group companies operate various pension schemes. The schemes are
generally funded through payments to insurance companies or
trustee-administered funds, determined by periodic actuarial
calculations. The Group maintains both defined benefit and
defined contribution plans. A defined benefit pension plan is a
plan that defines an amount of pension benefit that an employee
will receive on retirement, usually dependent on one or more
factors such as age, years of service and compensation. A
defined contribution plan is a pension plan under which the
Group pays fixed contributions into a separate entity.
The liability recognized in the balance sheet in respect of
defined benefit pension plans is the present value of the
projected benefit obligation at the balance sheet date less the
fair value of plan assets, together with adjustments for
unrecognized actuarial gains or losses and past service costs.
The projected benefit obligation is calculated annually by
independent actuaries using the projected unit credit method.
The present value of the defined benefit obligation is
determined by discounting the estimated future cash outflows
using the yields of high-quality corporate bonds that are
denominated in the currency in which the benefits will be paid
and that have terms to maturity approximating the terms of the
related pension liability.
Actuarial gains and losses arising from experience adjustments
and changes in actuarial assumptions are charged or credited to
income over the employees expected remaining career when
the cumulative unrecognized actuarial gains or losses, for each
individual plan, exceed 10% of the higher of the projected
benefit obligation or the fair value of plan assets at beginning
of year.
For defined contribution plans, the Group pays contributions to
publicly or privately administered pension insurance plans on a
mandatory, contractual or voluntary basis. The Group has no
further payment obligations once the contributions have been
paid. The contributions are recognized as employee benefit
expense when they are due. Prepaid contributions are recognized
as an asset to the extent that a cash refund or a reduction in
future payments is available.
3.20. Earnings per share
The Group accounts for earnings per share in accordance with the
requirements of FAS 128, Earnings Per Share.
FAS 128 establishes standards for computing and presenting
earnings per share. Basic earnings per share excludes dilution
and is computed by dividing income available to common
stockholders by the weighted-average number of ordinary shares
outstanding for the period. Diluted earnings per share include
the effect of all potentially dilutive securities. FAS 128
also requires a reconciliation of the numerator and denominator
of the basic earnings per share computation to the numerator and
denominator of the diluted earnings per share computation.
The reconciliation of the numerator and denominator of the basic
earnings per share computation to the numerator and denominator
of the diluted earnings per share computation is disclosed in
Note 12. Basic earnings per share are calculated using the
weighted average number of Ordinary Shares outstanding during
the period. Diluted earnings per share are based on the
additional assumed dilution of all dilutive potential Ordinary
Shares outstanding which are issuable under stock option plans
and restricted reward stock plan (using the treasury stock
method), and on the additional assumption that the convertible
bonds are converted into Ordinary Shares (using the
if-converted method).
3.21. Credit risk concentration
Credit risk arises from the possible inability of counter
parties to meet the terms of their contracts and from changes in
security values, interest rates, and currency rates. In the
event counter parties are unable to fulfill their
F-15
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
contractual obligations, future losses due to defaults may
exceed amounts currently being recognized in the balance sheet
up to a maximum of the notional principal amounts of the
instruments. Counter parties to the financial instruments are
foreign and domestic commercial banks,
U.S. Government-chartered organizations, sovereigns and
corporations. In selecting its counter parties, the Group
carefully assesses their creditworthiness by evaluating credit
exposure and referring to the ratings of widely accepted credit
rating services. With certain counter parties, the Group
receives cash and/or investment grade securities as collateral
to mitigate its credit exposure.
At December 31, 2005, the Group did not have a material
concentration of financial instruments in any single investee,
industry or geographic location. Almost all of the Groups
investment in fixed maturities are investment grade securities.
The Groups client base and the geographic diversity
thereof limit the concentration of credit risk on amounts
due from clients. At December 31, 2005, the Group had
no significant concentrations of credit risk by
geographic area.
3.22. Reclassifications
Certain items in the prior years comparative figures have
been reclassified in order to comply with the current year
presentation.
3.23. Severance Plans
In accordance with FAS 146 Accounting for Costs
Associated with Exit or Disposal Activities and
FAS 88 Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits
the Group has recorded an expense relating to the Employment
Safeguard Plan which was implemented in September 2005. This
plan calls for approximately 100 employees in Paris to
leave the Group on a voluntary basis. The estimated cost of the
one-time termination benefits relating to this plan are
EUR 13.8 million of which EUR 11.6 million
relates to the property-casualty segment and
EUR 2.2 million relates to the life segment. These
amounts have been recorded in other operating expenses in 2005
and approximately EUR 1.4 million was paid prior to
December 31, 2005.
3.24. Recently adopted accounting standards
In December 2003, the FASB issued FIN No. 46(R),
Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51,
(FIN 46(R)) which revised the original
FIN 46 issued in January 2003. FIN 46(R) addresses
whether certain types of entities, referred to as variable
interest entities (VIEs), should be consolidated in
financial statements. A VIE is an entity that either
(1) has equity investors that lack certain essential
characteristics of a controlling financial interest (including
the ability to control the entity, the obligation to absorb the
entitys expected losses and the right to receive the
entitys expected residual returns) or (2) lacks
sufficient equity to finance its own activities without
financial support provided by other entities, which in turn
would be expected to absorb at least some of the expected losses
of the VIE. An entity should consolidate a VIE if, as the
primary beneficiary, it stands to absorb a majority of the
VIEs expected losses or to receive a majority of the
VIEs expected residual returns. On January 1, 2004,
the Group adopted FIN 46(R) for all special purpose
entities (SPEs) and for relationships with all VIEs
that began on or after February 1, 2003. On
December 31, 2004, the Group implemented FIN 46(R) for
relationships with potential VIEs that are not SPEs and for all
VIEs created before February 1, 2003. The transition to
FIN No. 46(R) did not result in the Group
consolidating any new entities or deconsolidating any existing
entities.
In April 2003, the FASB issued Statement No. 133
Implementation Issue No. B36, Embedded Derivatives:
Modified Coinsurance Arrangements and Debt Instruments That
Incorporate Credit Risk Exposures That Are Unrelated or Only
Partially Related to the Creditworthiness of the Obligor Under
Those Instruments.
F-16
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Implementation Issue No. B36 indicates that a modified
coinsurance arrangement (modco), in which funds are
withheld by the ceding insurer and a return on those withheld
funds is paid based on the ceding Groups return on certain
of its investments, generally contains an embedded derivative
feature that is not clearly and closely related to the host
contract and should be bifurcated in accordance with the
provisions of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. Effective
January 1, 2004, the Group adopted the guidance
prospectively for existing contracts and all future
transactions. As permitted by SFAS No. 133, all
contracts entered into prior to January 1, 1999, were
grandfathered and are exempt from the provisions of
SFAS No. 133 that relate to embedded derivatives. The
application of Implementation Issue No. B36 had no impact
on the consolidated financial position or results of operations
of the Group.
In May 2003, the FASB issued SFAS No. 150,
Accounting for Certain Financial Instruments with
characteristics of both Liabilities and Equity.
SFAS No. 150 generally applies to instruments that are
mandatorily redeemable, that represent obligations that will be
settled with a variable number of Group shares, or that
represent an obligation to purchase a fixed number of Group
shares. For instruments within its scope, the statement requires
classification as a liability with initial measurement at fair
value. Subsequent measurement depends upon the certainty of the
terms of the settlement (such as amount and timing) and whether
the obligation will be settled by a transfer of assets or by
issuance of a fixed or variable number of equity shares. The
Group adopted FAS No. 150, as of January 1, 2004 and
the adoption did not have a material effect on the Groups
consolidated financial position or results of operations.
In July 2003, the Accounting Standards Executive Committee
(AcSEC) of the American Institute of Certified
Public Accountants (AICPA) 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 change in accounting
principle, net of tax 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 deferred policy acquisition costs and present
value of future profit.
3.25. Recently issued accounting standards
In December 2004, the FASB issued FAS 123R, Share Based
Payment which replaces FAS 123 and APB 25. FAS 123R
requires all entities to apply the fair value based measurement
method in accounting for share-based payment transactions with
employees, such as stock options, by measuring the award at fair
value and expensing the amount over the period during which an
employee is required to provide service in exchange for the
award (the vesting period). The Group currently uses APB 25
to record its share based compensation expense. FAS 123R is
effective as of the beginning of the first interim or annual
period beginning after June 15, 2005. The Group is
currently evaluating the impact of this Standard and will adopt
FAS 123R as of January 1, 2006.
In March 2004, the EITF of the FASB reached a final consensus on
Issue 03-1, The Meaning of Other-Than-Temporary
Impairment and its Application to Certain Investments
(EITF 03-01). This Issue establishes impairment
models for determining whether to record impairment losses
associated with investments in certain
F-17
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
equity and debt securities. It also requires income to be
accrued on a level-yield basis following an impairment of debt
securities, where reasonable estimates of the timing and amount
of future cash flows can be made. In September 2004, the FASB
issued FASB Staff Position (FSP) EITF 03-1-1,
which defers the effective date of a substantial portion of EITF
03-1, from the third quarter of 2004, as originally required by
the EITF, until such time as FASB issues further implementation
guidance.
In November 2005, the FASB issued FSP 115-1, The Meaning
of Other-Than-Temporary Impairment and Its Application to
Certain Investments, which amends FAS 115 and
FAS 124, Accounting for Certain Investments Held by
Not-for-Profit Organizations. FSP 115-1 nullifies the
guidance set forth in paragraphs 10-18 of EITF 03-1
related to evaluating whether an impairment is
other-than-temporary, and other references to
other-than-temporary impairment guidance. FSP 115-1
supersedes the guidance set forth in EITF Topic D-44,
Recognition of Other-Than-Temporary Impairment on the
Planned Sale of a Security whose Cost Exceeds Fair Value,
and clarifies that an investor should recognize an impairment
loss no later than when the impairment is deemed other than
temporary, even if a decision to sell has not been made.
FSP 115-1 carries forward requirements of paragraphs 8
and 9 of EITF 03-1 with respect to cost method
investments and the disclosure requirements included in
paragraphs 21 and 22 of EITF 03-1 and related
examples. FSP 115-1 also provides guidance on accounting
for debt securities subsequent to an other-than-temporary
impairment.
The Group will adopt FSP 115-1 effective January 1,
2006. So far, the Group has complied with the disclosure
requirements. of EITF 03-1, which were effective
December 31, 2003, and carry forward FSP 115-1. SCOR
is currently evaluating the effect of adoption but does not
expect any material impact to its consolidated financial
condition, results of operations or cash flows.
In May 2005, the FASB issued FAS 154 Accounting
Changes and Error Corrections, which replaces APB
Opinion 20, Accounting Changes and SFAS 3,
Reporting Accounting Changes in Interim Financial
Statements. FAS 154 changes the requirements for the
accounting and reporting of a change in accounting principle and
requires retrospective application (restatement) to prior
periods financial statements of a voluntary change in
accounting principle unless it is impracticable to determine
either the period-specific effects or the cumulative effect of
the change. The cumulative effect of the change is reported in
the carrying value of assets and liabilities as of the first
period presented, with the offset applied to opening retained
earnings. FAS 154 carries forward without change the
guidance contained in APB Opinion 20 for reporting the
correction of an error in previously issued financial statements
and a change in accounting estimate, as well as the provisions
in FAS 3 Reporting Accounting Changes in Interim
Financial Statements governing reporting accounting
changes in interim financial statements. FAS 154 applies to
all voluntary changes in accounting principles and corrections
of errors made in fiscal years beginning after December 15,
2005, and also applies when a new accounting pronouncement does
not provide transition provisions. The Group will adopt
FAS 154 effective January 1, 2006. FAS 154 is not
expected to have an immediate material impact on SCORs
consolidated financial position or results of operations,
although it will impact presentation of future voluntary
accounting changes, if such changes occur.
In February 2006, the FASB issued FAS 155, Accounting
for Certain Hybrid Financial Instruments, which amends
FAS 133, Accounting for Derivative Instruments and
Hedging Activities and FAS 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. FAS 155 a) permits fair value
remeasurement for any hybrid financial instrument that contains
an embedded derivative that otherwise would require
bifurcuation. b) clarifies which interest-only strips and
principal-only strips are not subject to the requirements of
FAS 133, c) establishes a requirement to evaluate
interests in securitised financial assets to identify interests
that are freestanding derivatives or that are hybrid financial
instruments that contain an embedded derivative requiring
bifurcation, d) clarifies that concentrations of credit
risk in the form of subordination are not embedded derivatives
and e) amends FAS 140 to eliminate the prohibition on
a qualifying special-purpose entity from holding a derivative
financial instrument that pertains to a beneficial interest
other than another derivative financial instrument.
F-18
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
FAS 155 is effective for fiscal years beginning after
September 15, 2006. The Group is currently evaluating the
impact of this Standard and will adopt FAS 155 as of
January 1, 2006.
Note 4. Investments
The amortized cost gross unrealized gains, gross unrealized
losses and estimated fair value of investments in fixed
maturities, and equity securities available-for-sale are shown
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2004 | |
|
|
| |
|
|
Amortized | |
|
Unrealized | |
|
Unrealized | |
|
Estimated | |
|
|
cost | |
|
gains | |
|
losses | |
|
fair value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Fixed maturities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities issued or guaranteed by the French government or
its agencies
|
|
|
766 |
|
|
|
10 |
|
|
|
|
|
|
|
776 |
|
|
Debt securities issued or guaranteed by the U.S. government
or its agencies
|
|
|
1,396 |
|
|
|
3 |
|
|
|
(17 |
) |
|
|
1,382 |
|
|
Obligations of U.S. states and political subdivisions
|
|
|
119 |
|
|
|
4 |
|
|
|
|
|
|
|
123 |
|
|
Debt securities issued or guaranteed by the European Union
|
|
|
452 |
|
|
|
4 |
|
|
|
(3 |
) |
|
|
453 |
|
|
Debt securities issued or guaranteed by other national, state or
local governments or their agencies
|
|
|
299 |
|
|
|
15 |
|
|
|
|
|
|
|
314 |
|
|
Corporate debt securities
|
|
|
1,295 |
|
|
|
21 |
|
|
|
(4 |
) |
|
|
1,312 |
|
|
Mortgage-backed securities
|
|
|
836 |
|
|
|
36 |
|
|
|
(4 |
) |
|
|
868 |
|
|
Other debt securities
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities available for sale
|
|
|
5,207 |
|
|
|
93 |
|
|
|
(28 |
) |
|
|
5,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities, available for sale
|
|
|
220 |
|
|
|
45 |
|
|
|
|
|
|
|
265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005 | |
|
|
| |
|
|
Amortized | |
|
Unrealized | |
|
Unrealized | |
|
Estimated | |
|
|
cost | |
|
gains | |
|
losses | |
|
fair value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Fixed maturities, available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities issued or guaranteed by the French government or
its agencies
|
|
|
544 |
|
|
|
8 |
|
|
|
(2 |
) |
|
|
550 |
|
|
Debt securities issued or guaranteed by the U.S. government
or its agencies
|
|
|
1,394 |
|
|
|
2 |
|
|
|
(35 |
) |
|
|
1,361 |
|
|
Obligations of U.S. states and political Subdivisions
|
|
|
100 |
|
|
|
2 |
|
|
|
|
|
|
|
102 |
|
|
Debt securities issued or guaranteed by the European Union
|
|
|
452 |
|
|
|
3 |
|
|
|
(2 |
) |
|
|
453 |
|
|
Debt securities issued or guaranteed by other national, state or
local governments or their agencies
|
|
|
326 |
|
|
|
14 |
|
|
|
|
|
|
|
340 |
|
|
Corporate debt securities
|
|
|
1,478 |
|
|
|
31 |
|
|
|
(11 |
) |
|
|
1,498 |
|
|
Mortgage-backed securities
|
|
|
875 |
|
|
|
11 |
|
|
|
(8 |
) |
|
|
878 |
|
|
Other debt securities
|
|
|
62 |
|
|
|
|
|
|
|
(7 |
) |
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities available for sale
|
|
|
5,231 |
|
|
|
71 |
|
|
|
(65 |
) |
|
|
5,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities, available for sale
|
|
|
746 |
|
|
|
33 |
|
|
|
(10 |
) |
|
|
769 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual maturities of investments in fixed maturities
available-for-sale securities are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2005 | |
|
|
| |
|
|
Amortized | |
|
Estimated | |
|
|
cost | |
|
fair value | |
|
|
| |
|
| |
|
|
(EUR, in millions) | |
Available for sale
|
|
|
|
|
|
|
|
|
|
Due within one year or less
|
|
|
535 |
|
|
|
538 |
|
|
Due after one year through five years
|
|
|
2,445 |
|
|
|
2,426 |
|
|
Due after five years through ten years
|
|
|
980 |
|
|
|
994 |
|
|
Due after ten years
|
|
|
1,271 |
|
|
|
1,279 |
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,231 |
|
|
|
5,237 |
|
|
|
|
|
|
|
|
Actual maturities could differ from the contractual maturities
because the borrowers may have the right to call or prepay
obligations.
