1, avenue du President Wilson
92074 Paris La Defense Cedex
(33) 1 46 98 70 00
Fax: (33) 1 47 67 04 09
Web site: http://www.scor.fr
Sales: FFr 13.81 billion (1996 gross written premiums)
Stock Exchanges: Paris New York
SICs: 6399 Insurance Carriers, Not Elsewhere Classified
Paris-based SCOR S.A. is France’s leading reinsurance company and one of the world’s top ten “insurer’s insurers.” SCOR provides facultative and treaty reinsurance to property-casualty and life insurance companies. A global company, with operating units in the United States, Canada, Germany, the United Kingdom, Singapore, Japan, Hong Kong, Italy, Bermuda, and other major countries and cities throughout the world, SCOR’s customers include leading primary insurance providers of property, casualty, marine, space and transportation, construction, credit risk, and life and health insurance policies. In 1996, SCOR’s gross written premiums totaled FFr 13.8 billion, generating earnings of FFr 624 million. The company’s claims-paying ability has been rated as A + by Standard & Poor and as A + (superior) by A.M. Best.
Reinsurance operates much like the traditional insurance industry; however, reinsurance companies such as SCOR do not directly underwrite insurance policies protecting property or casualty risk, but instead insure the primary insurance company, called the ceding company, writing the policy. The ceding company contracts with the reinsurer—and usually several reinsurance companies—in order to buffer itself against catastrophic losses such as those experienced during Hurricane Andrew and other natural disasters. While the ceding company retains the direct risk on its policies, and is responsible for paying out on claims, its reinsurers accept a contracted percentage of claims made against—and premiums paid for—a policy. Use of reinsurance companies helps protect primary insurers against extreme variations in their financial position caused by major losses, while reinsurance companies also allow ceding companies to underwrite more and larger risk policies. Reinsurance companies also provide ceding companies with the cash needed to pay out on major losses, protecting the ceding company’s assets.
Reinsurance contracts, or treaties, generally take one of three forms. Under a proportional treaty, the reinsurer contracts for a specific percentage of a policy or portfolio of policies written by a ceding company; the reinsurance receives that percentage of the premiums generated by the ceding company, and becomes responsible for paying the same percentage on any claims against the policy or portfolio. The second form of treaty, becoming more common in the 1990s, is the non-proportional treaty, in which the reinsurance company contracts to pay out on claims exceeding a level provided for in the treaty. The ceding company may be responsible, for example, for paying out the first $1 million on losses claimed against a $5 million policy. After the ceding company has fulfilled its deductible, the reinsurer becomes responsible for the remaining losses, up to the policy’s remaining $4 million limit. The reinsurance company’s risk exposure is therefore limited only to claims for losses above the deductible level, while the ceding company’s limited risk on the full claim enables it to offer the larger policy.
The third form of reinsurance treaty more directly involves the reinsurance company. In a facultative treaty, policies are written on an individual basis, often involving treaties above the ceding-company’s claims paying ability or beyond its range of risks. Facultatives are generally written for large-scale industrial and civil engineering projects, and to a lesser extent for liability claims. The reinsurer is responsible for risk-assessment and for establishing policy limits, terms, and premiums. Among reinsurance companies, SCOR is one of the leading underwriters of facultative treaties. SCOR’s portfolio of facultative treaties numbered some 10,000 in 1997, generating more than one-fourth of the company’s total income.
SCOR’s services also extend toward providing ceding companies with research, information, and support, especially in highly specialized areas such as marine insurance and major public works projects. The company deploys specialist underwriters with expertise in individual fields, such as life insurance, credit insurance, marine and aviation, as well as for specific sectors requiring facultative reinsurance coverage such as in the oil, gas, nuclear power, and chemical industries, or for specific projects including the construction of dams, high-rise buildings, or offshore drilling rigs, or the launching of satellites and other high-profile endeavors. SCOR provides on-site inspection and consultation on risk-management techniques, as well as establishing premium rates and, in the event of losses, damage assessment and claims adjustment services.
