A SCOR representative told National Underwriter in a written statement that the company is well underway with its announced capital increase, due to begin Dec. 1. “Management is actively and vigorously pursuing its pragmatic and thorough corporate turnaround plan,” the representative said.

In a Nov. 19 corporate response to the Fitch downgrade, SCOR said it formally contested Fitchs decision to release such an opinion just before the rights issue, which already has “firm shareholder commitments for more than 50 percent of the issue.”

“Obviously, theres no good time to do a downgrade, but we thought it was important to send our views quite clearly to the insurance 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 rights issueand we do expect them to raise either all of it or a very significant proportion of itwe still consider that the company has significant challenges,” he said.

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

By determining that SCORs reserves should be above the estimates of independent actuaries, Fitch imposes on SCOR “a level of reserving which does not correspond to market practice; this measure is therefore discriminatory and unacceptable,” said SCOR.

“Were not saying there arent sufficient reserves,” said Mr. Carter. “What were saying is that this is a business that is notoriously difficult to reserve for and the recent experience has been of deterioration,” he added, referring to U.S. liability business written in the period from 1977 to 2001. Fitch recently published a report on U.S. business generally, which said that the U.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 a delay in claims fed from primary insurers to their reinsurers.

Another problem SCOR must contend with is the fact that reinsurance brokers have taken SCOR off their approved list of reinsurers, Mr. Carter said. “So none of the brokers will be placing new business with them, although existing business may choose to renew with SCOR.”

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

While SCORs representative affirmed that some brokers have temporarily suspended the company from their security lists, the representative said “only half of SCORs premiums come in through the brokers, and of that number, only half are renewed at the beginning of the calendar year.” Asian renewals take place in April, while the American market largely renews in April and July.

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

SCOR said the “bulk of these additional reserves concerns business lines which have been clearly identified, which were underwritten between 1997 and 2001, and which the group has stopped underwriting.”

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

Jerome Faure, the current president and CEO of SCOR US and managing director of the non-life treaties division, has decided to leave 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 serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.