F-20
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Groups net investment income, comprised primarily of
interest and dividends, was derived from the following sources:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
|
265 |
|
|
|
244 |
|
|
|
221 |
|
|
Equity securities, dividends
|
|
|
3 |
|
|
|
6 |
|
|
|
7 |
|
|
Trading securities
|
|
|
47 |
|
|
|
3 |
|
|
|
49 |
|
|
Short term investments and
other(1)
|
|
|
100 |
|
|
|
112 |
|
|
|
95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
415 |
|
|
|
365 |
|
|
|
372 |
|
|
|
|
|
|
|
|
|
|
|
Investment expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap interest
|
|
|
8 |
|
|
|
7 |
|
|
|
5 |
|
|
Administration expenses
|
|
|
29 |
|
|
|
33 |
|
|
|
33 |
|
|
Other
|
|
|
52 |
|
|
|
43 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment expense
|
|
|
89 |
|
|
|
83 |
|
|
|
71 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
326 |
|
|
|
282 |
|
|
|
301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes swap income of EUR 3 million in 2003,
EUR 8 million in 2004 and EUR 2 million in
2005. |
Net realized investments gains and losses of the Group were
derived from the following sources:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Net realized investment gains (losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
|
93 |
|
|
|
27 |
|
|
|
48 |
|
|
Equity securities
|
|
|
14 |
|
|
|
17 |
|
|
|
45 |
|
|
Short term investments and other
|
|
|
10 |
|
|
|
(2 |
) |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized investment gain
|
|
|
117 |
|
|
|
42 |
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
F-21
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The changes in net unrealized gains and losses on the available
for sale investments of the Group are derived from the following
sources:
|
|
|
|
|
|
|
|
|
|
|
Year ended | |
|
Year ended | |
|
|
December 31, | |
|
December 31, | |
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
|
(EUR, in millions) | |
Increase (decrease) during period in difference between fair
value and cost of investments in equity securities
|
|
|
34 |
|
|
|
(22 |
) |
Deferred income tax benefit (expense)
|
|
|
(11 |
) |
|
|
8 |
|
|
|
|
|
|
|
|
Increase (decrease) in net unrealized gains (losses) on equity
securities
|
|
|
23 |
|
|
|
(14 |
) |
|
|
|
|
|
|
|
Increase (decrease) during period in difference between fair
value and cost of investments in fixed maturities
|
|
|
(5 |
) |
|
|
(59 |
) |
Deferred income tax benefit (expense)
|
|
|
2 |
|
|
|
1 |
|
|
|
|
|
|
|
|
Increase (decrease) in net unrealized gains (losses) on fixed
maturities
|
|
|
(3 |
) |
|
|
(58 |
) |
|
|
|
|
|
|
|
Minority interest
|
|
|
1 |
|
|
|
|
|
Total increase (decrease) in net unrealized gains (losses) on
equity securities and fixed maturities
|
|
|
21 |
|
|
|
(72 |
) |
|
|
|
|
|
|
|
The following table summarizes the gross unrealized losses and
fair value of investment securities classified as available for
sale, aggregated by major investment category, and length of
time that individual securities have been in a continuous
unrealized loss position, at December 31, 2005. The fair
value as presented on the balance sheet is net of all write
downs for other than temporary impairments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Losses at December 31, 2004 | |
|
|
| |
|
|
Less than | |
|
More than | |
|
|
|
|
12 months | |
|
12 months | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
Fair | |
|
Unrealized | |
|
Fair | |
|
Unrealized | |
|
Fair | |
|
Unrealized | |
|
|
value | |
|
Losses | |
|
value | |
|
Losses | |
|
value | |
|
Losses | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Fixed maturities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities issued or guaranteed by the French Government or
its agencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities issued or guaranteed by the U.S. government
or its agencies
|
|
|
864 |
|
|
|
(10 |
) |
|
|
347 |
|
|
|
(7 |
) |
|
|
1,211 |
|
|
|
(17 |
) |
Obligations of U.S. states and political subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities issued or guaranteed by the European Union
|
|
|
|
|
|
|
|
|
|
|
158 |
|
|
|
(3 |
) |
|
|
158 |
|
|
|
(3 |
) |
Debt securities issued or guaranteed by other national, state or
local governments or their agencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate debt securities
|
|
|
163 |
|
|
|
(3 |
) |
|
|
119 |
|
|
|
(1 |
) |
|
|
282 |
|
|
|
(4 |
) |
Mortgage-backed securities
|
|
|
97 |
|
|
|
(1 |
) |
|
|
87 |
|
|
|
(3 |
) |
|
|
184 |
|
|
|
(4 |
) |
Other debt securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities available for sale
|
|
|
1,124 |
|
|
|
(14 |
) |
|
|
711 |
|
|
|
(14 |
) |
|
|
1,835 |
|
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized Losses at December 31, 2005 | |
|
|
| |
|
|
Less than | |
|
More than | |
|
|
|
|
12 months | |
|
12 months | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
Fair | |
|
Unrealized | |
|
Fair | |
|
Unrealized | |
|
Fair | |
|
Unrealized | |
|
|
value | |
|
Losses | |
|
value | |
|
Losses | |
|
value | |
|
Losses | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Fixed maturities available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities issued or guaranteed by the French Government or
its agencies
|
|
|
51 |
|
|
|
(2 |
) |
|
|
63 |
|
|
|
0 |
|
|
|
114 |
|
|
|
(2 |
) |
Debt securities issued or guaranteed by the U.S. government
or its agencies
|
|
|
639 |
|
|
|
(19 |
) |
|
|
542 |
|
|
|
(16 |
) |
|
|
1,181 |
|
|
|
(35 |
) |
Obligations of U.S. states and political Subdivisions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities issued or guaranteed by the European Union
|
|
|
85 |
|
|
|
(1 |
) |
|
|
148 |
|
|
|
(1 |
) |
|
|
233 |
|
|
|
(2 |
) |
Debt securities issued or guaranteed by other national, state or
local governments or their agencies
|
|
|
34 |
|
|
|
0 |
|
|
|
4 |
|
|
|
0 |
|
|
|
38 |
|
|
|
0 |
|
Corporate debt securities
|
|
|
664 |
|
|
|
(10 |
) |
|
|
48 |
|
|
|
(1 |
) |
|
|
712 |
|
|
|
(11 |
) |
Mortgage-backed securities
|
|
|
425 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
425 |
|
|
|
(8 |
) |
Other debt securities
|
|
|
61 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
61 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities available for sale
|
|
|
1,958 |
|
|
|
(47 |
) |
|
|
805 |
|
|
|
(18 |
) |
|
|
2,763 |
|
|
|
(65 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Obligations. The unrealized losses on
the Groups investments in U.S. Treasury obligations
and direct obligations of U.S. government agencies were
caused by interest rate increases. The contractual terms of
these investments do not permit the issuer to settle the
securities at a price less than the amortized cost of the
investment. Because the Group has the ability and intent to hold
these investments until a recovery of fair value, which may be
maturity, the Group does not consider these investments to be
other-than-temporarily
impaired at December 31, 2005.
Debt Securities Issued or Guaranteed by the European Union
The unrealized losses on the Groups investments in Debt
Securities Issued or Guaranteed by the European Union were
caused by interest rate increases. Because the Group has the
ability and intent to hold these investments until a recovery of
fair value, the Group does not consider these investments to be
other-than-temporarily
impaired at December 31, 2005.
Mortgage-Backed Securities. The unrealized losses on the
Groups investment in federal agency mortgage-backed
securities were caused by interest rate increases. The Group
purchased these investments at a discount relative to their face
amount, and the contractual cash flows of these investments are
guaranteed by an agency of the U.S. government.
Accordingly, it is expected that the securities would not be
settled at price less than the amortized cost of the
Groups investment. Because the decline in market value is
attributable to changes in interest rates and not credit quality
and because the Group has the ability and intent to hold these
investments until a recovery of fair value, which may be
maturity, the Group does not consider these investments to be
other-than-temporarily
impaired at December 31, 2005.
Corporate Debt Securities. The unrealized losses on the
Groups investment in corporate debt securities were caused
by interest rate increases and declines in credit quality on
certain securities. Although certain securities experienced
declines in credit quality, the securities are still investment
grade and therefore the Group believes it is probable that they
will collect all amounts due according to the contractual terms
of the investment. Because the Group has the ability and intent
to hold these securities until a recovery of fair value and
because the credit
F-23
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
quality has not deteriorated significantly, the Group does not
consider the investment in Corporate Debt Securities to be
other-than-temporarily
impaired at December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Equity securities, available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized gains
|
|
|
11 |
|
|
|
45 |
|
|
|
33 |
|
|
Gross unrealized losses
|
|
|
|
|
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains
|
|
|
11 |
|
|
|
45 |
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities, available for sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized gains
|
|
|
101 |
|
|
|
93 |
|
|
|
71 |
|
|
Gross unrealized losses
|
|
|
(31 |
) |
|
|
(28 |
) |
|
|
(65 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains
|
|
|
70 |
|
|
|
65 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net unrealized gains (losses)
|
|
|
81 |
|
|
|
110 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
|
Policyholder-related
amounts(1)
|
|
|
(37 |
) |
|
|
(40 |
) |
|
|
(4 |
) |
|
Deferred tax liability
|
|
|
(2 |
) |
|
|
(14 |
) |
|
|
(5 |
) |
|
Minority interest
|
|
|
(4 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders net unrealized
appreciation(2)
|
|
|
38 |
|
|
|
56 |
|
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
amortization of deferred policy acquisition costs and PVFP due
to the revaluation to the fair value of available for sale
securities in application of SFAS 115
(shadow DAC). |
|
(2) |
The unrealized appreciation component of accumulated other
comprehensive income, as presented in Note 8, includes the
foreign currency movements on available for sale securities. |
In 2005, 2004 and 2003, the Group recognized
EUR 7 million, EUR 11 million and
EUR 5 million in other than temporary impairments,
respectively.
The following table sets forth the split of the Other Long Term
Investments as of December 31:
|
|
|
|
|
|
|
|
|
|
|
Year ended | |
|
|
December 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
|
(EUR, in millions) | |
Land
|
|
|
53 |
|
|
|
89 |
|
Buildings
|
|
|
264 |
|
|
|
226 |
|
Furniture and equipment
|
|
|
5 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
322 |
|
|
|
317 |
|
|
|
|
|
|
|
|
In 2005, depreciation expense relating to Other Long Term
investments amounted to EUR 13 million and accumulated
depreciation at December 31, 2005 was
EUR 75 million.
Note 5. Reinsurance
The Group utilizes a variety of retrocession agreements with
non-affiliated retrocessionaires to control its exposure to
large losses. Although ceded reinsurance permits recovery of all
or a portion of losses from the retrocessional reinsurer, it
does not discharge the Group as the primary reinsurer.
F-24
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Premiums written, premiums earned and loss and LAE incurred for
the years ended December 31, 2003, 2004 and 2005 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2003 | |
|
|
| |
|
|
Premiums | |
|
Premiums | |
|
Loss and LAE | |
|
|
written | |
|
earned | |
|
incurred | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Non Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed
|
|
|
2,723 |
|
|
|
3,099 |
|
|
|
(2,838 |
) |
|
Ceded
|
|
|
(252 |
) |
|
|
(292 |
) |
|
|
99 |
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed
|
|
|
583 |
|
|
|
583 |
|
|
|
(509 |
) |
|
Ceded
|
|
|
(66 |
) |
|
|
(66 |
) |
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
2,988 |
|
|
|
3,324 |
|
|
|
(3,160 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004 | |
|
|
| |
|
|
Premiums | |
|
Premiums | |
|
Loss and LAE | |
|
|
written | |
|
earned | |
|
incurred | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Non Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed
|
|
|
1,700 |
|
|
|
1,868 |
|
|
|
(1,241 |
) |
|
Ceded
|
|
|
(98 |
) |
|
|
(165 |
) |
|
|
65 |
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed
|
|
|
544 |
|
|
|
544 |
|
|
|
(454 |
) |
|
Ceded
|
|
|
(20 |
) |
|
|
(20 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
2,126 |
|
|
|
2,227 |
|
|
|
(1,627 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005 | |
|
|
| |
|
|
Premiums | |
|
Premiums | |
|
Loss and LAE | |
|
|
written | |
|
earned | |
|
incurred | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Non Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed
|
|
|
1,710 |
|
|
|
1,691 |
|
|
|
(1,255 |
) |
|
Ceded
|
|
|
(109 |
) |
|
|
(125 |
) |
|
|
87 |
|
Life
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assumed
|
|
|
548 |
|
|
|
548 |
|
|
|
(445 |
) |
|
Ceded
|
|
|
(28 |
) |
|
|
(28 |
) |
|
|
31 |
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
2,121 |
|
|
|
2,086 |
|
|
|
1,582 |
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2003, 2004 and 2005, the
percentage of net premiums written to gross premiums written was
90%, 95% and 94%, respectively.
Retrocessionaires of the Group are subject to initial review of
financial condition before final acceptability is confirmed and
to subsequent reviews on an annual basis. The Group, like most
reinsurance companies, enters into retrocession arrangements for
many of the same reasons primary insurers seek reinsurance,
including increasing their premium writing and risk capacity
without requiring additional capital and reducing the effect of
individual or aggregate losses. Historically, the Group has
retroceded risks to retrocessionaires on both a proportional and
excess of loss basis. Under its 2005 retrocessional program, the
Groups retention is EUR 80 million per catastrophic
event (first limit). For the classes of motor liability,
credit and bond, decennial, specific retrocession
F-25
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
programs have been established. In 2005, the Group retention was
EUR 25 million per risk for facultative Property and EUR
25 million per risk for facultative Casualty.
Paid losses, outstanding losses and IBNR recoverable from
retrocessionaires, which are determined to be uncollectible, are
charged to operations. No material amount was charged to
operations for the years ended December 2005, 2004 and 2003.
The Group withholds funds from retrocessionaires in accordance
with retrocessional agreements. Under the terms of the
agreements, the Group pays interest on the principal amounts of
deposits withheld. Related interest expense was
EUR 32 million, EUR 26 million and
EUR 32 million in 2005, 2004 and 2003.
