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Insurance: SCOR and Covéa announce an armistice after three years of fierce struggle



SCOR and Covéa sign an armistice. At the end of nearly three years of conflict, the listed reinsurer and the French mutual insurer announced this Thursday at the beginning of the evening that they had approved the main lines of an agreement to “renew relations of trust and mutual support which has been theirs for many years ”.

By virtue of the “key points” of a “transactional memorandum of understanding”, validated in recent days by the respective boards of directors of two groups in the presence of the gendarme of the insurers (the ACPR), the two heavyweights of the sector put an end to their brawls in court and put their relationships back on track.

Financial Thriller

Covéa agrees to withdraw from SCOR, of which it now holds around 8% of the capital, and renounces any acquisition of a stake or control by the reinsurer for a period of 7 years. On the other hand, the two groups are resuming their commercial relations while SCOR cedes reinsurance activities to Covéa for nearly 1 billion euros.

This surprise agreement, negotiated with the help of two figures in the insurance sector Claude Tendil (director of SCOR) and Jean-Claude Seys (honorary chairman of Covéa) comes a few weeks before the start of the criminal trial initiated by SCOR and its leader Denis Kessler against Thierry Derez and Covéa.

This trial for breach of trust and concealment of breach of trust was to be a culmination of the financial thriller that has opposed the two groups since the summer of 2018 and involved renowned investment banks.

Judicial and personal turn

At the time, Covéa had drawn the wrath of SCOR and its boss by trying to get their hands on the reinsurer for more than 8 billion euros and by revealing this attempted takeover. The case took a legal and personal turn when Denis Kessler decided to launch a lawsuit accusing Thierry Derez of having used his position as a director of SCOR to achieve his ends. Covéa’s banks have also found themselves in the crosshairs.

The conflict, considered by many to be harmful for the two groups and the image of the Paris financial center, was the subject of a first failed mediation by the ACPR in 2019. It got even worse when Covéa tried to get its hands on the reinsurer PartnerRe. This operation failed last year against the backdrop of the Covid crisis but its success would have been heartbreaking for Denis Kessler who had studied the possibility of a merger with PartneRe, precisely in the summer of 2018 when everything changed.

The track of a takeover of SCOR by Covéa ruled out

In detail, many key points of the protocol can be seen as victories for Denis Kessler who wanted to protect his group from any ambition to buy out Covéa after 2018. The mutual insurer with abundant liquidity did not has not made an international breakthrough to date and wishes to diversify into reinsurance. Potential targets are not legion in this sector.

However, the memorandum of understanding unveiled on Thursday rules out the possibility of a takeover of SCOR for several years. The reinsurer in fact obtains that Covéa withdraws its capital by giving it a purchase option on its securities, at a price of 28 euros per share for 5 years. Knowing that the price of SCOR is today at 26 euros. This option is “transferable to any third party designated by SCOR”, specifies the protocol.

Covéa also undertakes not to “buy, directly or indirectly, alone or in concert, for a period of 7 years, of SCOR shares”. At the same time, he renounces any “offer, formal or informal, official or unofficial, public or private, direct or indirect” but also any “public communication regarding a mark of interest, an acquisition of a stake or an acquisition of a stake. control ”.

No acknowledgment of responsibility

“Peace is costly for Covéa”, recognizes an expert in the file close to the mutualist. Covéa and SCOR specify that their protocol “does not imply any recognition of liability on either side” and both undertake to immediately withdraw all legal actions and claims related to the case and to waive any new ones in the future . Covéa nevertheless agrees to pay 20 million euros to SCOR.

This sum is in line with the conviction pronounced last year by the Paris Commercial Court against Covéa and Thierry Derez. The Court ruled that the mutualist had violated its obligations as a director by transmitting confidential SCOR information to Covéa and its banks. The interested parties appealed.

However, the agreement also has advantages for Covéa and its manager, knowing that as for SCOR and Denis Kessler, this case weighed on their reputation and was likely to hamper their relations with investors or other partners. As a sign that this aspect is important, the protocol provides for an “obligation of reciprocal non-denigration for a period of 7 years”.

Diversification for Covéa

Commercially, the two parties take note of the resumption of their relations. The memorandum of understanding also provides that SCOR will sell 30% of the Life portfolio held by its entities in Ireland for nearly € 1 billion.

This check would be cashed by SCOR when it was hit hard by the third wave of the pandemic in the United States for its life reinsurer activity. An episode which has revealed in the eyes of some the drawbacks of the significant exposure of SCOR to the risk of mortality on the other side of the Atlantic. This “retrocession” agreement should “allow SCOR to redeploy its capital to (re) damage and liability insurance”, indicates the communication released on Thursday.

For Covéa, it would be a question of “accelerating its development strategy towards life reinsurance”. This can be seen as a way to provide diversification for a limited amount of capital requirement. The insurer has already signed a reinsurance cooperation agreement with PartnerRe after the failure of its purchase plan.

A sensitive general assembly

This truce may seem all the more surprising as in March again, Covéa decided to attack Denis Kessler in criminal proceedings, by filing a complaint with the National Financial Prosecutor’s Office for abuse of corporate assets and price manipulation. An action which had, however, been very weakened by an analysis of the stock market policeman, made public.

However, this agreement comes a few weeks before Denis Kessler, currently CEO, and at the helm of the group for nearly 20 years, cedes his position as CEO, to Laurent Rousseau, one of his lieutenants, while retaining his seat as chairman.

This change in governance expected by investors must be noted at the general meeting on June 30. This promises to be all the more delicate for SCOR, as the group has attracted further criticism of its governance by giving up without warning to entrust its management to Benoît Ribadeau-Dumas, as announced at the end of the year. last.

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