Global reinsurer SCOR has extended its contingency capital program for a further three years, which could provide the company with up to €300 million in additional capital following the occurrence of extreme events, natural disasters or events affecting mortality or “a significant decline in the share price of the company’s common shares”.
The last renewal took place in December 2022 and, like renewals in 2019 and this year, generated €300 million in contingent capital financing. Overall, this is the Paris-based reinsurer’s sixth contingent capital transaction and fifth renewal.
The first contingent capital transaction in 2010 was a €150 million natural disaster loan, which was triggered in 2011 and resulted in a drawdown of €75 million. In 2012, the loan facility was expanded to €150 million, and in late 2013, SCOR renewed its contingent capital facility and issued a €200 million contingent equity facility. In 2016, the reinsurer launched a €300 million contingent capital facility, which expired at the end of 2019.
SCOR explained today that the solution is designed to protect equity and thus the group’s solvency in the event of the extreme events described above or a significant decline in share prices.
“The contingent capital program is based on stock warrants issued by SCOR and subscribed by J.P. Morgan, which warrants will be automatically exercisable under the conditions set forth in the warrant agreement (the “2025 Warrants”),” the company said.
The coverage period of the updated contingent capital plan is from January 1, 2026 to December 31, 2028. If no triggering event occurs during this period, the 2025 warrants will not be exercised.
SCOR explained: “The warrant agreement for the 2025 Warrants provides, among other things, for the benefit of the Company, an option to early terminate all or a portion of the 2025 Warrants upon the occurrence of a regulatory disqualifying event and an option to early terminate all of the 2025 Warrants on December 31 of each year beginning on December 31, 2026.
“The increase in share capital due to the potential exercise of the 2025 warrants could amount to €300 million (including share premium), provided that the dilution does not exceed 10% of the share capital on the date of issuance of the common shares as a result of the exercise of the 2025 warrants. Specifically, the exercise of all 2025 warrants assumes that the share issuance warrants issued in December are not exercised. On December 16, 2022, the coverage period will expire on December 31, 2025 (the “2022 Warrants”), and the total number of new common shares to be issued under the 2022 and 2025 Warrants upon exercise will not exceed 10% of the share capital on the date of issuance of such shares.
Under the terms of the transaction, the reinsurer will issue 8,971,220 warrants to JP Morgan SE. Each 2025 Warrant entitles JP Morgan SE to subscribe for two new SCOR common shares, up to a maximum of 10% of the number of SCOR common shares on the date of issuance of said common shares. The subscription price for each 2025 Warrant is EUR 0.001, for a total subscription price of EUR 8,971.22.
SCOR expanded on this, saying: “Under the terms of the 2025 Warrant Agreement, J.P. Morgan Chase & Co. has committed, subject to the satisfaction of certain conditions, to exercise all or a portion of the 2025 Warrants in the event of a natural or non-natural catastrophe-type event that could have a material impact on the Group’s profitability or solvency, or a material decline in the share price of the Company’s common stock (as described in more detail below), up to an amount equal to the amount of withdrawals under the Contingent Capital Plan. billion euros (including equity premium), which can be done in one or more tranches.
In terms of its rationale for the renewal, SCOR stated, “Management believes that this contingent capital solution delivers significant net economic benefits to its shareholders as it compares favorably to traditional retrocession and ILS insurance securities and enables SCOR to increase the resiliency of its balance sheet while optimizing its risk protection costs with limited potential dilutive impact.”