Certain reinsurance contracts do not, despite their form,
provide for the indemnification of the ceding company by SCOR
against loss or liability. Such contracts primarily consist of
non-proportional excess-of-loss treaties covering catastrophic
events, which include profit and loss sharing clauses upon
termination or cancellation. In these cases, the premium
received has been accounted for as a deposit in accordance with
Statement of Position 98-7 Deposit Accounting:
Accounting for Insurance and Reinsurance Contracts That Do Not
Transfer Insurance Risk rather than as premium revenue in
accordance with FAS 113 Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts.
There were no amounts recorded as deposits and classified as
other assets, under such contracts as of December 31, 2005
and 2004.
As of December 31, 2005 and based on the Groups ceded
premiums, there were two Non Life retrocessionaires whose share
exceeded 20% of the total retrocession.
In connection with an acquisition made by the Group in 2001, the
seller agreed to cover its liabilities in respect of run-off of
technical reserves for the 2000 and previous reinsurance years
through reinsurance agreements. The aforementioned agreement was
settled in the form of a retrocession contract coupled with a
general guarantee. At December 31, 2005 and 2004, the
consolidated balance sheets included EUR 250 million
and EUR 234 million, respectively related to the
guaranty provided.
Note 6. Deferred Acquisition Cost and Present Value
of Future Profits
The increase in life reinsurance deferred acquisition costs was
EUR 36 million, EUR 32 million and
EUR 77 million, for the years ended December 31,
2005, 2004, and 2003, respectively.
The increase (decrease) in non-life reinsurance deferred
acquisition costs was EUR (5) million,
EUR 3 million and EUR (48) million for the
years ended December 31, 2005, 2004 and 2003, respectively.
The movement in the PVFP for the years 2005, 2004 and 2003 is as
follows:
In 2005, the present value of future profits decreased from
EUR 37 million at December 31, 2004 to
EUR 25 million at December 31, 2005, from the net
effect of the following: interest of EUR 1 million, a
favorable exchange rate fluctuation in the amount of
EUR 6 million, and a EUR 19 million
amortization of PVFP.
The present value of future profits decreased from
EUR 80 million at December 31, 2003 to
EUR 37 million at the end of December 2004, from the
net effect of the following: interest of
EUR 2 million, an unfavorable exchange rate
fluctuation in the amount of EUR 5 million,
EUR 8 million amortization of PVFP, and a decrease of
EUR 32 million resulting from the adoption of
SOP 03-1 by SCOR Life Re on January 1, 2004.
In 2003, the present value of future profits decreased from
EUR 111 million at December 31, 2002 to
EUR 80 million at the end of December 2003, from the
net effect of the following: interest of
EUR 4 million, an
F-26
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
unfavorable exchange rate fluctuation in the amount of
EUR 19 million, and a EUR 16 million
amortization of PVFP.
Note 7. Fixed Assets
Fixed assets include primarily the Group headquarters. This
building had a net book value of EUR 76 million and
EUR 71 million at December 31, 2004 and
December 31, 2005, respectively.
In late December 2003 the Group concluded an agreement to sell
its corporate headquarters to an institutional investor for
approximately EUR 150 million. The Company entered
into a long-term lease agreement with the purchaser and is now a
tenant of the building at La Defense. The Company is
allowed to sublet certain parts of the premises.
Because SCOR has a continuing involvement in the property, the
sale leaseback transaction was not treated as a sale in 2003. No
gain has been recognized on the sale in 2003, 2004 or 2005 and
the headquarters remain in the Groups fixed assets. The
sales proceeds have been considered as financing proceeds and
are included as part of the Groups debt. Under the
financing method, lease payments (EUR 10.3 million per
year over 9 years) will be recorded as interest and
principal payments and will reduce the debt over the lease. The
building will continue to be depreciated. Once the conditions of
continuing involvement are lifted, the gain on the sale will be
recognized over the remaining lease term.
Note 8. Comprehensive Income
Related tax effects allocated to each component of other
comprehensive income (loss) for the years ended
December 31, 2003, 2004 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2003 | |
|
|
| |
|
|
Before-Tax | |
|
Tax (Expense) | |
|
Net-of-Tax | |
|
|
Amount | |
|
or Benefit | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Foreign currency translation adjustment
|
|
|
(122 |
) |
|
|
(5 |
) |
|
|
(127 |
) |
Minimum pension liability adjustment
|
|
|
1 |
|
|
|
|
|
|
|
1 |
|
Unrealized appreciation (depreciation) on investments during
period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
|
(50 |
) |
|
|
5 |
|
|
|
(45 |
) |
|
Equity securities
|
|
|
9 |
|
|
|
(4 |
) |
|
|
5 |
|
|
Less: reclassification adjustment for depreciation
(appreciation) included in net loss
|
|
|
(63 |
) |
|
|
22 |
|
|
|
(41 |
) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
(225 |
) |
|
|
18 |
|
|
|
(207 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004 | |
|
|
| |
|
|
Before-Tax | |
|
Tax (Expense) | |
|
Net-of-Tax | |
|
|
Amount | |
|
or Benefit | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Foreign currency translation adjustment
|
|
|
(123 |
) |
|
|
22 |
|
|
|
(101 |
) |
Minimum pension liability adjustment
|
|
|
(1 |
) |
|
|
|
|
|
|
(1 |
) |
Unrealized appreciation (depreciation) on investments during
period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
|
16 |
|
|
|
(2 |
) |
|
|
14 |
|
|
Equity securities
|
|
|
3 |
|
|
|
0 |
|
|
|
3 |
|
|
Less: reclassification adjustment for depreciation
(appreciation) included in net loss
|
|
|
(14 |
) |
|
|
5 |
|
|
|
(9 |
) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
(119 |
) |
|
|
25 |
|
|
|
(94 |
) |
|
|
|
|
|
|
|
|
|
|
F-27
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005 | |
|
|
| |
|
|
Before-Tax | |
|
Tax (Expense) | |
|
Net-of-Tax | |
|
|
Amount | |
|
or Benefit | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Foreign currency translation adjustment
|
|
|
107 |
|
|
|
|
|
|
|
107 |
|
Minimum pension liability adjustment
|
|
|
(6 |
) |
|
|
|
|
|
|
(6 |
) |
Unrealized appreciation (depreciation) on investments during
period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities
|
|
|
(34 |
) |
|
|
12 |
|
|
|
(22 |
) |
|
Equity securities
|
|
|
48 |
|
|
|
(25 |
) |
|
|
23 |
|
|
Less: reclassification adjustment for depreciation
(appreciation) included in net income
|
|
|
40 |
|
|
|
(15 |
) |
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive loss
|
|
|
155 |
|
|
|
(28 |
) |
|
|
127 |
|
|
|
|
|
|
|
|
|
|
|
Net of tax balances of each classification within accumulated
other comprehensive income (loss) as of December 31, 2003,
2004 and 2005 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized | |
|
|
|
|
|
|
|
|
|
|
Appreciation | |
|
|
|
|
|
|
Foreign | |
|
Unrealized | |
|
(Depreciation) | |
|
Minimum | |
|
Accumulated | |
|
|
Currency | |
|
Appreciation | |
|
Pertaining to | |
|
Pension | |
|
Other | |
|
|
Translation | |
|
(Depreciation) | |
|
Equity Method | |
|
Liability | |
|
Comprehensive | |
|
|
Adjustment | |
|
of Investments(1) | |
|
Investments | |
|
Adjustment | |
|
Income (Loss) | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Year ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of Period
|
|
|
30 |
|
|
|
124 |
|
|
|
|
|
|
|
(4 |
) |
|
|
150 |
|
|
Current-period change
|
|
|
(127 |
) |
|
|
(81 |
) |
|
|
|
|
|
|
1 |
|
|
|
(207 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
(97 |
) |
|
|
43 |
|
|
|
|
|
|
|
(3 |
) |
|
|
(57 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current-period change
|
|
|
(101 |
) |
|
|
8 |
|
|
|
|
|
|
|
(1 |
) |
|
|
(94 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
(198 |
) |
|
|
51 |
|
|
|
|
|
|
|
(4 |
) |
|
|
(151 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current-period change
|
|
|
107 |
|
|
|
26 |
|
|
|
|
|
|
|
(6 |
) |
|
|
127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
|
(91 |
) |
|
|
77 |
|
|
|
|
|
|
|
(10 |
) |
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-28
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
(1) |
Includes impact of changes in exchange rates which are not
apparent in the information provided in Note 4. |
Note 9. Debt
Short-term and long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
|
Book | |
|
Fair | |
|
Book | |
|
Fair | |
|
|
Value | |
|
Value | |
|
Value | |
|
Value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Bank, short-term loans, and debt due within one year
|
|
|
244 |
|
|
|
284 |
|
|
|
61 |
|
|
|
61 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total short-term debt
|
|
|
244 |
|
|
|
284 |
|
|
|
61 |
|
|
|
61 |
|
|
Notes payable fixed rate
|
|
|
34 |
|
|
|
34 |
|
|
|
34 |
|
|
|
34 |
|
Convertible subordinated debentures 4.125%
|
|
|
200 |
|
|
|
224 |
|
|
|
200 |
|
|
|
242 |
|
EUR 200 million debentures 7.75%
|
|
|
199 |
|
|
|
220 |
|
|
|
200 |
|
|
|
200 |
|
EUR 50 million perpetual subordinated debt
EURIBOR + 0.75%
|
|
|
50 |
|
|
|
50 |
|
|
|
50 |
|
|
|
50 |
|
USD 100 million 30-year subordinated debt LIBOR
+ 0.80%
|
|
|
74 |
|
|
|
74 |
|
|
|
85 |
|
|
|
85 |
|
EUR 100 million 20-year subordinated debt
EURIBOR + 1.15%
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
|
|
100 |
|
Horizon
|
|
|
94 |
|
|
|
94 |
|
|
|
83 |
|
|
|
83 |
|
Capital Lease
|
|
|
97 |
|
|
|
97 |
|
|
|
93 |
|
|
|
93 |
|
Lease Back SCOR Building Note 7
|
|
|
147 |
|
|
|
147 |
|
|
|
144 |
|
|
|
144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
961 |
|
|
|
1,006 |
|
|
|
955 |
|
|
|
997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,239 |
|
|
|
1,324 |
|
|
|
1,050 |
|
|
|
1,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt outstanding was denominated in the following currencies,
stated at year-end exchange rates:
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
|
(EUR, in millions) | |
Euro
|
|
|
1,111 |
|
|
|
881 |
|
U.S. Dollar
|
|
|
129 |
|
|
|
169 |
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,239 |
|
|
|
1,050 |
|
|
|
|
|
|
|
|
Debt, presented by interest rate and reflecting any effect of
interest rate swap agreements is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
|
(EUR, in millions) | |
Below 4%
|
|
|
227 |
|
|
|
54 |
|
4 to 5.5%
|
|
|
253 |
|
|
|
217 |
|
5.5 to
6.5%(1)
|
|
|
244 |
|
|
|
237 |
|
6.5 to 7.75%
|
|
|
208 |
|
|
|
208 |
|
Variable rates based on LIBOR or Euribor
|
|
|
307 |
|
|
|
334 |
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
1,239 |
|
|
|
1,050 |
|
|
|
|
|
|
|
|
|
|
(1) |
Including capital lease obligations of EUR 97 million and
EUR 93 million in 2004 and 2005, respectively as well
as debt relating to the SCOR building of
EUR 147 million and EUR 144 million in 2004
and 2005, respectively. |
F-29
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Related interest expense was EUR 48 million,
EUR 49 million and EUR 33 million in 2005,
2004, and 2003, respectively.
On March 23, 1999, June 7, 1999 and July 6, 2000,
the Company issued subordinated debts programs for
EUR 50 million, USD 100 million and EUR
100 million, respectively. All consist of step-up notes
under the following conditions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount |
|
Term |
|
Interest Rate |
|
Interest Payment | |
|
Redeemable |
|
|
|
|
|
|
| |
|
|
EUR 50 million
|
|
Perpetual |
|
From March, 1999 to March, 2014: EURIBOR for six-month
deposits + 0.75% |
|
March 2014 and Thereafter: EURIBOR for six-month deposits +
1.75% |
|
|
Semi-annual |
|
|
In whole and not in part, at the option of the Company on or
about March 24, 2009, or on any interest payment date
falling on or about each fifth anniversary thereafter |
USD 100 million
|
|
2029 |
|
From June, 1999 to June, 2009: LIBOR for three months deposits
in USD + 0.80% |
|
From June, 2009 to June, 2029: LIBOR for three months deposits
in USD + 1.80% |
|
|
Quarterly |
|
|
In whole or in part, at the option of the Company on or about
June 25, 2009, or on any interest payment date falling
thereafter |
EUR 100 million
|
|
2020 |
|
From July, 2000 to July, 2010: EURIBOR for three months
deposits + 1.15% |
|
From July, 2010 to July, 2020: EURIBOR for three months deposits
in USD + 2.15% |
|
|
Quarterly |
|
|
In whole but not in part, at the option of the Company on or
about July 6, 2010, or on any interest payment date falling
thereafter |
On June 19, 2002, SCOR issued unsubordinated debt for EUR
200 million. The notes are issued under the following
conditions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount |
|
Term |
|
Interest Rate |
|
Interest Payment | |
|
Redeemable |
|
|
|
|
|
|
| |
|
|
EUR 200 million
|
|
2007 |
|
From June, 2002 to June, 2007: Fix Rate 5.25%
and complementary 2.5% |
|
|
Annual |
|
|
The notes will be redeemed at their principal amount on
June 21, 2007 |
On July 2, 2004 the Company launched a EUR 200 million
issue of convertible bonds redeemable in new or existing shares
(OCEANEs). The OCEANEs bear interest at a rate of
4.125% per annum, payable annually on January 1 of each
year, and are redeemable in full at maturity on January 1,
2010 at EUR 2.00 per bond. Early redemption in whole or in
part is possible, at the sole option of the Company as follows:
|
|
|
|
(1) |
at any time by means of repurchases on the market or
over-the-counter or by public tender offer for all or a portion
of the bonds; |
|
|
(2) |
at any time from January 1, 2008 to December 31, 2009,
for all bonds outstanding, subject to a minimum notice period of
at least 30 calendar days as follows: |
|
|
|
|
|
by redemption at par, plus interest accrued from the last
interest payment date preceding the early redemption date until
the date set for redemption if the product of (i) the
applicable conversion/ exchange ratio and (ii) the average
opening price of the Companys shares on Euronext Paris
calculated over a period of 20 consecutive trading days
during which the shares are listed on such stock exchange, as
selected by the Company from among the 40 consecutive trading
days preceding the date of publication of a notice relating to
such early redemption, exceeds 130% of the principal amount of
the bonds; |
F-30
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
(3) |
at any time for all bonds outstanding, if less than 10% of the
bonds issued remain outstanding, by redemption at par, plus
interest accrued from the last interest payment date preceding
the early redemption date until the date set for redemption. |
Bondholders may request that each bond be converted into and/or
exchanged for one ordinary share of SCOR at any time from
July 2, 2004 until the seventh day preceding their
normal or early redemption date. The Company may, at its option,
deliver new shares and/or existing shares.
