SCOR issues a new contingent capital facility
Reinsurer SCOR is launching a new 3-year contingent capital facility. This takes the form of a contingent equity line, providing the group with €300 million coverage in case of extreme natural catastrophe or life events impacting mortality. The facility enables the group to protect its solvency in case of catastrophe events and is consistent with the company’s Quantum Leap strategic plan.
This is the fourth contingent capital facility launched by SCOR – its first solution was launched on January 1, 2011. This new solution is consistent with the previous facilities.
As part of the authorization granted by the General Meeting of SCOR shareholders in April 2019, SCOR has arranged a new contingent capital equity line with investment banking company JP Morgan. This equity line facility will replace, as of January 1, 2020, the current contingent capital facility which comes to an end on December 31, 2019.
This protection would be triggered in case of extreme life events impacting mortality, as well as natural catastrophe events. It is calibrated to safeguard SCOR’s solvency. The solution also allows SCOR to extend its solvency and offers a very cost-effective alternative to traditional retro and ILS.
The probability that the events triggering the contingent capital facility will occur remains very low and is similar to the last contingent capital mechanism, which minimizes the probability-weighted costs for SCOR and its shareholders.
Under the new facility, a drawdown may result in an aggregate increase in the share capital of SCOR up to €300 million (including issuance premium), in respect of which SCOR has entered into a firm subscription commitment with JP Morgan. The issuance of the shares would be triggered when SCOR has experienced total annual aggregated losses or claims from natural catastrophes or extreme events impacting mortality claims above a certain threshold, which is not made public, between January 1, 2020, and December 31, 2022.
As well as being accounted for in SCOR’s internal model, the solution has received substantial favourable qualitative and quantitative assessments from the rating agencies. In the absence of any extreme triggering event, no shares will be issued under the facility. It is therefore highly likely that this facility will reach its term without any dilutive impact for the shareholders.
Denis Kessler, chairman and chief executive officer of SCOR, said: “Our new strategic plan Quantum Leap sets out ambitious profitability and solvency targets given the current financial and economic environment. This new contingent capital facility is an essential part of the active capital management policy that is at the heart of our strategy. This facility protects SCOR’s solvency, at a very low cost for our shareholders, against events such as a global pandemic or a natural catastrophe of historic proportions.”
Get all the latest re/insurance industry news with our daily newsletter - sign up here.
Lloyd's launches new space risk product and new analysis of the space sector
Austral Re and Terra Brasis start post-merger operation Bad news events and climate change have D&O risk implications Insurers need to improve processes for wealth advisers – study CII and Scope unite to make insurance an inclusive profession R&Q director steps down to take part time exec role De-tariffication of Malaysia’s motor and fire insurance impacts marketplace
