SCOR Raising Capital

Reinsurance Editor

As the troubled SCOR Group gears up for a 600 million euro ($705million) capital-raising exercise this week, it is contending withits latest ratings reduction and the fact that many brokers areseeking client approval before placing business with SCOR.

Fitch Ratings downgraded Paris-based SCOR Groups majorreinsurance entities financial strength ratings to “double-B plus”from “triple-B” on Nov. 19. In taking the action, Fitch cited SCORsreserve deficiencies totaling 589 million euros ($693 million),mostly from discontinued and non-core businesses involved innon-life activities in the United States and Bermuda.

A SCOR representative told National Underwriter in awritten statement that the company is well underway with itsannounced capital increase, due to begin Dec. 1. “Management isactively and vigorously pursuing its pragmatic and thoroughcorporate turnaround plan,” the representative said.

In a Nov. 19 corporate response to the Fitch downgrade, SCORsaid it formally contested Fitchs decision to release such anopinion just before the rights issue, which already has “firmshareholder commitments for more than 50 percent of the issue.”

“Obviously, theres no good time to do a downgrade, but wethought it was important to send our views quite clearly to theinsurance community before the renewal season draws to a close,”said Greg Carter, senior director of Fitch in London

“Even if the company raises the money through the rightsissueand we do expect them to raise either all of it or a verysignificant proportion of itwe still consider that the company hassignificant challenges,” he said.

He explained that if the company raises the entire 600 millioneuros, it will pay for the reserve strengthening, but it wontcreate a buffer should reserves further deteriorate. “This wholereserve strengthening exercise at best is a neutral credit event,”Mr. Carter continued.

By determining that SCORs reserves should be above the estimatesof independent actuaries, Fitch imposes on SCOR “a level ofreserving which does not correspond to market practice; thismeasure is therefore discriminatory and unacceptable,” saidSCOR.

“Were not saying there arent sufficient reserves,” said Mr.Carter. “What were saying is that this is a business that isnotoriously difficult to reserve for and the recent experience hasbeen of deterioration,” he added, referring to U.S. liabilitybusiness written in the period from 1977 to 2001. Fitch recentlypublished a report on U.S. business generally, which said that theU.S. industry is under reserved perhaps by as much as $77 billion.(See NU Online News Service, Nov. 19.)

The problem for reinsurers, he explained, is that there is adelay in claims fed from primary insurers to their reinsurers.

Another problem SCOR must contend with is the fact thatreinsurance brokers have taken SCOR off their approved list ofreinsurers, Mr. Carter said. “So none of the brokers will beplacing new business with them, although existing business maychoose to renew with SCOR.”

“Most brokers have a minimum rating requirement,” said a Londonbroker who didnt want to be identified. “In view of whats happened[to SCOR], brokers must seek client reaffirmation before placingthe business” with the company.

While SCORs representative affirmed that some brokers havetemporarily suspended the company from their security lists, therepresentative said “only half of SCORs premiums come in throughthe brokers, and of that number, only half are renewed at thebeginning of the calendar year.” Asian renewals take place inApril, while the American market largely renews in April andJuly.

“We are maintaining ongoing and detailed communications with thebrokers and the rating agencies,” the representative said. “We arekeeping close contact with all of our clients throughout the worldto keep them informed of the progress the company is making.”

SCOR said the “bulk of these additional reserves concernsbusiness lines which have been clearly identified, which wereunderwritten between 1997 and 2001, and which the group has stoppedunderwriting.”

In another move to reorganize, SCOR on Nov. 19 appointed HenryKlecan Jr. as president and CEO of SCOR US. Mr. Klecan has beenpresident and CEO of SCOR Canada since July 2000, a position thathe will continue to maintain.

Jerome Faure, the current president and CEO of SCOR US andmanaging director of the non-life treaties division, has decided toleave the SCOR Group at the end of this year, the company said.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, November 26, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.