Repayments of debt as of December 31, 2005 were scheduled
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
Debt | |
|
Capital Lease | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
2006
|
|
|
31 |
|
|
|
5 |
|
|
|
36 |
|
2007
|
|
|
225 |
|
|
|
5 |
|
|
|
230 |
|
2008
|
|
|
|
|
|
|
5 |
|
|
|
5 |
|
2009
|
|
|
10 |
|
|
|
5 |
|
|
|
15 |
|
2010
|
|
|
200 |
|
|
|
6 |
|
|
|
206 |
|
Thereafter
|
|
|
347 |
|
|
|
67 |
|
|
|
414 |
|
|
|
|
|
|
|
|
|
|
|
Total
debt(1)
|
|
|
813 |
|
|
|
93 |
|
|
|
906 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Excluding EUR 144 million related to the sale of the SCOR
building. |
The Group paid interest of EUR 32 million,
EUR 26 million and EUR 25 million in 2005,
2004 and 2003, respectively.
At December 31, 2005, the Group had approximately
EUR 99 million available in unused short and
long-term credit lines.
Note 10. Income Tax
The provision for income tax is comprised of the following
components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Current tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
French
|
|
|
2 |
|
|
|
12 |
|
|
|
9 |
|
|
Foreign
|
|
|
32 |
|
|
|
31 |
|
|
|
27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34 |
|
|
|
43 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax expense (benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
French
|
|
|
147 |
|
|
|
(110 |
) |
|
|
(120 |
) |
|
Foreign
|
|
|
106 |
|
|
|
(6 |
) |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
253 |
|
|
|
(116 |
) |
|
|
(108 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
|
287 |
|
|
|
(73 |
) |
|
|
(72 |
) |
|
|
|
|
|
|
|
|
|
|
In 2005, EUR 25 million in taxes was paid by the Group.
F-31
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. Significant components of the Groups
deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
|
(EUR, in millions) | |
Deferred tax liability
|
|
|
|
|
|
|
|
|
|
Deferred policy acquisition costs
|
|
|
139 |
|
|
|
132 |
|
|
Unrealized appreciation and timing differences on Investments
|
|
|
8 |
|
|
|
14 |
|
|
Equalization reserves
|
|
|
25 |
|
|
|
26 |
|
|
Ceding commission acquisition Allstate
|
|
|
17 |
|
|
|
20 |
|
|
Financial instruments
|
|
|
|
|
|
|
|
|
|
Capitalisation reserve
|
|
|
42 |
|
|
|
44 |
|
|
Other temporary differences
|
|
|
5 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
Total deferred tax liability
|
|
|
236 |
|
|
|
241 |
|
|
|
|
|
|
|
|
Deferred tax asset
|
|
|
|
|
|
|
|
|
|
Unrealized depreciation and timing differences of Investments
|
|
|
|
|
|
|
|
|
|
Retirement plan
|
|
|
|
|
|
|
|
|
|
Loss carryforward
|
|
|
725 |
|
|
|
730 |
|
|
Loss reserves
|
|
|
50 |
|
|
|
42 |
|
|
Unearned premium
|
|
|
2 |
|
|
|
3 |
|
|
Cancellation of internal realized gains on sale of assets
|
|
|
9 |
|
|
|
10 |
|
|
Realized gain (loss) on real estate
|
|
|
26 |
|
|
|
26 |
|
|
Other temporary differences
|
|
|
26 |
|
|
|
56 |
|
|
|
|
|
|
|
|
|
Total deferred tax asset
|
|
|
838 |
|
|
|
867 |
|
|
Valuation allowance
|
|
|
(525 |
) |
|
|
(468 |
) |
|
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
|
|
77 |
|
|
|
158 |
|
|
|
|
|
|
|
|
In the table presented above, deferred tax assets and
liabilities are classified by nature, whereas they are presented
on the balance sheet by tax-entity (or group).
The Group has total deferred tax assets relating to net capital
losses and net operating losses available for carry forward of
EUR 730 million as of December 31, 2005 of which
EUR 239 million relates to US operations expiring from
2019 to 2025 (and have a full valuation allowance) and
EUR 491 million relate to the French operations, of
which EUR 333 relate to net operating losses and have no
expiration date.
The valuation allowance of EUR 468 million at
December 31, 2005 (EUR 525 million in 2004)
relates to deferred tax assets of the U.S. and French operations
totalling EUR 289 million (EUR 235 million
in 2004) and EUR 179 million
(EUR 290 million in 2004), respectively. The valuation
allowance of EUR 179 million relating to the French
operations is comprised of EUR 21 million
(EUR 131 million in 2004) and
EUR 158 million (same in 2004) for net operating
losses and net capital losses, respectively.
In 2005, the Company recorded a EUR 111
(EUR 133 million in 2004) reduction to the valuation
allowance on the French net operating losses mainly due to
improvements in the profitability in 2005 and actions taken by
management to sustain profitability in the future. The French
net operating losses have no expiration date. In assessing the
realizability of deferred tax assets, including the 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,
F-32
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
projected future taxable income, and tax planning strategies in
making this assessment. Based upon projections for future
taxable income including tax planning strategies over the
periods during which the deferred tax assets are deductible,
management believes it is more likely than not the Company will
realize the benefits of these deductible differences, net of the
existing valuation allowances at December 31, 2005 and 2004.
A reconciliation of income tax expense computed by applying the
French income tax rate of 34.43% in 2005, 35.43% in 2004 and
35.43% in 2003 to income (loss) before income taxes, minority
interests, income (loss) from investments accounted for by the
equity method and cumulative effect of change in accounting
principle, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Computed tax expense (benefit) at statutory rate
|
|
|
(71 |
) |
|
|
69 |
|
|
|
32 |
|
Net impact of the valuation allowance on deferred tax assets
|
|
|
353 |
|
|
|
(118 |
) |
|
|
(103 |
) |
Tax exempt revenues and expenses
|
|
|
(9 |
) |
|
|
(14 |
) |
|
|
4 |
|
Changes from statutory tax rate
|
|
|
4 |
|
|
|
(12 |
) |
|
|
(5 |
) |
Capitalization reserve
|
|
|
11 |
|
|
|
2 |
|
|
|
0 |
|
Others, net
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax (benefit) expense
|
|
|
287 |
|
|
|
(73 |
) |
|
|
(72 |
) |
|
|
|
|
|
|
|
|
|
|
Note 11. Employee Benefits
Pension plans and other long-term employee benefits
In accordance with the laws and practices of each country in
which it operates, the Group participates in employee benefit
plans providing retirement pensions.
In the United States, SCOR U.S. sponsors a qualified
defined benefit pension plan covering substantially all
employees of this company and its subsidiaries. Benefits under
this plan are based on an employees years of service and
compensation. The plan is funded and the companys funding
policy is to contribute annual amounts at least equal to the
minimum funding requirements of the Employee Retirement Income
Security Act (ERISA). SCOR U.S. also sponsors a
supplemental retirement plan, an unfunded nonqualified plan
established in 1989, which covers a select group of management
employees. General Security National Insurance Company (GSNIC),
a US subsidiary of SCOR, sponsors a qualified defined benefit
pension plan. This plan is funded and closed to new entrants. As
of December 31, 2004 and December 31, 2005 the plan
did not have any active participants.
In France, the Company provides indemnities which are payable
upon retirement of the employees and are due only if the
employee is on the Company payroll when he or she retires. Such
indemnities are based on accrued service and final salary. The
Company also provides additional leave at the end of the career
of the employees who retire between age 60 and age 62. In
1997, the Company established a defined benefit retirement plan
for a select group of management employees. The plan is
noncontributory and provides pension benefits to eligible
employees who are on the Company payroll when they retire. This
plan is partially funded with an insurance company.
In Germany, the Company sponsors a defined benefit pension plan
for Senior Executives. This plan has been funded since 2004.
In Italy, according to local regulations, the Company accrues
indemnities for all employees (Trattemento di Fine Rapporto)
until they leave the company (retirement, lay-off or termination
of contract). This indemnity is increased each year based on
each employees service and an inflation factor.
In Spain and Korea, the Companies provide retirement indemnities.
F-33
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Group uses a December 31 measurement date for all of
its plans.
The following table sets forth the plan benefit obligation, fair
value of plan assets, and funded status for all plans on an
aggregate basis at December 31, 2003, 2004 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Change in Projected Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected Benefit Obligation at Beginning of Year
|
|
|
60 |
|
|
|
62 |
|
|
|
50 |
|
Service Cost
|
|
|
4 |
|
|
|
4 |
|
|
|
2 |
|
Interest Cost
|
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
Actuarial (Gain) Loss
|
|
|
3 |
|
|
|
(10 |
) |
|
|
11 |
|
Benefit Payments
|
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
Settlement
|
|
|
|
|
|
|
(4 |
) |
|
|
(5 |
) |
Currency Changes
|
|
|
(5 |
) |
|
|
(3 |
) |
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
Projected Benefit Obligation at End of Year
|
|
|
62 |
|
|
|
50 |
|
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
Change in Fair Value of Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Assets at Beginning of Year
|
|
|
17 |
|
|
|
20 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
Actual Return on Plan Assets
|
|
|
2 |
|
|
|
1 |
|
|
|
1 |
|
Benefit Payments
|
|
|
(3 |
) |
|
|
(2 |
) |
|
|
(1 |
) |
Employer Contributions
|
|
|
6 |
|
|
|
4 |
|
|
|
4 |
|
Currency Changes
|
|
|
(2 |
) |
|
|
(1 |
) |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Plan Assets at End of Year
|
|
|
20 |
|
|
|
22 |
|
|
|
29 |
|
|
|
|
|
|
|
|
|
|
|
Projected Benefit Obligation in Excess of Fair Value of Plan
Assets
|
|
|
(42 |
) |
|
|
(28 |
) |
|
|
(36 |
) |
Unrecognized Net Actuarial Loss (Gain)
|
|
|
8 |
|
|
|
(3 |
) |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
Net Accrued Benefit Cost at End of Year
|
|
|
(34 |
) |
|
|
(31 |
) |
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
The projected benefit obligation decreased at December 31,
2004 due to changes in actuarial assumptions on French defined
benefit plans. SCOR implemented changes in turnover and rate of
compensation increase assumptions in order to reflect experience
and strategy adjustments.
Amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Accrued Benefit Liability
|
|
|
(38 |
) |
|
|
(36 |
) |
|
|
(36 |
) |
Accumulated Other Comprehensive Income (before tax)
|
|
|
4 |
|
|
|
5 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
Net Amount Recognized
|
|
|
(34 |
) |
|
|
(31 |
) |
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation for all defined benefit
pension plans was EUR 60 million,
EUR 45 million, and EUR 52 million at
December 31, 2005, 2004, and 2003, respectively.
For all defined benefit pension plans, the accumulated benefit
obligation was in excess of plan assets at December 31,
2005, 2004, and 2003.
F-34
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Amounts recognized in the income statement are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Service Cost
|
|
|
4 |
|
|
|
4 |
|
|
|
2 |
|
Interest Cost
|
|
|
3 |
|
|
|
3 |
|
|
|
3 |
|
Expected Return on Plan Assets
|
|
|
(1 |
) |
|
|
(1 |
) |
|
|
(2 |
) |
Amortization of unrecognized elements
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
Impact of curtailment/ settlement
|
|
|
|
|
|
|
(4 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
6 |
|
|
|
2 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Additional information
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in minimum liability before tax included in
other comprehensive income excluding tax
|
|
|
(1 |
) |
|
|
1 |
|
|
|
5 |
|
Principal actuarial assumptions were as follows:
Weighted-average assumptions used to determine benefit
obligations at December 31
|
|
|
|
|
|
|
|
|
2003 |
|
2004 |
|
2005 |
|
|
|
|
|
|
|
Discount rate
|
|
5.4% |
|
5.2% |
|
4.8% |
|
|
Graded |
|
Graded |
|
Graded |
Rate of compensation increase
|
|
from 7.5% |
|
from 7.5% |
|
from 7.5% |
|
|
to 3.5% |
|
to 2.0% |
|
to 2.0% |
Weighted-average assumptions used to determine net periodic
benefit cost for years ended December 31
|
|
|
|
|
|
|
|
|
2003 |
|
2004 |
|
2005 |
|
|
|
|
|
|
|
Discount rate
|
|
5.8% |
|
5.4% |
|
5.2% |
Expected long-term return on plan assets
|
|
8.0% |
|
7.6% |
|
7.1% |
|
|
Graded |
|
Graded |
|
Graded |
Rate of compensation increase
|
|
from 7.5% |
|
from 7.5% |
|
from 7.5% |
|
|
to 3.5% |
|
to 3.5% |
|
to 2.0% |
The expected rate of return for the pension and post-retirement
plans represents the average rate of return expected to be
earned on plan assets over the period the benefits included in
the benefit obligation are paid. In developing the expected rate
of return, the Group considers long-term compound annualized
returns of historical market data for each asset category as
well as historical actual returns on the Groups plan
assets. Using this reference information, the Group develops
forward-looking return expectations for each asset category and
a weighted average expected long-term rate of return for the
plan based on the target asset allocation contained in the
plans Investment Policy Statement. The Group has developed
guidelines for asset allocations in its pension and
postretirement plans, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER | |
|
|
SCOR U.S. | |
|
COUNTRIES | |
|
|
| |
|
| |
Asset Category
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
60% |
|
|
|
|
|
Debt securities
|
|
|
40% |
|
|
|
100% |
|
|
|
|
|
|
|
|
Total
|
|
|
100% |
|
|
|
100% |
|
F-35
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For SCOR U.S. the asset allocation should be no more than
60% invested in equities with the balance of portfolio in bonds.
Bond holding should average to approximately AA and with no
maturity exceeding 10 years. The assets are reallocated, as
needed, to meet the above target allocations. The investment
policy is reviewed periodically, under the advisement of the
Pension Committee, to determine if the policy should be changed.
In other countries, the assets are 100% invested in debt
securities through insurance contracts.
The Groups pension plan weighted-average asset allocation
at December 31, 2004, and 2005, by asset category was as
follows:
|
|
|
|
|
|
|
|
|
|
|
Plan Assets at | |
|
|
December 31 | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
|
| |
|
| |
Asset Category
|
|
|
|
|
|
|
|
|
Equity securities
|
|
|
38 |
% |
|
|
46 |
% |
Debt securities
|
|
|
52 |
% |
|
|
53 |
% |
Other
|
|
|
10 |
% |
|
|
1 |
% |
Total
|
|
|
100 |
% |
|
|
100 |
% |
SCOR expects to contribute EUR 5 million to its pension
plans in 2006.
Benefit payments, which reflect expected future service, are
expected to be paid as follows during the next fiscal years:
|
|
|
|
|
|
|
2005 | |
|
|
| |
|
|
(EUR, in millions) | |
2006
|
|
|
5 |
|
2007
|
|
|
2 |
|
2008
|
|
|
2 |
|
2009
|
|
|
2 |
|
2010
|
|
|
2 |
|
Years 2011-2015
|
|
|
14 |
|
Other long-term employee benefits
In France, the Group pays gratifications to employees at
anniversaries of employment including service rendered by the
employee to prior employers in the same industry. The liability
recognized in the balance sheet in respect of long service
awards is the present value of the projected benefit obligation
at the balance sheet date. The liability was
EUR 4 million at December 31, 2005, and
EUR 5 million at December 31, 2004.
Savings plans
Substantially all employees of the French companies of the Group
are eligible to participate in the corporate and statutory
profit-sharing plans. Under these plans, amounts paid to
employees based on the Groups net profit may be
contributed to the Companys savings plan by the employees.
The Company partially matches the contributions to the savings
plan, for a total of EUR 0.8 million in 2005,
EUR 0.4 million in 2004 and EUR 0.2 million
in 2003.
Funds placed in the Companys savings plan are invested in
highly liquid short-term investments, debt or equity securities
or in shares of SCOR, at the option of the employee. The
Companys savings plan is managed by a financial
institution.
