SCOR Sets Agenda for “Back on Track” Plan; May Sell Bermuda Operation

Denis Kessler, who recently took over as the head of France’s SCOR Group, revealed additional measures to implement his “Back on track Plan” for the company at yesterday’s Board of Directors meeting.

Among the measures approved by the Board were a reform in its procedures by implementing “best practice in the field of corporate governance;” the appointment of three new officers – Patrick Thourot as COO; Jean-Luc Besson as Chief Reserving Actuary and Yvan Besnard as Chief Internal Auditor; the decision to raise SCOR’s holding in Irish Reinsurance Partners (IRP) from 42 percent to 47 percent, and the proposed sale of Bermuda-based subsidiary Commercial Risk Partners (CRP), “whose activity is now considered non-strategic, and to cease underwriting new business.”

Allan Chapin, a non-executive Director, had already proposed the reorganization to the Board last November. He presented the proposals as a response to the recommendations of the Bouton report in France and to the Sarbanes/Oxley Act in the United States, which are aimed at strengthening corporate governance. The proposals, which will be presented to SCOR shareholders, include the following:
– Non-executive directors to be in the majority;
– A wider array of expertise comprising financing and industrial experts;
– A more international Board, expanding the proportion of non-French nationals, or Directors with international experience, from 20% today to 50% ultimately;
– No shareholder, excepting special provisions, should be represented by more than one Director on the Board.

Thourot, formerly an Executive VP of the AXA Group and a member of the French Federation of Insurance Companies (FFSA), will replace Serge Osouf who is retiring.

Besson will report directly to Kessler. He is an Actuary with a doctorate in mathematics. Since July 2001 he has been the Senior VP for Research, Statistics and Information Systems at the FFSA, which Kessler headed before taking over at SCOR. The bulletin noted that he “will be in charge of ensuring consistency of reserving policies within the Group, working with outside actuaries, and will report on his findings to the Board.”

Besnard too will report directly to the Chairman. “On top of a traditional role, he will namely be in charge of ensuring strict enforcement of decisions regarding underwriting and reporting procedures,” said the announcement. He is a former Financial Controller of AGF Re, who joined SCOR in 1991 as Head of Management Analysis. In 1993, he became Financial Controller of SCOR Réassurance, and in 1995 he joined SCOR UK, where he was appointed Managing Director in 1997.

SCOR had offered to buy an additional 10 percent share of IRP, but the exercise of preemptive rights by another shareholder scaled back the offer to 5 percent. It will now increase its holding from 42 percent to 47 percent, pending regulatory approvals.

“By raising its stake in IRP, a retrocession vehicle created by the Group at the end of 2001, SCOR will consolidate a greater proportion of underwriting profits. This initiative is in keeping with the “Back on Track” plan, in which SCOR decided to focus primarily on profitability,” said the announcement.

On the other hand SCOR confirmed that it would cease writing new business through CRP, and now considers the Bermuda-based subsidiary to be “non-strategic.” It is seeking a buyer for the company, and confirmed that Graham Pewter, its Chairman & CEO and François Bertrand, its COO and Chief Actuary, have resigned.

A.M. Best reacted to the news by announcing a downgrade of its financial strength ratings on CRP and its U.S. subsidiary, Commercial Risk Re-Insurance Company of Vermont, to B++ (Very Good) from A- (Excellent). It placed both companies “under review with negative implications.”

“The under review status of the ratings reflects A.M. Best’s concern regarding the future role of these companies within SCOR and the uncertainty as to the outcome of the annual year-end reserves review of the companies currently being carried out,” said the announcement.

Kessler’s restructuring plan also calls for greater employee participation in the company. He will propose that the shareholders approve “an innovative stock option plan for all Group employees, in France and abroad, excluding senior executives.” Employees would receive “the equivalent to one month’s salary in stock options; increased by the allocation of an additional half-month’s salary in stock options if 2003 ROE exceeds 10%, and completed by the allocation of a further half-month’s salary in stock options if 2004 ROE exceeds 12%.”

“This measure is designed to give all employees a stake in the Group’s return to profitability, symbolizing the Board’s confidence in the quality of SCOR’s personnel and in the future of the Group,” said the announcement. While such plans are frequently used in the U.S., they have heretofore been somewhat of a rarity in France.