SCOR increases contingent capital facility; describes as cost effective alternative to ILS

SCOR has increased the size of a contingent capital facility it uses to protect its solvency in cases of extreme natural catastrophe or life events impacting mortality – though it has not revealed the size of the losses that would trigger the use of the facility.

Its new three-year contingent capital facility, agreed with BNP Paribas, provides the French reinsurer with €300 million of coverage between January 1, 2017 and December 31, 2019 through the issuance of new shares. It is €100 million bigger than its previous facility, which expires at the end of 2016.

This will be the third time SCOR has established such a facility – its first was launched on January 1, 2011.

The facility is calibrated to safeguard SCOR's solvency, in case of major losses and claims while also offering diversification in the way it protects its solvency. The company calls it a “very cost effective alternative to traditional retro and ILS”.

SCOR said the probability that the events triggering the contingent capital facility will occur remains very low – lower than that of the initial 2011 solution – 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 up to €300 million (including issuance premium). 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 the company will not reveal, between January 1, 2017 and December 31, 2019.

The transaction means 9.6 million warrants are issued by SCOR to BNP Paribas. Each warrant gives BNP Paribas the right to subscribe to two new SCOR shares without exceeding 10 percent of SCOR's share capital.

Denis Kessler, chief executive of SCOR, said: “This new contingent capital facility is fully in line with the active capital management policy at the heart of our three-year plan ‘Vision in Action’ and helps to safeguard the group's solvency in case of extreme catastrophe events. 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.”

The facility may be used under two circumstances. The first is when the amount of the estimated ultimate net loss incurred by SCOR reaches pre-defined thresholds in a given calendar year from January 1, 2017 to December 31, 2019, as a direct result of the occurrence within that year of one or more natural catastrophe-type events.

The second is when the amount of net claims of the SCOR group's life reinsurance segment over two consecutive semesters over the period from July 1, 2016 to December 31, 2019 reaches pre-defined thresholds as the consequence of an epidemic, pandemic or a similar incidence, acts of war or terrorism, accidents due to non-natural cause(s), or a material deviation from forecast biometric trends for any reason whatsoever.