F-36
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Assets held by the company savings plan were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31 | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Assets held in short-term investments and fixed maturities
|
|
|
9 |
|
|
|
8 |
|
|
|
8 |
|
Assets held in French stocks
|
|
|
3 |
|
|
|
2 |
|
|
|
3 |
|
Assets held in Ordinary Shares of SCOR
|
|
|
1 |
|
|
|
2 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
13 |
|
|
|
12 |
|
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
Substantially all employees of the U.S. subsidiaries of the
Group may participate in a defined contribution plan commonly
named 401(k) in the United States. Under this
plan, the employer matches dollar for dollar the contribution of
the employee up to a certain percentage of eligible
compensation. Employer contributions under the plan were
EUR 0.4 million in 2005, and 2004 and
EUR 0.5 million in 2003.
Note 12. Share Capital and Earnings per Share
SCOR launched a capital increase on December 9, 2003 for an
amount of EUR 751 million, corresponding to the
issuance of 683 million of new shares. This operation,
which was successful, was finalized on January 7, 2004 and
was recorded in the 2004 accounts. The proceeds of this
offering, net of charges, amounted to EUR 708 million.
On June 30, 2005, SCOR issued 149,500,000 shares for an
amount of EUR 233 million. This share capital increase
enabled the Group to refinance the acquisition of the minority
interests of IRP Holdings Limited. The proceeds, net of charges,
amounted to EUR 224 million.
At December 31, 2005, the number of outstanding shares
equaled 968,769,070 of which 9,110,915 was held by SCOR as
treasury stock.
At December 31, 2004, the number of outstanding shares
equaled 819,269,070 of which 9,298,085 were held by SCOR as
treasury stock.
At December 31, 2003, the number of outstanding shares
equaled 136,544,845 of which 489,500 were held by SCOR as
treasury stock.
In accordance with French laws, dividends must be declared in
euro and may only be declared on the parent companys net
income for the year and on the parent companys retained
earnings available for distribution calculated in accordance
with French accounting principles. As of December 31, 2005,
approximately EUR 165 million is available for
distribution.
F-37
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is the reconciliation of the numerator and
denominator of the basic earnings per share computation to the
numerator and denominator of the diluted earnings per share
computation for the years ended December 31, 2003, 2004 and
2005, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2003 | |
|
|
| |
|
|
Income | |
|
Shares(1) | |
|
Per-Share | |
|
|
(Numerator) | |
|
(Denominator) | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
|
(Thousands) | |
|
(EUR) | |
Net Loss
|
|
|
(512 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss available to Ordinary Shareholders
|
|
|
(512 |
) |
|
|
136,300 |
|
|
|
(3.76 |
) |
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible bonds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss available to Ordinary Shareholders + assumed conversions
|
|
|
(512 |
) |
|
|
136,300 |
|
|
|
(3.76 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Weighted average number of shares outstanding excluding treasury
stock. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004 | |
|
|
| |
|
|
Income | |
|
Shares(1) | |
|
Per-Share | |
|
|
(Numerator) | |
|
(Denominator) | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
|
(Thousands) | |
|
(EUR) | |
Net Income
|
|
|
247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to Ordinary Shareholders
|
|
|
247 |
|
|
|
803,152 |
|
|
|
0.31 |
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
300 |
|
|
|
|
|
|
Convertible bonds
|
|
|
6 |
|
|
|
53,737 |
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to Ordinary Shareholders + assumed conversions
|
|
|
253 |
|
|
|
857,189 |
|
|
|
0.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Weighted average number of shares outstanding excluding treasury
stock. |
F-38
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005 | |
|
|
| |
|
|
Income | |
|
Shares(1) | |
|
Per-Share | |
|
|
(Numerator) | |
|
(Denominator) | |
|
Amount | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
|
(Thousands) | |
|
(EUR) | |
Net Income
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to Ordinary Shareholders
|
|
|
165 |
|
|
|
887,626 |
|
|
|
0.18 |
|
Effect of dilutive securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
|
|
|
|
1,699 |
|
|
|
|
|
|
Convertible bonds
|
|
|
5 |
|
|
|
100,000 |
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income available to Ordinary Shareholders + assumed conversions
|
|
|
170 |
|
|
|
989,325 |
|
|
|
0.17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Weighted average number of shares outstanding excluding treasury
stock. |
Note 13. Stock Option and Stock Award Plans
SCOR issues to its employees options to purchase Ordinary Shares
of the Company under a number of plans. Generally, the exercise
price of options granted reflects the market value of
SCORs share at the grant date, resulting in no material
compensation expense being recorded in years ended
December 31, 2003, 2004 or 2005.
Under the terms of the plans adopted until 1996, options vest at
the rate of 30% at the end of each of the first and the second
year and 40% at the end of the third year of continued
employment. Effective 1997, plans provide for cliff vesting on
the fifth or the fourth anniversary of the grant date. At
December 31, 2005, 8,167,100 options were exercisable.
The following table summarizes the changes in options on
Ordinary Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
Outstanding at beginning of year
|
|
|
4,915,746 |
|
|
|
12,342,962 |
(1) |
|
|
17,055,698 |
|
|
Options granted
|
|
|
4,099,754 |
|
|
|
5,990,000 |
|
|
|
7,260,000 |
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options expired
|
|
|
|
|
|
|
(113,809 |
) |
|
|
(192,782 |
) |
|
|
|
|
|
|
|
|
|
|
|
Options forfeited
|
|
|
(539,588 |
) |
|
|
(1,163,455 |
) |
|
|
(3,410,816 |
) |
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
8,475,912 |
|
|
|
17,055,698 |
|
|
|
20,712,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Following the capital increase on January 7, 2004, the
Company adjusted the number of shares eligible to subscription
to 12,342,962. |
Following the capital increase on January 7, 2004, the
Company has adjusted the price of the shares covered by options
granted and the number of shares under option, pursuant to
Section L208-5 of the French July 24, 1966 Act and
Article D174-8 of the March 23, 1967 Decree.
F-39
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The price of shares under option, as set prior to this
operation, 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 |
|
|
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 unit.
The table below summarizes the status of option plans before and
after the 2004 capital increase.
There are no stock option plans providing for the purchase of or
subscription to shares in Group subsidiaries.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Before issuance of ordinary shares | |
|
After issuance of ordinary shares | |
|
|
public issue | |
|
public issue | |
|
|
| |
|
| |
|
|
|
|
Options | |
|
|
|
Options | |
|
|
|
|
outstanding at | |
|
|
|
outstanding at | |
PLAN | |
|
Exercise price | |
|
the end of 2004 | |
|
Exercise price | |
|
the end of 2004 | |
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in EUR) | |
|
|
|
(in EUR) | |
|
|
|
1995 |
|
|
|
9.59 |
|
|
|
152,795 |
|
|
|
6.59 |
|
|
|
222,498 |
|
|
1996 |
|
|
|
17.04 |
|
|
|
510,525 |
|
|
|
11.70 |
|
|
|
743,406 |
|
|
1997 |
|
|
|
21.88 |
|
|
|
619,847 |
|
|
|
15.03 |
|
|
|
902,587 |
|
|
1998 |
|
|
|
33.08 |
|
|
|
672,567 |
|
|
|
22.72 |
|
|
|
979,358 |
|
|
1999 |
|
|
|
27.05 |
|
|
|
653,015 |
|
|
|
18.58 |
|
|
|
950,886 |
|
|
2000 |
|
|
|
28.23 |
|
|
|
142,956 |
|
|
|
19.39 |
|
|
|
208,164 |
|
|
2000 |
|
|
|
26.46 |
|
|
|
568,845 |
|
|
|
18.17 |
|
|
|
828,330 |
|
|
2001 |
|
|
|
28.23 |
|
|
|
845,181 |
|
|
|
19.39 |
|
|
|
1,230,713 |
|
|
2001 |
|
|
|
19.99 |
|
|
|
347,138 |
|
|
|
13.73 |
|
|
|
505,946 |
|
|
2003 |
|
|
|
4.16 |
|
|
|
956,000 |
|
|
|
2.86 |
|
|
|
1,392,042 |
|
|
2003 |
|
|
|
5.74 |
|
|
|
2,928,887 |
|
|
|
3.94 |
|
|
|
4,265,223 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,475,912 |
|
|
|
|
|
|
|
12,342,962 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
SCORs Board of Directors approved on September 16,
2005, a new subscription plan for certain senior and middle
managers, proposing a total of 7,260,000 options. The stock
subscription price amounts to EUR 1.66 per share.
F-40
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stocks options issued to employees under the various stock
option plans and still outstanding at December 31, 2005 are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding | |
|
Options exercisable | |
|
|
| |
|
| |
|
|
|
|
Weighted- | |
|
|
|
|
|
|
|
|
average | |
|
Weighted- | |
|
|
|
Weighted- | |
|
|
Number | |
|
remaining | |
|
average | |
|
Number | |
|
average | |
Range of Exercise Prices | |
|
Outstanding | |
|
contractual life | |
|
exercise price | |
|
exercisable | |
|
exercise price | |
| |
|
| |
|
| |
|
| |
|
| |
|
| |
(EUR) | |
|
|
|
|
|
(EUR) | |
|
|
|
(EUR) | |
|
1.14-3.94 |
|
|
|
15,344,490 |
|
|
|
8.91 years |
|
|
|
1.81 |
|
|
|
2,799,490 |
|
|
|
3.49 |
|
|
11.70-15.03 |
|
|
|
1,852,878 |
|
|
|
2.17 years |
|
|
|
13.57 |
|
|
|
1,852,878 |
|
|
|
13.57 |
|
|
18.17-22.72 |
|
|
|
3,514,732 |
|
|
|
4.72 years |
|
|
|
19.78 |
|
|
|
3,514,732 |
|
|
|
19,78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.14-22.72 |
|
|
|
20,712,100 |
|
|
|
7.51 years |
|
|
|
5.91 |
|
|
|
8,167,100 |
|
|
|
12.79 |
|
As of December 31, 2005, unexercised share subscription
options, if exercised, would lead to the creation of
16,812,193 shares, representing approximately 2.20% of the
capital. The maximum term of options granted during 2005 was
10 years.
STOCK AWARD PLANS
The Group granted shares at no cost to their employees during
the years 2005 and 2004 (the plan did not exist in 2003, so no
comparative information is available). The only requirement to
receive shares is for the employee to remain on the Company
payroll when the awards become vested.
The following table sets forth information relating to the stock
award plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares | |
|
Fair value of shares | |
Grant date |
|
Vesting date | |
|
initially granted | |
|
at the grant date | |
|
|
| |
|
| |
|
| |
September 22, 2004
|
|
|
January 10, 2005 |
|
|
|
1,962,555 |
|
|
|
EUR 1.2 |
|
December 7, 2004
|
|
|
January 10, 2005 |
|
|
|
2,434,453 |
|
|
|
EUR 1.41 |
|
December 7, 2004
|
|
|
November 10, 2005 |
|
|
|
2,418,404 |
|
|
|
EUR 1.41 |
|
November 7, 2005
|
|
|
August 15, 2007 |
|
|
|
8,471,998 |
|
|
|
EUR 1.58 |
|
The 2005 French finance law instituted an new incentive tax and
social regime for bonus share allotments, the purpose of which
is to encourage employee savings. As such, French beneficiaries
had the possibility of waiving the transfer of November 10,
2005 in consideration for a 2005 reallotment plan approved by
the Board of Directors on August 31, 2005 for this purpose.
As a result, 33 beneficiaries waived the transfer of their
shares in November 2005, representing 833,570 shares. In
consideration, they benefited from a reallotment, increased by
40%, representing a total of 1,166,998 shares. In addition,
a new stock bonus allotment plan intended for corporate officers
and certain executives of Group companies was approved for
7,305,000 shares.
Under the intrinsic value method, compensation cost is measured
as the difference between the fair market value of the shares
over the price, if any, at grant date. As the shares are granted
to employees at no charge, the compensation cost is based on the
total shares granted, multiplied by the fair market value of the
shares at grant date. The forfeitures are not taken into account
but are adjusted for the period of vesting. The compensation
expense is charged over the period the employees are required to
work to qualify for the award. The 2005 and 2004 compensation
expense amounted to EUR 4 million and
EUR 5 million, respectively, before tax. The same
compensation cost would have been recognized if the Group had
adopted the fair value approach of FAS 123.
Note 14. Financial Instruments
The following methods and assumptions were used by the Company
in estimating its fair value disclosure for financial
instruments. These determinations were based on available market
information and appropriate
F-41
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
valuation methodologies. Considerable judgment is required to
interpret market data to develop the estimates and therefore,
they may not necessarily be indicative of the amount the Company
could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
14.1. Fixed maturities, equity securities and trading
investments
Fair values are based on quoted market prices or dealer quotes.
If quoted market prices are not available, fair value is
estimated using quoted market prices for securities with similar
characteristics
14.2. Cash and cash equivalents
The purchase cost is a reasonable estimate of fair value.
14.3 Long-term debt
The fair value of long term and short term debt is based on the
discounted amount of future cash flows using the Groups
current estimated borrowing rate for a similar liability. To the
extent that borrowings carry a variable rate of interest, the
book value approximates fair value.
14.4. Note payable
The carrying value is a reasonable estimate of fair value due to
the short-term variable rate nature of this liability.
Furthermore, fair value of note payable is based on the
discounted amount of future cash flows.
14.5. Convertible subordinated debentures and
debentures
The fair value is based on quoted market prices.
14.6. Financial Instruments
The fair value of interest rate swaps is based on the discounted
amount of future cash flows using the appropriate market rate.
The fair value of forward rate agreements is based on the
difference between the exchange rate of the forward contract and
the spot rate for a similar contract on the market.
F-42
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The carrying value and estimated fair value of financial
instruments are presented below (EUR in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of | |
|
As of | |
|
|
December 31, 2004 | |
|
December 31, 2005 | |
|
|
| |
|
| |
|
|
Carrying | |
|
|
|
Carrying | |
|
|
|
|
amount | |
|
Fair value | |
|
amount | |
|
Fair value | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities at fair value
|
|
|
5,272 |
|
|
|
5,272 |
|
|
|
5,237 |
|
|
|
5,237 |
|
|
Equity securities, available for sale
|
|
|
265 |
|
|
|
265 |
|
|
|
769 |
|
|
|
769 |
|
|
Trading investments
|
|
|
778 |
|
|
|
778 |
|
|
|
335 |
|
|
|
335 |
|
|
Cash and cash equivalents
|
|
|
1,798 |
|
|
|
1,798 |
|
|
|
1,666 |
|
|
|
1,666 |
|
|
Derivative instruments
|
|
|
29 |
|
|
|
29 |
|
|
|
33 |
|
|
|
33 |
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible subordinated debentures
|
|
|
200 |
|
|
|
244 |
|
|
|
200 |
|
|
|
242 |
|
|
Other long term debt including obligations under capital leases
|
|
|
761 |
|
|
|
782 |
|
|
|
755 |
|
|
|
755 |
|
|
Notes payable
|
|
|
34 |
|
|
|
34 |
|
|
|
34 |
|
|
|
34 |
|
|
Derivative instruments
|
|
|
6 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
Note 15. Derivative instruments
The Group is exposed to market risk from changes in foreign
currency exchange rates, interest rates and equity security
prices that have an adverse effect on the fair value of
financial instruments and derivative financial instruments. The
Group manages its market risks, as well as risk exposure
relating to non-financial assets, liabilities and transactions
by defining centralized investment policy guidelines, using
derivatives to protect its investment portfolio or rebalancing
its existing asset and liability portfolio.
