Global reinsurance company SCOR has renewed its contingent capital program for another three years, which may provide the carrier with up to €300 million of additional capital after the occurrence of extreme events, natural catastrophes or events affecting mortality, or a “significant fall in the share price of the Company’s ordinary shares.”
The last renewal occurred in December 2022, which as with the 2019 renewal and this year’s, resulted in a €300 million contingent capital facility. Overall, this is the sixth contingent capital deal and fifth renewal from the Paris-headquartered reinsurer.
The first contingent capital transaction, in 2010, was a €150 million natural catastrophe facility, which was triggered and resulted in a €75 million drawdown in 2011. In 2012, this was followed by an extension of the facility back up to the €150 million mark, and in late 2013, SCOR renewed its contingent capital facility, issuing a €200 million contingent equity line. In 2016, the reinsurer launched a €300 million contingent capital facility, which expired at the end of 2019.
SCOR explained today that this solution aims to protect equity and, consequently, the Group’s solvency in the case of the aforementioned extreme events or a significant fall in the share price.
“The contingent capital program is based upon the issuance by SCOR of share subscription warrants, subscribed by J.P. Morgan SE, which will be automatically exercised in the cases specified in the warrant agreement (the “2025 Warrants”),” states the firm.
The coverage period for the renewed contingent capital program starts from January 1, 2026, to December 31, 2028, and if no triggering event occurs in this period, the 2025 Warrants will not be exercised.
SCOR explains: “The warrant agreement for the 2025 Warrants provides, among other things, for the benefit of the Company, an option for early termination of all or part of the 2025 Warrants in the event of a regulatory disqualification event, as well as an option for early termination of all 2025 Warrants on December 31 of each year, beginning on December 31, 2026.
“The amount of the share capital increases resulting from the potential exercise of the 2025 Warrants could reach EUR 300,000,000 (including share premium), providing that the dilution shall not exceed 10% of the share capital on the date of issuance of the ordinary shares resulting from the exercise of the 2025 Warrants. It being specified that the exercise of all the 2025 Warrants assumes the absence of exercise of the share issuance warrants issued on December 16, 2022 which coverage period will expire on December 31, 2025 (the “2022 Warrants”), the total number of new ordinary shares to be issued upon exercise of the 2022 and 2025 Warrants not exceeding 10% of the share capital on the date of issuance of said shares.”
Under the terms of the transaction, the reinsurer will issue 8,971,220 share subscription warrants to J.P. Morgan SE, each 2025 Warrant entitling J.P. Morgan SE to subscribe for two new SCOR ordinary shares up to a limit of 10% of the number of ordinary shares comprising SCOR’s share capital on the date of issue of said ordinary shares. The subscription price of each 2025 Warrant amounts to €0.001, resulting in a total subscription price of €8,971.22.
Expanding on this, SCOR states: “Under the terms of the warrant agreement for the 2025 Warrants, J.P. Morgan SE has undertaken, subject to certain conditions, to exercise for all or part of the 2025 Warrants following the occurrence of natural or non-natural catastrophe-type events likely to have a significant impact on the Group’s profitability or solvency, or a significant fall in the share price of the Company’s ordinary shares, as described in more detail below, for a maximum amount of EUR 300,000,000 (including share premium). Drawdowns under the contingent capital program may be carried out in one or more tranches.”
In terms of the rationale for this renewal, SCOR notes that, “management believes that this contingent capital solution provides its shareholders with a significant net economic benefit, insofar as it compares favorably with traditional retrocessions and ILS insurance securities and allows SCOR to improve the resilience of its balance sheet while optimizing its risk protection costs with a limited potential dilutive impact.”