Founded in 1970
SCOR was founded in 1970 by the French government as the reinsurance arm for state-owned or controlled insurers. At the time, the reassurance industry was largely dominated by London and New York, while in France the reassurance industry remained underdeveloped. In 1972, the company began setting up foreign branches to expand its position in the worldwide market. The company remained capital-constrained through much of the decade, however, as the French government restricted SCOR from issuing shares to outside investors. At the same time the government was engaged in a massive effort to place a number of industries and major corporations under government control—including leading automaker Renault, steel makers Usinor and Sacilor, chemicals concern Saint Gobain, and others—leaving little capital to invest in SCOR.
In the early 1980s, SCOR underwent a diversification program, expanding its reinsurance offerings. The company also set up its foreign branches as subsidiaries, including those in the United States, Canada, and Singapore. These subsidiaries were taken public, enabling the company to raise the much-needed capital for its expansion. In 1983, Patrick Peugeot was named SCOR’s president-director general, a position he would hold for 11 years. Peugeot led the company on an expansion and diversification program through the 1980s and early 1990s that saw the company grow not only to a leadership position in France’s reinsurance industry, but to the number six position among reinsurers worldwide.
SCOR took several significant steps towards this position in the late 1980s. In 1988, the company acquired leading Italian reinsurance company La Vittoria Riassicurazioni. In that same year, SCOR also set up two new subsidiaries, SCOR Reassurance and SCOR Vie, increasing its portfolio of products. The following year, the company moved into Germany when it acquired that country’s Deutsche Continental Riickversicherungs. But by then SCOR was already preparing a major reorganization that would carry the company through the mid-1990s.
Restructuring in the 1990s
The wave of corporate conversions to state control of the late 1970s was largely finished by the mid-1980s. Indeed, by 1984, the government was already engaged in a long process of re-privatization of much of its state-controlled businesses. SCOR, too, found its independence in the late 1980s. In 1989, that process began when SCOR agreed to merge with UAP Re, the reinsurance arm of the Union des Assurances de Paris (UAP). Under the merger agreement, UAP took some 40 percent control of SCOR. The company was then reorganized, with SCOR S.A. operating as a subsidiary of holding company HCS. Joining UAP in the venture were two other French insurance companies, Assurances Générales de Paris (AGF) and AXA S.A., which each took shares of approximately 20 percent in HCS. The following year, SCOR was taken public, selling the remaining 25 percent of shares—principally to Credit Agricole subsidiary Predica and to Swiss Re—and listing on the Paris stock exchange. HCS retained a controlling 53 percent share of SCOR S.A. Meanwhile, UAP, AGF, AXA, and SCOR entered a pact to maintain the level of their participation in SCOR, with each of the major shareholders guaranteeing not to sell their shares without the consent of the others, thereby protecting SCOR from the threat of a hostile takeover.
The early 1990s held a threat of a different sort, however. Beginning in 1991 and lasting through much of 1992, the insurance industry was rocked by a series of natural and other disasters, including Hurricane Andrew, which alone cost the insurance industry some US $16.5 billion. SCOR’s share of that disaster mounted to FFr 300 million; meanwhile, the company was hit more directly by several industrial disasters, resulting in a loss of FFr 858 million on its technical results, and a net loss of FFr 135 million for 1992, on net sales of FFr 8.4 billion.
Yet, despite posting its first loss in nearly a decade, SCOR retained a solid foundation, with a capitalization of some FFr 5 billion, and a positive cash-flow of more than FFr 800 million. Elsewhere, the industry was not as healthy—the year of catastrophes proved disastrous to a number of prominent reinsurers, forcing the disappearance of such reinsurance companies as NRG, the Netherlands largest reinsurer, and NW Re and Royal Re, two of the top four reinsurance companies in London. Even Lloyds of London was eventually forced to shed its reinsurance operations. The industry underwent a wave of consolidation that reduced the number of reinsurance companies worldwide from more than 400 in the 1980s to approximately 200 by the mid-1990s.