The Group takes advantage of a variety of derivative instruments
to reduce this exposure to market risk and in conjunction with
its foreign currency asset/ liability management. Derivatives
used by the Group include interest rate swaps, interest rate
floors, indexed options, warrants, equity options, currency
swaps, currency forward purchases and sales. Weather derivatives
and credit derivatives, used or issued by the Group, other than
the credit derivatives used as a hedge as discussed below, are
not considered derivative instruments under the definition of
SFAS 133.
Fair value hedges:
The Group did not designate any fair value hedges during 2005 or
2004. However, in 2003, the Group actively drew on its fixed
rates available lines of commercial paper and medium-term
negotiable notes in order to maintain the adequate level of cash
needed in its regular reinsurance and investing transactions.
Most of the time amounts drawn significantly exceed those
requirements and the bulk of available funds was then invested
in short-term investments. The Groups fixed-rate notes
payable are generally swapped to floating rates under terms that
match those of the debt instruments.
Several pay variable receive fixed interest rate
swaps were designated as fair value hedges of interest rate risk
of fixed-rate notes payable. Conditions that allowed these
designations are met therefore those hedged items are accounted
for at fair value. The change in fair value of those derivatives
together with the change in fair value of the hedged items are
reported in the statement of operations.
A loss from the hedges ineffectiveness of EUR
0.5 million was recognized in net investment income in 2003
and EUR 0 in 2004 and 2005.
F-43
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Foreign currency hedges:
The Group attempts to match its assets and liabilities on a
currency-by-currency basis in each currency for which an
organized financial or foreign exchange market is available,
primarily by investing in assets that are denominated in the
currency of the Groups corresponding reinsurance
liabilities. Management adjusts open positions in specific
currencies, generally on a quarterly basis, to manage any excess
or deficit of assets compared to liabilities in a particular
currency. Total currency exposure (other than with respect to
the euro) is limited to the excess (or deficiency) of
assets over liabilities in each currency.
The U.S. dollar represents the most significant portion of
those reserves not denominated in currencies of the European
Economic and Monetary Union. In order to protect the
subsidiaries net asset denominated in US dollars as
well as the Groups shareholders equity, a new
foreign-exchange currency hedge was set up in September 2003,
through a forward sale of USD 400 million (corresponding to
the value of the equity investments denominated in this
currency) against euros. This operation reduced the unrealized
exchange loss shown under the item currency translation
adjustment in the Groups shareholders equity
for an amount of EUR 37 million in 2003. This contract was
unwound in 2004 resulting in a positive impact of EUR
29 million before tax on the currency translation
adjustment in the Groups shareholders equity.
The Group has also designated a non-derivative instrument as
hedging the foreign currency exchange risk of certain of its
subsidiaries. The net gain included in the cumulative
translation adjustment in equity was EUR 15 million
and EUR 25 million in 2005 and 2004, respectively.
Non-hedge instruments:
Derivatives used in conjunction with the Groups investment
strategy: To a lesser extent, the Group uses indexed options as
well as pay variable receive variable (structured on
different maturities and/or interest rates) swaps to manage
volatility on the bond portfolio. The Group also uses a limited
volume of warrants, equity options, equity index instruments in
accordance with its selective equity investment policy to
provide higher returns on selected equity lines. Sales of call
options are used by the Group to mitigate the effect of a
possible decline in value of identified equities. Those
derivatives are carried at fair value with change in fair value
reported in income and are classified as investments or
derivatives on the balance sheets.
Other derivatives used by the Group:
The Group entered into specific interest rate floor agreements
in conjunction with Property-Casualty or Life reinsurance
transactions, in order to mitigate the effect of change in
interest rates on the return of specific contracts. Those
derivatives are carried at fair value with change in fair value
reported in income and are classified as derivatives on the
balance sheets. Some reinsurance transactions were also based on
indexed options. Certain Life reinsurance annuity-based
contracts underwritten by SCOR Life Re include specified market
index return (EUR 33 million fair value as of
December 31, 2005). Matching investments are structured on
similar index put and call options that replicate the
fluctuation of those indexes. Other interest rate swaps used by
the Group are carried at fair value with change in fair value
reported in income and are classified as derivatives on the
balance sheets for EUR (5.3) million in liabilities
and EUR 1 million in assets at December 31, 2005
and 2004, respectively.
Note 16. Commitments and Guarantees
The Group enters into off-balance-sheet arrangements in the
ordinary course of business.
Off-balance-sheet arrangements entered into on behalf of clients
include letter of credit (LOC) transactions where the Company or
its subsidiaries provide LOC coverage for all or part of
reinsurance obligations to ceding companies, or where similar
coverage is provided to the Company or its subsidiaries by
retrocessionaires. These transactions are entered into in the
ordinary course of business to comply with ceding
companies credit or
F-44
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
regulatory requirements. The Company and its subsidiaries also
pledge securities as collateral in order to guarantee the
payment of cedents reserves. The following table sets
forth the off-balance-sheet commitments at December 31,
2003, 2004 and 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Commitments received
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unused credit lines
|
|
|
50 |
|
|
|
44 |
|
|
|
99 |
|
|
Endorsements and sureties
|
|
|
68 |
|
|
|
47 |
|
|
|
12 |
|
|
Letters of Credit
|
|
|
1,285 |
|
|
|
867 |
|
|
|
1,090 |
|
|
Other commitments
|
|
|
|
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,403 |
|
|
|
971 |
|
|
|
1,201 |
|
|
|
|
|
|
|
|
|
|
|
Commitments given
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Endorsements and sureties
|
|
|
90 |
|
|
|
47 |
|
|
|
25 |
|
|
Leases
|
|
|
17 |
|
|
|
10 |
|
|
|
20 |
|
|
Letters of Credit
|
|
|
594 |
|
|
|
656 |
|
|
|
645 |
|
|
Pledged securities
|
|
|
3,226 |
|
|
|
1,885 |
|
|
|
2,080 |
|
|
Other commitments
|
|
|
139 |
|
|
|
99 |
|
|
|
162 |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,066 |
|
|
|
2,697 |
|
|
|
2,932 |
|
|
|
|
|
|
|
|
|
|
|
Additionally, the Group had received EUR 27 million
and EUR 29 million in security pledges from reinsurers
and retrocessionaires at December 31, 2005 and 2004,
respectively.
We are 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,
2005, there were no material additional financial commitments
required from Group companies in respect of such arrangements.
EUR 75 million renewable credit
In 2005, the Company entered into a renewable credit facility
agreement the purpose of which is to provide the Company with
short-term cash facilities to finance its general cash needs.
The facility agreement is for a term of twelve months beginning
May 2005. The credit may be used in the form of revolving
drawdowns up to a maximum of EUR 75 million over a
period ending one month before the final expiration of the
credit facility.
To guarantee its obligations under the facility agreement, the
Company is required to pledge, as a condition precedent for each
draw, certain financial instruments in an amount equal to a
specified percentage of the draw amount, depending on the type
of financial instrument pledged.
The interest period is set at SCORs discretion for each
draw at 1, 2, 3 or 6 months. The interest rate applicable
to the amount drawn is equal to EURIBOR plus a margin of 0.15%
to 0.45% depending on the financial instruments pledged.
EUR 25 million renewable credit
In May 2005, the Company entered into a renewable credit
facility agreement the purpose of which is to provide the
Company with short-term cash facilities to finance its general
cash needs. The facility agreement is for a term of twelve
months from the date of signature. The credit may be used in the
form of revolving drawdowns up to a maximum of
EUR 25 million.
F-45
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
To guarantee its obligations under the facility agreement, the
Company is required to pledge as a condition precedent for each
draw, certain financial instruments in an amount equal to a
specified percentage of the draw amount.
The interest period is set at SCORs discretion for each
draw at 1, 2, 3 or 6 months. The interest rate applicable
to the amount drawn is equal to EURIBOR plus a margin of 0.15%
to 0.45% depending on the financial instruments pledged.
SCOR and SCOR VIE
stand-by letters of
credit facility
All stand-by letter of
credit facilities for SCOR and SCOR VIE expired or were
renewed in December 2005, effective January 2006.
Four new stand-by
letter of credit facilities were signed in December 2005, the
purpose of which is to secure SCOR Vies and
SCORs obligations with respect to ceding companies. The
total amount available under these new agreements is
USD 500 million. These agreements are available
USD 15 million to SCOR VIE,
USD 85 million to SCOR and the remaining
USD 400 million available indifferently to SCOR and
SCOR VIE. To guarantee its obligations under the facility
agreement, the Company is required to pledge as a condition
precedent for each draw, certain financial instruments in an
amount equal to a specified percentage of the draw amount.
Project Triple X
In November 2005, the Board of Directors authorized the issue of
a parent company letter of guarantee intended to cover the
financial obligations of SCOR VIE under the terms of an
agreement to issue letters of credit that would be signed by
SCOR VIE, SCOR Financial Services Limited (SFS) and CALYON.
These proposed agreements to issue letters of credit and a
parent company guarantee are part of an operation intended to
provide SCOR Life U.S. Reinsurance Company (SLR) additional
financial resources so that it can satisfy the financial
coverage requirements stipulated by the American prudential
regulations known as Triple X.
Under the terms of the contract described above, CALYON has
committed itself to issuing or causing to issue to Scor Life
Reinsurance (SLR) one or more letters of credit for a period of
five years for a total commitment equal to the smaller of the
following two amounts: (a) USD 250 million or
(b) the sum equal to the difference between the
(i) so-called Triple X reserves and (ii) 150% of
the amount of the reserves required in the accounting plan (net
of deferred acquisition costs). The transaction was finalized at
the end of December 2005.
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 Group (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, 2005, 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,
2005, there has been no material adverse development in the
reserves concerned. Accordingly, Group has not been required to
make any payments under this guarantee as of December 31,
2005.
F-46
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Note 17. Lines of Business and Geographic
Information
SCOR Group acting through the Companys Property-Casualty
(which includes Treaty Property-Casualty and Large Corporate
Accounts); Life/ Accident & Health; Credit, Surety and
Political Risks; and Alternative risks operating divisions, its
ten subsidiary companies and their twenty-two branches and
representative offices, provides treaty and facultative
reinsurance on a worldwide basis to Property-Casualty and Life
insurers.
SCORs operations are organized into the following two
business segments: Property-Casualty and Life/
Accident & Health. The Property-Casualty segment 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.
Within each segment, SCOR writes various classes of business, as
indicated below. Responsibilities and reporting within the Group
are established based on this structure, and our reported
financial segments reflect the activities of each segment.
The Group has two reportable segments; Property-Casualty and
Life/ Accident & Health.. In addition to the two
reportable segments, the Group includes under Others
investment revenue allocated to shareholders equity, and
investments accounted for by the equity method.
The two reportable segments are comprised of the following:
Property-Casualty:
|
|
|
|
|
Property-Casualty treaty: The Property-Casualty
treaty sub-segment includes the proportional (pro rata) and non-
proportional (excess of loss and stop loss) treaty classes of
property, casualty, marine, space and transportation, and
construction. Property-Casualty also includes direct or
allocated operating expenses and net income from
Property-Casualty-related
investing activities. |
|
|
|
Large corporate accounts: Large corporate accounts
reinsurance includes large facultative business 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, or boiler and machinery installations.
Large corporate accounts reinsurance also includes direct or
allocated operating expenses and net income from Large corporate
accounts reinsurance-related investing activities. |
Credit, Surety and Political Risks
Credit, Surety and Political Risks includes the needs of its
credit and surety insurance clients in providing treaty covers
as well as non-proportional reinsurance, covering peak and
cumulative risks. Credit, Surety and Political risks also
includes direct or allocated operating expenses and net income
from Credit, Surety and Political risks-related investing
activities.
Credit, Surety and Political Risks relates to reinsurance
treaties, either proportional or non-proportional, with
companies specialized in credit insurance, such as COFACE,
Euler-Hermes 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 segments. The presentation and
discussion contained herein have been revised to reflect such
reclassification for prior years.
Alternative risks (Commercial Risk
Partners)
Alternative risks reinsurance concerns all sectors of
alternative risk transfer and mainly loss frequency driven by
workers compensation, motor insurance and general
liability in the US market, weather variations covers, primarily
temperature-based derivatives and protection against
combinations of fortuitous uncertainties with
F-47
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
financial exposures. Alternative risks also includes direct or
allocated operating expenses and net income from Alternative
risks-related investing activities.
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 a
sub segment of its Property-Casualty 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.
Life/Accident & Health:
Life/Accident & Health reinsurance includes Life reinsurance
products as well as the personal segments of casualty
reinsurance that are accident, disability, health, unemployment
and long-term care.
Life /Accident & Health reinsurance is conducted mainly
through SCOR VIE, which also provides support in this
segment of reinsurance to Group subsidiaries, SCOR Life
U.S. Re, SCOR Deutschland and SCOR Italy. Life/
Accident & Health also includes direct or allocated
operating expenses and net income from Life /Accident &
Health-related investing activities.
The Property-Casualty and Life/Accident & Health segments
differ from the Non Life and Life segment shown on the balance
sheet because on a statutory basis, the Accident and Health
reinsurance business is classified in Property-Casualty category.
