SCOR and Covéa Lay Down Legal Swords in Return to ‘Mutually Beneficial Relationship’

June 11, 2021 by

French mutual insurer Covéa and reinsurer SCOR finally laid down their legal swords this week – opting instead for “peaceful relations” by signing a binding settlement agreement.

The agreement, which “implies no admission of liability on either side,” is designed to create the conditions “for a return to a mutually beneficial relationship over the long term.”

“The settlement is credit positive for both SCOR and Covéa as it ends a conflict which has been a distraction for both companies’ management teams” — Moody’s analyst Christian Badorff.

“Covéa and SCOR wish to restore peaceful relations, based on professionalism and in keeping with their respective independence,” said the agreement.

“These two major players in the insurance and reinsurance industry in France have decided to renew the relationship based on trust and mutual support that they enjoyed for many years,” it continued.

The settlement agreement will end the acrimonious battle between the companies, which began in 2018 when Covéa initiated a hostile takeover of SCOR – an €8.3 billion bid that was abandoned in early 2019 but has led to lawsuits and a public war of words.

Next month, a criminal trial in front of the Paris Criminal Court was due to be held against Covéa’s CEO Thierry Derez and Covéa – for breach of trust and concealment of breach of trust, respectively, at the Paris Criminal Court.

It has been a complicated relationship: Derez once sat on SCOR’s board at the time of the hostile takeover bid (he was later forced to resign) and Covéa is currently SCOR’s largest shareholder.

But, as a result of this week’s peace accord, in a section titled “Restore peaceful relations in order to move forward,” Covéa and SCOR have agreed to immediately abandon, “with regard to all persons concerned, all legal actions and claims linked to the combination proposal made by Covéa in 2018.”

In addition, Covéa has agreed to pay SCOR an indemnity settlement of €20 million (US$24.3 million) before tax. (In a separate announcement issued on June 14, SCOR said it had reached a settlement with Barclays, which resolves a suit it had filed against Barclays in the High Court in London for breach of confidence when the bank advised Covéa on its bid to acquire SCOR in 2018.)

Another part of the Covéa-SCOR agreement covers the “orderly exit by Covéa from the share capital of SCOR.” In this section, Covéa grants SCOR a call option on its SCOR shares, which are transferable “to any third party designated by SCOR, in compliance with regulations, at an exercise price of €28 per share and for a period of five years, so that SCOR can organize this exit in its best interests.”

In order to prevent any further takeover attempts — at least in the short term — Covéa agrees to renounce for a period of seven years “any submission of an offer, formal or informal, official or unofficial, public or private, direct or indirect, relating to a takeover of SCOR, and … any public communication regarding an expression of interest, an acquisition of a stake or a takeover of SCOR, unless at the express and prior request of the board of directors of SCOR.”

And last but not least, the companies have agreed to a re/insurance business partnership going forward. The agreement implements quota share retrocession treaties “whereby Covéa will underwrite, and SCOR will cede, 30% of all in-force business carried by SCOR’s Irish Life entities as of Dec. 31st, 2020, in exchange for a purchase price [of $1.014 million] that will be paid by Covéa upfront.”

Under the terms agreed, SCOR will transfer to Covéa 30% of all future premiums, commissions, claims and expenses with respect to this business until expiration of the underlying reinsurance treaties.

“[T]he quota-share agreement in the life reinsurance business is positive for Covéa as it allows the company to diversify its business profile into biometrical risks which are not correlated to property/casualty risks,” commented Moody’s analyst Christian Badorff, in a statement.

This quota share agreement also benefits SCOR because it provides the capital “to grow its business in the P/C reinsurance market, where rates have been hardening recently,” he added.

“The settlement is credit positive for both SCOR and Covea as it ends a conflict which has been a distraction for both companies’ management teams,” Badorff explained.

The peace accord between the companies was moderated by Jean-Paul Faugère, vice president of the Autorité de Contrôle Prudentiel et de Résolution (ACPR), the independent administrative authority responsible for monitoring the conduct of French financial institutions.

“The ACPR has asked that the dialogue between Covéa and SCOR be re-established and lead to a binding agreement formalized by the signature of a settlement agreement,” said SCOR and Covéa in their agreement.

As a result, the companies were able to reach a settlement, which was approved by the boards of directors of Covéa and SCOR on June 9 and 8, 2021, respectively, and signed by representatives of the two companies on June 10 in the presence of Faugère.

“Covéa and SCOR firmly believe that this course of action will open up a new period of trust, in the interests of both parties, their stakeholders, and more generally the insurance sector in France and the Paris marketplace,” said the agreement.