SCOR Posts $496 Million* Loss for 2002

April 1, 2003

France’s Scor Group, the world’s seventh largest reinsurer, registered a net loss of 455 million Euros ($496 million) for the year 2002; 55 million Euros ($60 million) more than it had said it expected in November when Denis Kessler took over as CEO and announced that the group would implement a restructuring plan.

Scor reported a net loss of 278 million Euros ($304 million) in 2001. The company said the loss “reflects the impact of the stock market crisis and additions to prior-year reserves.”

It also specified the “following factors” to account for the difference between the 425 million Euro (464 million) loss at the end of the first three quarters and the final loss for the full year:
— the write-down in full (EUR 18 millions) of goodwill on the Bermuda subsidiary Commercial Risk Partners (CRP),
— the addition of EUR 51 million [$56 million] to CRP’s reserves prior to its disposal,
— a positive Group net income of EUR 39 million [$43 million] (excluding the goodwill write-off on CRP and excluding replenishment of CRP’s reserves) for the fourth quarter of 2002.

Scor’s fourth quarter 2002 results, a net profit of 39 million Euros ($43 million) -excluding CRP-, exceeded the forecast made in November 2002 by 14 million Euros ($15.5 million).

In January 2003 it decided to “dispose of CRP or transfer it to a run off account,” and signed a “letter of intent providing for the disposal of CRP” on March 28. “CRP is disposed of at its net book value at December 31, 2002, coupled with a clause providing for the share-out between the purchaser and SCOR of any improvement or deterioration in reserves up to a ceiling of EUR 100 million [$109.15 million], to be assessed in 2007 and in 2009. Closure of the transaction is scheduled to take place by June 30, 2003,” said Scor in a written statement. It did not identify the buyer.

The company said its premium income rose by +2.6 percent in 2002 to 5.016 billion Euros ($5.47 billion) and added that “at constant exchange rates”, it would have been +13 percent. P/C reinsurance premiums increased by 7% (17% at constant exchange rates) to 2.069 billion ($2.26 billion) due largely to “rate increases, especially in short to medium-tail classes,” that increased Group premium income in the sector.

“The share of short to medium-tail writings increased in 2002, representing 48% of total activity in 2002, against 41% in 2001. P&C reinsurance began to pick up in 2002, with a technical operating loss of EUR – 271 million [$296 million], compared with EUR -440 million [$480 million] in 2001,” said the announcement. It also noted gains in the life and accident sectors and in its “large corporate accounts” division, but the company’s credit and bond activity and premium income on Alternative Risk Transfer from CRP fell sharply.

Kessler made the following statement concerning the results: “The year 2002 was an exceptionally tough one for the SCOR Group, culminating in a loss of EUR 455 million [$496 million]. We have had to make hefty additional reserves on prior years to meet long-tail claims. The sharp fall in the stock markets has affected the Group. SCOR responded with the adoption of its “Back on Track” recovery plan in November 2002, designed to restore confidence, increase its solvency and recover its profitability. SCOR Group ought to be in a position to start profiting in 2003 both from improving prices in the reinsurance market and from the results of recovery measures already implemented, thanks to a combination of the Group’s recapitalization, the adoption of a rigorous underwriting plan implemented from the start of the renewals, a very conservative investment policy, a radical reorganization from top to bottom, which has left the Group free to refocus on its profitable businesses.”

Scor also announced that Pierre Charles, 56, a graduate of the ENSEM School of Engineering, who also holds a Master of Science degree from Cal Tech and an MBA from INSEAD, one of France’s leading business schools, has been appointed as the company’s Group Chief Claims Strategist. He was formerly with AIG Europe, where he was in charge of European operations, and later Head of Strategy and Development.

He “will have full control of large claims in all classes of business,” and “will be also in charge of implementation of a global claims management policy for all SCOR entities,” said the announcement. “The creation of this function is part of a series of actions comprised in the “Back on Track” plan launched by SCOR in November 2002, aimed at reinforcing control over underwriting quality and improving management,” it added.

A.M. Best Co. offered this comment on Scor’s earnings announcement: “The financial strength rating of A- (Excellent) of SCOR (Paris, France) and core subsidiaries remains unchanged following the announcement of its 2002 year-end results. The outlook remains negative.”

* Due to the war in Iraq and the accompanying uncertainty in the world’s financial markets, the dollar is currently trading at more than $1.09 to the Euro, near a two-year high for the EU currency. This raises the dollar equivalent vis-à-vis the Euro to higher levels than might otherwise be the case.

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