The industry found some relief in 1993, as insurers and reinsurers saw more limited exposure to the year’s major natural disasters -including the flooding of the Mississippi and Missouri Rivers, and the Los Angeles earthquake, as well as flooding in the south of France, most of the losses of which were picked up by governmental disaster assistance. Aided in part by a strong increase in reinsurance tariffs—of 20 percent and as much as 100 percent—SCOR returned to profitability by the end of 1993, posting net earnings of FFr 157 million. The following year saw SCOR continue to recover, with net income climbing some 80 percent to FFr 282 million, with revenues nearing FFr 10 billion. In September 1994, Patrick Peugeot stepped down from SCOR’s leadership, replaced by Jacques Blondeau.
The shareholder’s pact among SCOR, UAP, AGF, and AXA reached completion of its term at the end of 1994, setting in motion a new restructuring of SCOR. The company’s major shareholders were looking for the freedom to decrease their participation in SCOR, and the company announced its intention to reorganize its structure, merging the HCS holding company into the SCOR S.A. subsidiary. Following upon the merger, AGF and AXA, and, to a more limited extent, UAP, planned to decrease their participation in SCOR. That move, however, was postponed temporarily, given the weak financial market at the beginning of 1995. At the same time, SCOR began buying up the minority shares in its U.S., Singapore, Canadian, and other public subsidiaries, removing them from the stock market.
By the end of 1995, SCOR’s profits had rebounded fully, with net earnings of FFr 522 million on revenues of FFr 11.85 billion. AGF, in a portfolio-shedding drive to reduce its debt, began selling back its shares to SCOR, reducing its holding in the French reassurance leader to a symbolic 0.7 percent by September 1996. AXA also began selling its stake, dropping its participation to 7.5 percent by the middle of 1996 and then selling its remaining 2.75 percent by August of that year.
In July 1996, SCOR moved to double its U.S. activity when it acquired the US $400 million reinsurance premium portfolio of Allstate subsidiary Allstate Re. The US $500 million acquisition, which included Allstate Re’s post-1985 risk portfolio, placed SCOR in the top 10 in the U.S. reinsurance market. It also set the stage for the next major development in the company’s history: its listing on the New York Stock Exchange, making SCOR only the sixth French company to do so. The October 1996 listing allowed UAP to follow AXA and AGF, when it announced its intention to place 30 percent of SCOR on the international market, while retaining its remaining 10 percent interest in SCOR as a long-term investment. The 9.2 million-share offering raised some US $350 million.
SCOR, in the meantime, continued its restructuring, with an eye on increasing its global presence in the major reinsurance markets. The company opened branch offices and divisions in Brazil and South Korea. In June 1997, SCOR reorganized its Italian subsidiary, transferring all of its Italian reinsurance activities to the newly renamed SCOR Italia. With revenues nearing FFr 14 billion and 1996 net earnings nearing FFr 625 million, SCOR continued to confront the ongoing consolidation of the reinsurance industry with its own global expansion plans.
SCOR Vie; SCOR Reassurance; SCOR Italia; SCOR Deutsch-land; SCOR U.S.; SCOR Canada; Commercial Risk (Bermuda); SCOR U.K.; SCOR Asia Pacific (Singapore).
“French Reinsurer SCOR Lists on NYSE,” Euroweek, October 11, 1996, p. 8.
“Keeping SCOR,” Reactions, February 1, 1995.
Kielmas, Maria, “Insurers Divest Shares of Reinsurer SCOR,” Business Insurance, September 9, 1996, p. 23.
“SCOR,” World Corporate Insurance Report, March 24, 1995.
“SCOR’s Roadshow Rolls on with Global Strategy,” Financial Times, October 1, 1996, p. 24.
—M. L. Cohen