The following is a summary of the two reportable segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2003 | |
|
|
| |
|
|
|
|
Life/ | |
|
|
|
|
Property-Casualty | |
|
Accident & Health | |
|
Others | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Net premiums written
|
|
|
2,103 |
|
|
|
885 |
|
|
|
|
|
|
|
2,988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
2,455 |
|
|
|
869 |
|
|
|
|
|
|
|
3,324 |
|
Net investment income
|
|
|
279 |
|
|
|
54 |
|
|
|
(7 |
) |
|
|
326 |
|
Net realized gains on investments
|
|
|
101 |
|
|
|
20 |
|
|
|
(4 |
) |
|
|
117 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
2,835 |
|
|
|
943 |
|
|
|
(11 |
) |
|
|
3,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claim and claim expenses
|
|
|
2,507 |
|
|
|
653 |
|
|
|
|
|
|
|
3,160 |
|
Acquisition costs
|
|
|
490 |
|
|
|
252 |
|
|
|
|
|
|
|
742 |
|
Underwriting and administration expenses
|
|
|
123 |
|
|
|
67 |
|
|
|
(30 |
) |
|
|
160 |
|
Interest expense
|
|
|
33 |
|
|
|
|
|
|
|
|
|
|
|
33 |
|
Other income and expenses
|
|
|
|
|
|
|
|
|
|
|
(128 |
) |
|
|
(128 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
3,153 |
|
|
|
972 |
|
|
|
(158 |
) |
|
|
3,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income accounted for by the equity method
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes and minority interests
|
|
|
(318 |
) |
|
|
(29 |
) |
|
|
148 |
|
|
|
(199 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets as of December 31
|
|
|
10,443 |
|
|
|
3,162 |
|
|
|
|
|
|
|
13,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-48
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004 | |
|
|
| |
|
|
|
|
Life/ | |
|
|
|
|
Property-Casualty | |
|
Accident & Health | |
|
Others | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Net premiums written
|
|
|
1,282 |
|
|
|
844 |
|
|
|
|
|
|
|
2,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
1,427 |
|
|
|
800 |
|
|
|
|
|
|
|
2,227 |
|
Net investment income
|
|
|
141 |
|
|
|
102 |
|
|
|
39 |
|
|
|
282 |
|
Net realized gains on investments
|
|
|
13 |
|
|
|
22 |
|
|
|
7 |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,581 |
|
|
|
924 |
|
|
|
46 |
|
|
|
2,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claim and claim expenses
|
|
|
999 |
|
|
|
628 |
|
|
|
|
|
|
|
1,627 |
|
Acquisition costs
|
|
|
349 |
|
|
|
219 |
|
|
|
|
|
|
|
568 |
|
Underwriting and administration expenses
|
|
|
112 |
|
|
|
47 |
|
|
|
(24 |
) |
|
|
135 |
|
Interest expense
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
49 |
|
Other income and expenses
|
|
|
0 |
|
|
|
0 |
|
|
|
(23 |
) |
|
|
(23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,509 |
|
|
|
894 |
|
|
|
(47 |
) |
|
|
2,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income accounted for by the equity method
|
|
|
|
|
|
|
|
|
|
|
(1 |
) |
|
|
(1 |
) |
|
Income before taxes, minority interests and cumulative effect of
change in accounting principle
|
|
|
72 |
|
|
|
30 |
|
|
|
92 |
|
|
|
194 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets as of December 31
|
|
|
9,927 |
|
|
|
3,473 |
|
|
|
|
|
|
|
13,400 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005 | |
|
|
| |
|
|
Property- | |
|
Life/ | |
|
|
|
|
Casualty | |
|
Accident & Health | |
|
Others | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Net premiums written
|
|
|
1,280 |
|
|
|
841 |
|
|
|
|
|
|
|
2,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned
|
|
|
1,227 |
|
|
|
859 |
|
|
|
|
|
|
|
2,086 |
|
Net investment income
|
|
|
154 |
|
|
|
141 |
|
|
|
6 |
|
|
|
301 |
|
Net realized gains on investments
|
|
|
72 |
|
|
|
27 |
|
|
|
|
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
1,453 |
|
|
|
1,027 |
|
|
|
6 |
|
|
|
2,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Claim and claim expenses
|
|
|
916 |
|
|
|
666 |
|
|
|
|
|
|
|
1,582 |
|
Acquisition costs
|
|
|
289 |
|
|
|
232 |
|
|
|
|
|
|
|
521 |
|
Underwriting and administration expenses
|
|
|
104 |
|
|
|
37 |
|
|
|
|
|
|
|
141 |
|
Interest expense
|
|
|
48 |
|
|
|
|
|
|
|
|
|
|
|
48 |
|
Other income and expenses
|
|
|
74 |
|
|
|
27 |
|
|
|
|
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
1,431 |
|
|
|
962 |
|
|
|
|
|
|
|
2,393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income accounted for by the equity method
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before taxes, minority interests and cumulative effect of
change in accounting principle
|
|
|
22 |
|
|
|
65 |
|
|
|
6 |
|
|
|
93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets as of December 31
|
|
|
9,336 |
|
|
|
4,433 |
|
|
|
60 |
|
|
|
13,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the Groups business by
geographic area. Allocations by geographic area have been made
based on the location of the related subsidiary.
F-49
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North | |
|
|
|
|
|
|
France | |
|
Europe | |
|
America | |
|
Asia | |
|
Consolidated | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Year ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
1,615 |
|
|
|
713 |
|
|
|
1,217 |
|
|
|
222 |
|
|
|
3,767 |
|
|
Income before taxes and minority interests
|
|
|
(120 |
) |
|
|
112 |
|
|
|
(249 |
) |
|
|
58 |
|
|
|
(199 |
) |
|
Identifiable assets as of December 31
|
|
|
6,975 |
|
|
|
1,742 |
|
|
|
4,519 |
|
|
|
369 |
|
|
|
13,605 |
|
Year ended December 31, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
1,386 |
|
|
|
417 |
|
|
|
582 |
|
|
|
166 |
|
|
|
2,551 |
|
|
Income before taxes, minority interests and cumulative effect of
change in accounting principle
|
|
|
115 |
|
|
|
108 |
|
|
|
(42 |
) |
|
|
13 |
|
|
|
194 |
|
|
Identifiable assets as of December 31
|
|
|
8,474 |
|
|
|
1,254 |
|
|
|
3,379 |
|
|
|
332 |
|
|
|
13,439 |
|
Year ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
1,492 |
|
|
|
338 |
|
|
|
513 |
|
|
|
143 |
|
|
|
2,486 |
|
|
Income before taxes
|
|
|
79 |
|
|
|
78 |
|
|
|
(77 |
) |
|
|
13 |
|
|
|
93 |
|
|
Identifiable assets as of December 31
|
|
|
9,055 |
|
|
|
1,037 |
|
|
|
3,384 |
|
|
|
353 |
|
|
|
13,829 |
|
Note 18. Unpaid loss and loss adjustment
expenses
The Group has to place significant reliance on the information
obtained from its cedants to develop assumptions to estimate its
ultimate liability. The subsequent development of these
liabilities might not conform to the assumptions inherent in
their determination. As a result, the amounts ultimately settled
could vary significantly from the estimates included in the
accompanying consolidated financial statements.
The adverse development on prior year losses does not reflect
the additional premium that is required under the reinsurance
contracts as a result of those additional losses. Such
additional premium is recognized in net income in the same
period as the additional losses and is reported as premiums
earned.
F-50
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following provides the reconciliation of beginning and
ending reserve balances for unpaid Non Life losses and loss
adjustment expenses (LAE) on a net of reinsurance
basis to the amounts recorded in the balance sheet:
Reconciliation of Reserves for Losses and LAE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Reserves for losses and LAE at beginning of year, net
|
|
|
6,933 |
|
|
|
6,633 |
|
|
|
5,934 |
|
Effect of changes in foreign currency exchange rates
|
|
|
(656 |
) |
|
|
(203 |
) |
|
|
359 |
|
Effect of claims portfolio transfer and other reclassifications
|
|
|
333 |
|
|
|
58 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
Incurred related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
1,661 |
|
|
|
1,002 |
|
|
|
1,134 |
|
|
Prior years
|
|
|
1,078 |
|
|
|
174 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
|
Total incurred losses and
LAE(1)
|
|
|
2,739 |
|
|
|
1,176 |
|
|
|
1,168 |
|
|
|
|
|
|
|
|
|
|
|
Paid related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current year
|
|
|
316 |
|
|
|
116 |
|
|
|
695 |
|
|
Prior years
|
|
|
2,400 |
|
|
|
1,614 |
|
|
|
896 |
|
|
|
|
|
|
|
|
|
|
|
|
Total paid losses and
LAE(1)
|
|
|
2,716 |
|
|
|
1,730 |
|
|
|
1,591 |
|
|
|
|
|
|
|
|
|
|
|
Reserves for losses and loss expenses at end of year
net
|
|
|
6,633 |
|
|
|
5,934 |
|
|
|
5,873 |
|
Reinsurance recoverable on unpaid losses
|
|
|
673 |
|
|
|
536 |
|
|
|
566 |
|
|
|
|
|
|
|
|
|
|
|
Reserves for losses and loss expenses at end of year
gross
|
|
|
7,306 |
|
|
|
6,470 |
|
|
|
6,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
The primary reasons for changes in the prior year reserve
amounts for each respective year are as follows:
For 2002 and prior reserves in 2003:
|
|
|
|
|
Additional reserve of EUR 227 million applied to all
the underwriting years, in particular 1998-2001, and to Program
Business activities (in which underwriting was ceased at
end-2001). |
|
|
|
Additional reserve of EUR 45 million on Commercial Risk
Partners relating mainly to prospective finite risk contracts
for Workers Compensation in 1999 and 2000. |
For 2003 and prior reserves in 2004:
|
|
|
|
|
The additional reserves relate mainly to SCOR US, CRP, and also
EUR 20 million for the World Trade Center tragedy of 9/11 |
For 2004 and prior reserves in 2005:
|
|
|
|
|
The additional reserves relate mainly to SCOR US and CRP. |
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. The Group, and in particular SCOR
Paris and SCOR U.S., have received and continue to receive
notices of potential reinsurance claims from ceding insurance
companies which have in turn received claims asserting
environmental
F-51
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
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. Given the lack of
specificity in these notices, SCOR cannot quantify its potential
exposure regarding the claims reported. In addition, due to the
changing legal and regulatory environment and changes in tort
law, in the Groups evaluation, the final cost of our
exposure to asbestos related and environmental claims appears to
be increasing, but the Group is unable to determine to what
degree. 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 for us
to estimate the reserves that should be recorded for these risks
and to guarantee that the amount reserved will be sufficient.
As a result of these imprecision and uncertainties, the Group
cannot exclude the possibility that it could be required to pay
significant claims in these areas and these payments would have
a material effect on its results and financial conditions. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, | |
|
|
| |
|
|
Asbestos(1) | |
|
Environmental(1) | |
|
|
| |
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Gross Non Life claims reserves, including IBNR reserves
|
|
|
109 |
|
|
|
98 |
|
|
|
111 |
|
|
|
59 |
|
|
|
54 |
|
|
|
39 |
|
% of total loss and LAE reserves
|
|
|
1.5 |
% |
|
|
1.6 |
% |
|
|
1.7 |
% |
|
|
0.8 |
% |
|
|
0.9 |
% |
|
|
0.6 |
% |
Non Life claims and LAE paid
|
|
|
15 |
|
|
|
15 |
|
|
|
12 |
|
|
|
13 |
|
|
|
5 |
|
|
|
7 |
|
% of the Groups total net property-casualty claims and LAE
paid
|
|
|
0.6 |
% |
|
|
0.9 |
% |
|
|
0.7 |
% |
|
|
0.5 |
% |
|
|
0.3 |
% |
|
|
0.4 |
% |
|
|
(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 2003 reserves are respectively EUR 19 million and EUR
18 million for asbestos and environmental. The 2003 paid
claims and LAE are respectively EUR 0.6 million and
EUR 0.9 million for asbestos and environmental,
respectively. |
|
|
The 2004 reserves are respectively EUR 18 million and
EUR 16 million for asbestos and environmental. The 2004
paid claims and LAE are respectively EUR 0.3 million
and EUR 0.3 million for asbestos and environmental,
respectively. |
|
|
The 2005 reserves are respectively EUR 15 million and
EUR 8 million for asbestos and environmental. The 2005
paid claims and LAE are respectively EUR 1.7 million
and EUR 1.0 million for asbestos and environmental,
respectively. |
Note 19. Related Party Transactions
Several directors of the Company are also officers or directors
of companies with whom SCOR has arms length transactions
in the regular course of business.
The following material transactions have been executed with
related parties since January 1, 2005 or were still
applicable in 2005:
|
|
|
|
|
As part of the transaction for the acquisition of Sorema S.A.
and Sorema N.A. in May 2001, Groupama, a significant
shareholder of SCOR, as the seller of both companies provided
two guarantees for a period of six years, pursuant to which it
may be required to indemnify SCOR for negative developments
concerning material social and tax liabilities and liabilities
in respect of technical reserves for the 2000 and previous
underwriting years as assessed at June 30, 2007. As of
December 31, 2005 and 2004, the |
F-52
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
consolidated balance sheets included EUR 250 million and
EUR 234 million, respectively, related to the guaranty
provided. |
|
|
|
In June 2004, SCOR entered into an agreement with several banks
in connection with the placement of subscriptions for the OCEANE
bonds. The agreement provided for a placement fee, a success fee
and guaranty fee aggregating EUR 4,175,000. Two directors of the
Company are affiliated with two of the banks. |
|
|
|
On May 18, 2005 SCOR entered into a Credit Facility
Agreement for a term of twelve months from the date of signature
with a banking syndicate represented by BNP Paribas as Agent and
Lead Manager, the purpose of which is to provide the Company
with short-term cash facilities to finance its general cash
needs for a maximum of EUR 75 million. The agreement
provides for non-use commissions, participation commission,
agent commission and a lead manager commission. The Chairman and
Chief Executive Officer of SCOR is a director of BNP Paribas. |
|
|
|
On May 31, 2005 authorized the signature by SCOR and BNP
Paribas of an agency letter and underwriting agreement for the
offering and placement of the shares issued in June 30,
2005. The Chairman and Chief Executive Officer of SCOR is a
director the BNP Paribas. |
|
|
|
On December 31, 2005 the Company terminated the credit
facility agreement as amended that was signed on
December 26, 2002 with a banking syndicate represented by
BNP Paribas. |
|
|
|
On November 2, 2005 meeting the Board of Directors
authorized the signature of a new credit facility for stand-by
letters of credit with BNP Paribas up to a maximum of
USD 85 million over a utilization period from
January 4, 2006 to December 31, 2008. The agreement
requires securities to be pledged at 105% of amounts used as
well as for the payment of non-use and utilization commissions
and other bank fees. The Chairman and Chief Executive Officer of
SCOR is a director the BNP Paribas. |
Note 20. Contingencies
The Group is a party to one lawsuit concerning old claims
related to the environment. However, the Group believes it is
sufficiently funded on the basis of the information it has on
this date.
In addition, the Group is involved in the following litigation:
In the United States:
|
|
|
|
|
In December 2002, a petition was filed by Dock Resins
Corporation and Landec Corporation before a U.S. Federal
District Court in New Jersey against SCORs subsidiary,
Sorema North America Reinsurance Company, now known as GSNIC,
for an alleged bad faith denial of coverage by GSNIC concerning
business interruption suffered by the plaintiffs. GSNIC filed a
cross claim for fraud and misrepresentation seeking to void the
policy and preserve GSNICs right to recover the costs
incurred in litigating the case. The plaintiffs claim an
unspecified amount of damages in excess of policy limits for the
contents and business interruption coverage, which are capped
under the insurance policy at an aggregate total of USD
15 million. The policy has been retroceded at 80% outside
of the SCOR Group. GSNIC has paid the undisputed portions of the
claim. On January 27, 2006, motions for partial summary
judgment and cross-motions filed by the various parties were
argued, with the decisions being very favorable for the
defendants. The Court granted GSNICs Motion for partial
summary judgment dismissing all claims against it for alleged
bad-faith denial as well as dismissing the claim that GSNIC
conspired with its consultants to wrongfully deny the insurance
claim. Additionally, claims for other punitive or
extra-contractual damages as well as counsel fees were also
dismissed. Plaintiffs cross-motion for partial summary
judgment on GSNICs affirmative defense of insurance fraud
was denied. As a result of these rulings, plaintiff is left with
a contract cause of action against GSNIC on the insurance |
F-53
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
policy. Discovery is likely to be completed in the spring of
2006. A date for trial is tentatively listed for June 2006. |
|
|
|
In March 2004, certain funds of Highfields Capital (Highfields
Capital LTD, Highfields Capital I LP and Highfields Capital II
LP, together referred to as the Highfields Funds),
as minority shareholders of IRP Holdings Limited, filed a
complaint against SCOR in the US District Court of
Massachusetts. The complaint alleges fraud and violations of
Massachusetts law with regard to the acquisition by the
Highfields Funds of a stake in IRP Holdings Limited in December
2001. On April 19, 2006, after a question arose regarding
the U.S. District Courts jurisdiction over the case,
Highfields filed a Motion to Affirm Subject Matter Jurisdiction
or, in the Alternative, to Refer Case to State Court, which asks
the federal court to clarify jurisdictional questions. The
parties have filed briefs on that motion but, as of
June 22, 2006, the court has neither heard oral argument
nor issued a ruling on Highfields motion. If the
U.S. District Court determines it has the proper
jurisdiction over the case, damages (including punitive damages)
owed, if any, would only be determined by the court at the end
of the trial which is scheduled to begin in May 2007. If the
U.S. District Court determines it lacks jurisdiction over the
law suit, Highfields may be permitted to file a similar
complaint in Massachusetts state court. |
|
|
|
Beginning in October 2001, various lawsuits were brought and
counterclaims made in U.S. Federal Court in New York
concerning the question of whether the terrorist attack on the
World Trade Center (WTC) on September 11, 2001 constituted
one or two occurrences under the terms of the applicable
property insurance coverage issued to the lessees of the WTC and
other parties. While SCOR as a reinsurer is not a party to such
lawsuits, its ceding company, Allianz Global Risks
U.S. Insurance Company (Allianz), which insured a portion
of the WTC and which is reinsured by SCOR, is a party to the
legal action. |
The first two phases of the trial were completed in 2004. At
the end of the first phase, nine of the twelve insurers involved
in that phase were found to be bound by a definition of the term
occurrence that as a matter of law has been found to mean that
the attack on the WTC constituted one occurrence. Allianz did
not participate in that first phase, but has participated in the
second phase of the trial. On December 6, 2004, the jury in
the second phase of the trial determined that the attack on the
WTC on September 11, 2001 constituted two occurrences under
the property insurance coverages issued by Allianz and by eight
other insurers of the WTC that were parties to this phase of the
trial. SCOR, a reinsurer of Allianz, considered the jury verdict
to be contrary to the terms of the insurance coverage in force
and to the intent of the parties. SCOR fully supported Allianz
in its efforts to overturn the verdict. This verdict has been
appealed to the U.S. Court of Appeals for the Second
Circuit and a decision is expected in 2006.
