SCOR's EUR 500 Million Restricted Tier 1 Notes: A Boon to Capital Strength

SCOR, a leading global reinsurer, has successfully placed EUR 500 million in Restricted Tier 1 Notes, further bolstering its capital position and resilience. This issuance, which meets Solvency II requirements, is a testament to SCOR's commitment to maintaining a robust balance sheet and enhancing its ability to absorb losses. Let's delve into the details of this transaction and its implications for SCOR's financial health.

The new notes, with a principal amount of EUR 500 million, are eligible as Restricted Tier 1 regulatory capital under Solvency II. They feature a loss-absorption mechanism in the form of a write-down of the principal amount in the event of solvency-related triggers. This mechanism aligns with SCOR's commitment to maintaining a strong capital position and absorbing potential losses, thereby enhancing its overall resilience.

The initial fixed rate for these notes is 6% per annum, payable semi-annually in arrear until 20 December 2034. After this date, the interest rate will be reset every 5 years thereafter at the prevailing EUR 5-year mid-swap rate plus a margin of 385.7 basis points. This structure provides SCOR with a stable cost of capital for the initial 10-year period, reducing interest rate risk. However, it also exposes SCOR to potential increases in interest rates, which could negatively impact future earnings. The loss-absorption mechanism, however, mitigates this risk by allowing SCOR to absorb losses in the event of solvency-related triggers.



Comparing this issuance to SCOR's previous USD 625 million deeply subordinated Tier 1 issuance in 2018, we observe that the initial fixed rate is lower (6% vs. 5.25%), and the reset mechanism is similar (every 5 years). The loss-absorption mechanism in the new notes aligns with Solvency II requirements, enhancing SCOR's regulatory capital and strengthening its capital structure.

SCOR intends to use the net proceeds of this issuance for general corporate purposes, including the repurchase of all or part of the outstanding EUR 250,000,000 Fixed to Reset Rate Undated Subordinated Notes. This move will further optimize SCOR's capital structure and improve its financial flexibility.

In conclusion, SCOR's successful placement of EUR 500 million in Restricted Tier 1 Notes is a strategic move that enhances its capital position and resilience. The notes' loss-absorption mechanism, coupled with the stable cost of capital for the initial 10-year period, strengthens SCOR's ability to withstand potential financial distress. As SCOR continues to navigate the dynamic reinsurance landscape, this issuance demonstrates its commitment to maintaining a robust balance sheet and optimizing its capital structure.