The verdict in the second phase of the trial did not determine
the amount of damages owed by the insurers, and a separate
court-supervised appraisal procedure is underway to determine
the amount of indemnification due by the insurers following the
destruction of the WTC towers. The final determination of the
appraisal procedure is expected in late 2006 or early 2007.
In the Groups original calculations of its technical
reserves, the WTC attack was treated as one occurrence for
purposes of the underlying insurance coverage since the
terrorist attack on September 11, 2001 was a single,
coordinated occurrence. As a result of the above-described jury
verdict in the second phase of the trial, the Group has
increased the reserves based on the initial replacement value
estimated 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. These amounts did not change significantly
in 2005. In addition, the Group issued two letters of credit to
Allianz for a total amount of USD 145,320,000 on
December 27, 2004 as security required by Allianz to
guarantee payment to the ceding company if the verdict is not
reversed or if the appraisal process were to lead to an
increased amount of liabilities to be paid in the future.
F-54
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Allianz has instituted an arbitration proceeding against the
Company in order to clarify the extent of the Companys
obligations under the reinsurance contract entered into with it.
The arbitration proceeding has been stayed by the arbitration
panel pending the happening of certain events relating to the
second phase of the trial. The arbitration proceeding has not
been reactivated.
|
|
|
|
|
The Group is also involved in various arbitration proceedings
relating to the subscription of business, currently in run off,
primarily relating to coverage for certain Credit & Surety
bond losses. The total amount of the related claims is
approximately USD 10.3 million. |
|
|
|
In January 2005, Continental Casualty Company (CCC), a CNA
subsidiary, initiated an arbitration proceeding to obtain a
declaration that six contracts signed with Commercial Risk
Re-Insurance Company (CRRC) should contain the so called
insolvency clause. CRRC issued a counter demand for
arbitration proceedings to obtain access to all relevant books
and records from CCC. |
On November 2, 2005, the panel rendered its award stating
that the six contracts were supposed to contain this insolvency
clause. Following this ruling, CRRC filed motions to vacate the
panels final award in U.S. Federal District Courts in
the state of Connecticut and for the Northern District of
Illinois seeking to vacate the arbitration panels ruling.
In its counter claim, CRRC is requesting, pursuant to the
provisions of the contracts in question, an order giving it full
access to all relevant books and records held by CCC and its
Agents. The organizational meeting in respect of this second
arbitration was held in October 2005 and the parties are in the
process of submitting their respective schedules to the panel.
|
|
|
|
|
In August 2005, certain American subsidiaries of Royal & Sun
Alliance (RSA) initiated four arbitration proceedings against
Commercial Risk Re-Insurance Company and Commercial Risk
Reinsurance Company Ltd (Commercial Risk) relating to seven
reinsurance treaties signed by RSA and Commercial Risk. RSA is
alleging breach of the contracts and is seeking full payment of
balances due under these contracts, plus interest and expenses,
for a total of approximately USD 23 million. Commercial
Risk denies these balances asserting that the losses are outside
the scope of coverage and the terms and conditions of the
treaties. |
No significant development has occurred in these arbitration
proceedings. Panels have been constituted and the organizational
meetings were held on February 22, 2006 and March 28,
2006.
In Europe:
|
|
|
|
|
SCOR VIE, as the reinsurer of an insurance company, is involved
in a lawsuit in connection with a life insurance policy in the
amount of approximately EUR 4.5 million. The beneficiary of
the policy was killed in 1992. In June 2001, a Spanish court
ordered the ceding company to pay approximately EUR
16 million under the policy, which amount included
accumulated interest since 1992 as well as damages. Following
this decision, SCOR VIE booked a technical provision of EUR
17.7 million in its accounts for the 2001 fiscal year. In
May 2002, the Barcelona Court of Appeals found in favor of the
ceding company. The representatives of the deceased have now
appealed the case to the Spanish Supreme Court. The provision
was maintained at December 31, 2005. |
|
|
|
The French Autorité des Marchés Financiers
(AMF) initiated an investigation on October 21, 2004 in
connection with the financial information and trading activity
surrounding the issue of the SCOR OCEANE bonds in July 2004. The
Company has no additional information on this matter at this
time. |
|
|
|
The AMF also initiated an investigation on October 5, 2005
concerning the market for the SCOR shares as of June 1,
2005. |
|
|
|
Since February 2005, the Company has been subject to a tax audit
for the period from January 1, 2002 to December 31,
2003. On December 21, 2005, this audit resulted in an
initial adjustment proposal, |
F-55
SCOR
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
excluding late penalties, for an additional assessment for the
corporate income tax base for 2002 of EUR 26,870,073.77, an
assessment for the withholding stipulated by Article 119
bis 2 of the French General Tax Code of EUR 5,788,871 and an
additional assessment for the employers payroll tax of EUR
27,891. The Company has challenged this adjustment proposal.
This proposal, which stays the statute of limitations, will be
followed in 2006 with a definitive proposal also covering fiscal
year 2003. |
|
|
|
The Autorité de Contrôle des Assurances et des
Mutuelles (A.C.A.M.) launched an audit of SCOR VIE in
January 2006. |
The Company is also involved in various other legal and
arbitration proceedings from time to time in the ordinary course
of its business. However, other than the proceedings mentioned
above, to our knowledge, there are no other litigation matters
that have had or are likely to have a material adverse impact on
the financial position, business and the operating results of
the Group.
Note 21. Subsequent Events
At the end of February 2006, Security Insurance Company of
Hartford, Orion Insurance Company and other subsidiaries of
Royal Insurance Company (Security of Hartford) instituted a
litigation against SCOR Reinsurance Company (SCOR Re) in the
Supreme Court of the State of New York alleging breach of
contract and seeking recovery of claimed loss balances of
approximately USD 48.9 million allegedly due as losses
under two quota share treaties between the parties (the
Treaties).
SCOR Re is seeking to dismiss or stay the Supreme Court
litigation and is demanding that the issues raised in the
litigation be submitted to arbitration pursuant to the
arbitration clauses contained in the Treaties. At the
appropriate time in either the litigation or arbitration, SCOR
Re will assert its own defenses and claims or counterclaims
concerning the substantive issues raised in the litigation.
In February 2006, SCOR received an arbitration notice from the
captive of a pharmaceutical laboratory concerning
the settlement of a claim under civil liability for a laboratory
product. SCOR denied owing this amount and claims that the
captive is not required to indemnify the pharmaceutical
laboratory. The maximum potential commitment of SCOR is USD
17.5 million.
F-56
SCHEDULE I SUMMARY OF INVESTMENTS OTHER THAN
INVESTMENTS
IN RELATED PARTIES
December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Col. A |
|
Col. B | |
|
Col. C | |
|
Col. D | |
|
|
| |
|
| |
|
| |
|
|
|
|
|
|
Amount at which | |
|
|
|
|
Fair | |
|
shown in the | |
Type of investment |
|
Cost | |
|
Value | |
|
balance sheet | |
|
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Fixed maturities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt securities issued or guaranteed by the French government or
its agencies
|
|
|
544 |
|
|
|
550 |
|
|
|
550 |
|
|
Debt securities issued or guaranteed by the U.S. government
or its agencies
|
|
|
1,394 |
|
|
|
1,361 |
|
|
|
1,361 |
|
|
Obligations of U.S. states and political subdivisions
|
|
|
100 |
|
|
|
102 |
|
|
|
102 |
|
|
Debt securities issued or guaranteed by the European Union
|
|
|
452 |
|
|
|
453 |
|
|
|
453 |
|
|
Debt securities issued or guaranteed by other national, state or
local governments or their agencies
|
|
|
326 |
|
|
|
340 |
|
|
|
340 |
|
|
Corporate debt securities
|
|
|
1,478 |
|
|
|
1,498 |
|
|
|
1,498 |
|
|
Mortgage-backed securities
|
|
|
875 |
|
|
|
878 |
|
|
|
878 |
|
|
Other debt securities
|
|
|
62 |
|
|
|
55 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities available for sale
|
|
|
5,231 |
|
|
|
5,237 |
|
|
|
5,237 |
|
|
|
|
|
|
|
|
|
|
|
Trading
|
|
|
155 |
|
|
|
158 |
|
|
|
158 |
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities
|
|
|
5,386 |
|
|
|
5,395 |
|
|
|
5,395 |
|
|
|
|
|
|
|
|
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for sale
|
|
|
746 |
|
|
|
769 |
|
|
|
769 |
|
|
Trading
|
|
|
138 |
|
|
|
177 |
|
|
|
177 |
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
884 |
|
|
|
946 |
|
|
|
946 |
|
|
|
|
|
|
|
|
|
|
|
Other long-term investments
|
|
|
317 |
|
|
|
|
|
|
|
317 |
|
|
|
|
|
|
|
|
|
|
|
Total investments
|
|
|
6,587 |
|
|
|
|
|
|
|
6,658 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
1,666 |
|
|
|
|
|
|
|
1,666 |
|
S-1
SCHEDULE III SUPPLEMENTARY INSURANCE
INFORMATION
December 31, 2005, 2004 and 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Col. A |
|
Col. B | |
|
Col. C | |
|
Col. D | |
|
Col. E | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
Future Policy | |
|
|
|
|
|
|
|
|
Benefits, Losses, | |
|
|
|
Other Policy | |
|
|
Deferred Policy | |
|
Claims, and Loss | |
|
Unearned | |
|
Claims and | |
|
|
Acquisition Costs | |
|
Expenses | |
|
Premiums | |
|
benefits Payable | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
300 |
|
|
|
2,719 |
|
|
|
|
|
|
|
|
|
|
Non Life
|
|
|
249 |
|
|
|
6,439 |
|
|
|
693 |
|
|
|
|
|
|
|
Total
|
|
|
549 |
|
|
|
9,158 |
|
|
|
693 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
264 |
|
|
|
2,677 |
|
|
|
|
|
|
|
|
|
|
Non Life
|
|
|
254 |
|
|
|
6,470 |
|
|
|
627 |
|
|
|
|
|
|
|
Total
|
|
|
518 |
|
|
|
9,147 |
|
|
|
627 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life
|
|
|
232 |
|
|
|
2,562 |
|
|
|
|
|
|
|
|
|
|
Non Life
|
|
|
251 |
|
|
|
7,306 |
|
|
|
822 |
|
|
|
|
|
|
|
Total
|
|
|
483 |
|
|
|
9,868 |
|
|
|
822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The corresponding information for the income statement is
presented for Non life and Life reinsurance segments in
Note 17 to the consolidated financial statements.
S-2
SCHEDULE IV REINSURANCE
December 31, 2005, 2004 and 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Col. A |
|
Col. B | |
|
Col. C | |
|
Col. D | |
|
Col. E | |
|
Col. F | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
% of | |
|
|
|
|
Ceded to | |
|
Assumed | |
|
|
|
Amount | |
|
|
Gross | |
|
Other | |
|
from Other | |
|
Net | |
|
Assumed to | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Year Ended December 31, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in force
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premiums and other considerations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance and annuities
|
|
|
|
|
|
|
28 |
|
|
|
548 |
|
|
|
520 |
|
|
|
105 |
% |
|
|
Property-casualty insurance
|
|
|
|
|
|
|
125 |
|
|
|
1,691 |
|
|
|
1,566 |
|
|
|
108 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
153 |
|
|
|
2,239 |
|
|
|
2,086 |
|
|
|
107 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in force
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premiums and other considerations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance and annuities
|
|
|
|
|
|
|
20 |
|
|
|
544 |
|
|
|
524 |
|
|
|
104 |
% |
|
|
Property-casualty insurance
|
|
|
|
|
|
|
165 |
|
|
|
1,868 |
|
|
|
1,703 |
|
|
|
110 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
185 |
|
|
|
2,412 |
|
|
|
2,227 |
|
|
|
108 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in force
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance premiums and other considerations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance and annuities
|
|
|
|
|
|
|
66 |
|
|
|
583 |
|
|
|
517 |
|
|
|
113 |
% |
|
|
Property-casualty insurance
|
|
|
|
|
|
|
292 |
|
|
|
3,099 |
|
|
|
2,807 |
|
|
|
110 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
358 |
|
|
|
3,682 |
|
|
|
3,324 |
|
|
|
111 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-3
SCHEDULE V VALUATION AND QUALIFYING ACCOUNTS
December 31, 2005, 2004 and 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Col. A |
|
Col. B | |
|
Col. C | |
|
Col. D | |
|
Col. E | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
Additions | |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
Balance at | |
|
1) Charged | |
|
2) Charged | |
|
|
|
|
|
|
beginning of | |
|
to costs and | |
|
to other | |
|
|
|
Balance at | |
Description |
|
year | |
|
expenses | |
|
accounts | |
|
Deductions | |
|
end of year | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves deducted from assets to which they apply:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance balance receivable
|
|
|
11 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
13 |
|
Advances to and investments in affiliates
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
9 |
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
28 |
|
|
|
2 |
|
|
|
|
|
|
|
8 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2004:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves deducted from assets to which they apply:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance balance receivable
|
|
|
8 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
11 |
|
Advances to and investments in affiliates
|
|
|
16 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
17 |
|
Other assets
|
|
|
1 |
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
25 |
|
|
|
4 |
|
|
|
(1 |
) |
|
|
|
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves deducted from assets to which they apply:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance balance receivable
|
|
|
9 |
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
8 |
|
Advances to and investments in affiliates
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
Other assets
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
26 |
|
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-4
SCHEDULE VI SUPPLEMENTAL INFORMATION
CONCERNING
PROPERTY/ CASUALTY INSURANCE OPERATIONS
(I) DECEMBER 31, 2005, 2004 and 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Col. A |
|
Col. B | |
|
Col. C | |
|
Col. D | |
|
Col. E | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
Reserves for Unpaid | |
|
|
|
|
|
|
|
|
Claims, and Claim | |
|
Discount if any, | |
|
|
|
|
Deferred Policy | |
|
Adjustment | |
|
Deducted in | |
|
Unearned | |
Affiliation with Registrant |
|
Acquisition Costs | |
|
Expenses | |
|
Column C | |
|
Premiums | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(EUR, in millions) | |
Registrant and consolidated subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
|
249 |
|
|
|
6,439 |
|
|
|
83 |
|
|
|
693 |
|
2004
|
|
|
254 |
|
|
|
6,470 |
|
|
|
92 |
|
|
|
627 |
|
2003
|
|
|
251 |
|
|
|
7,306 |
|
|
|
104 |
|
|
|
822 |
|
S-5